Guest Post by Simon Black
We’ve spent a lot of time in our regular conversations talking about the looming retirement crisis around the world.
The data is horrific. Pension and Social Security programs in nearly every developed nation are woefully underfunded.
In the United States, senior government officials including the Secretary of the Treasury, the Secretary of Labor, and the Secretary of Health and Human Services, have stated unequivocally that Social Security’s trust funds will run out of money in 2034.
More importantly, there simply aren’t enough workers in the work force to sustain the program over the long-term.
It’s something known as the ‘worker-to-retiree ratio’; essentially, Social Security requires a certain number of workers paying into the system for every retiree receiving benefits.
In 1960, for example, the ratio in the US was 5.1 workers paying into the system for each retiree receiving benefits.
By 2000, the ratio had fallen to just 3.4 workers per retiree. And today Social Security estimates it’s just 2.6 workers per retiree.
Do the math– it just doesn’t add up.
Social Security tax in the US amounts to 12.4% of a worker’s salary. So when the financial burden of a single retiree’s benefits is paid by just 2.6 workers, the resulting tax revenue won’t be sufficient to pay benefits unless:
1) Taxes on those workers are dramatically increased, and/or
2) Benefits for retirees are slashed.
It will probably be a combination of the two.
Bottom line, the people who run this program are telling the entire world that Social Security will soon run out of money; and they’re publishing alarming statistics about the steep decline in the worker-to-retiree ratio.
This isn’t some wild conspiracy theory. These are facts coming from the government itself.
And given that most people probably hope to retire at some point in their lives, this REALLY matters.
It would be utterly foolish, in light of such objective information, to simply assume that the problem will resolve itself and Social Security will be just fine.
Are you really willing to bet your future livelihood that a bunch of short-sighted Congressmen are suddenly going to do what’s necessary for their constituents?
This problem is fixable. But it means taking matters into your own hands: You can’t fix Social Security. But you can ensure that your own retirement is funded.
Step 1– Start putting more money away for retirement.
This is even more important if you’re younger; anyone under the age of 40 ought to exclude Social Security altogether in his/her retirement calculus.
Now- here’s the good news: it’s easier than ever to generate extra income on the side.
I’m not suggesting you rush out and start driving for Uber tomorrow morning (though that is a perfectly legitimate way to earn some extra money).
But it’s worth exploring the literally hundreds of options, ranging from real estate services like AirBnb, HomeAway, and FlipKey, to gigs like Upwork and Elance, to e-commerce marketplaces like Amazon or eBay.
Amazon is actually a great example.
By investing a few weeks in your education, it’s possible to learn how to set up and manage a largely automated e-commerce store on Amazon.
It doesn’t need to earn millions of dollars. In fact, it’s better if the business is NOT super successful; you only really need to earn around $1,000 per month in order to reach your contribution limit to a specific retirement plan that I’ll tell you about in a minute.
And it’s entirely feasible to have a small store earning $500 to $1,000 per month without requiring a whole lot of ongoing time or work on your part.
(If Amazon’s not your thing, there are plenty of other ways to earn that kind of money in the Digital Age / Gig Economy.)
$1,000 per month might seem trivial. But it can really go a LONG way in securing your retirement.
That brings me to step 2 — Set up a better retirement structure.
It’s one thing to set aside more money for retirement. It’s entirely another to do so in a special, tax-advantaged vehicle.
For example, US Tax Code provides for a structure called a SIMPLE IRA, which stands for Savings Incentive Match Plan for Employees Individual Retirement Account.
A SIMPLE IRA allows people with self-employment income (like running an Amazon business or driving for Lyft) to put ALL of their net earnings, up to potentially $15,500 per year, in a tax-deferred retirement account.
Like all retirement plans, SIMPLE IRAs have certain rules and restrictions to qualify. For example, you must have earned at least $5,000 per year for at least two years in order to be eligible.
But if you have a long-term view, that’s a fairly low hurdle.
There are other alternatives like a SEP IRA and solo 401(k), which have different contribution criteria and qualification eligibility.
But the basic idea is to generate self-employment income through a gig or automated business, and dump as much of that income as possible into a robust retirement structure where the investment gains can grow on a tax-deferred basis.
And that brings me to Step 3– Become a better investor.
The math here is very simple. If you save $10,000 per year for your retirement, for 25 years, and achieve an average annual investment return of 10%, you’ll have $983,471 when you retire.
But if you’re able to boost your average annual investment return by just 1%… because you make smarter decisions and avoid major mistakes, you’ll have $1,144,133 when you retire.
It’s a difference of more than $160,000. Not exactly inconsequential.
Yet it’s completely achievable.
If you’re looking for a place to get started, I’d strongly recommend Benjamin Graham’s classic book The Intelligent Investor and Seth Klarman’s Margin of Safety.
Again, the government is telling you Social Security is broke. And anyone depending on a pension for retirement is likewise going to get shafted.
By taking a few simple steps to put yourself in a position of strength, you can immediately start fixing this MASSIVE problem.
I have a plan to get rich selling a product that millions of people need to fix their retirement planning mistakes. I call it a Time Machine.
Making 11% annual return on your investment is simple?
Sure, become a Wall Street banker and steal 11% of the bank’s money every year and you are set for life and never go to jail for your crime. It’s so simple anyone could do it. (sarc). John
Anon- That is EXACTLY right! You are a f’ing genius.
Remember when they decided that “Bots are PEOPLE too”? Well fukkin tax them just like the rest of US people who paid into SS. Problem solved. 🙂
If workers are displaced by robots then why not have the robot taxed. If the robot displaces 5 workers then it should be taxed (payed by the co into SS ) the equivalent of 5 workers.
But then the capitalists wouldn’t buy the robot….
Bernie Madoff’s fund offered 10% annual returns. That was what clued in that accountant who exposed it as a ponzi scheme. It is not really possible to ‘average’ 10% over 25 years. Some people can get lucky and grab a block of Apple or Amazon stock in 1998 and hold on to it and make a fortune but they are like lotto winners, few and far between.
Read the book “No One Would Listen” by Harry Markopolis, the investment analyst who exposed Madoff. He was trying to get action from the government for ten years. Every analyst who looked at Madoff’s fund concluded in one or two minutes it was a Ponzi. The SEC did nothing. And get this. The SEC has no analysts. They do not even subscribe to financial publications! Some drone there named Meghan Cheung said she didn’t see what his interest could be since he wasn’t invested with Madoff. The fact he was investigating the Madoff fund on behalf of potential investors meant zippo to government fools and incompetents. SEC, CFTC etc. are all nothing but potted plants.
There is nothing in the SS Trust Fund except government IOUs…payments are funded from tax revenue, and will not be cut because senior citizens vote. They will, however, be inflated away…
I’ve never been a fan of tax deferred accounts. Pay the income tax, and it’s all yours. I always figured that they would get us to put all of our money into tax deferred, but raise taxes when the time came to take it out. (Somebody has to pay those government pensions ya know.)
I would be incredibly pleased with myself if I could consistently earn 11%. For me, 5-6% is hard enough without shooting craps…
AT&T is paying over 6% dividend. Getting 3-6% isn’t hard with good stocks. Beyond that is the netherworld of the con men.
Traditionally about 60% of your increase of portfolio value comes from dividends. The best route for most of us is to buy Clorox, McDonalds, Verizon, Chevron Texaco, ONEOK, KMI, Phillips 66, Illinois Tool Works, Microsoft, Intel, the rest of the good stuff, put it on dividend reinvest and let it ride up and down regardless. Don’t be like my stupid brother-in-law. If something drops a Dollar he shits himself and sells at a loss and if it goes up two bucks he sells and then brags about how he just “made a grand.” In the mean time, the old buy, hold, reinvest dividends portfolio compounds higher and higher dwarfing Mr. Quick Buck by incredible orders of magnitude.
Time IN the market is my theory of how to make real money long term. A portfolio is like an orchard and when mature there is a crop to be picked annually while the orchard grows larger and produces larger amounts of fruit year after year. So far so good.
Reading some of the comments here it is really amazing how short sided some people really. Even the writer of this BS article is so nearsighted it is amazing we even waste our time reading it.
Will social security run out of money? Possibly but not probably.
Social Security is backed up by the private real estate of the country. Think not? Look at the title of your property. Is is not a title? And who issued the title?
Baby Boomers, the largest working block in the history of the country paid the most into Social Security. Now that they are retiring in large numbers they will draw the most out of it. By 2034 most of boomers will be dead. This will drop the recipients way down. Social Security will become more stable and adjusted to the new normal in people paying in and taking out.
The country is moving more into socialism. Less individuals are into ownership of property while large investment pools are owning more.
The younger generations are seeing what is going on with the structure of property ownership. It is the same with jobs. Government and Large corporations are the job creators. As owners of small business retire there will be less jobs available in that sector of the economy. Our entire economy is moving toward socialism where just like in China, government will own the corporations.
This is clearly the road to socialism/communism.
And who cares? We the boomers won’t see it because we will be dead. The economic world we created will be gone. Our time has passed.
The upcoming generations will be part of the new reality and will be the ones to deal will it. It will be their world then.
Articles like this are pointless drivel. It represents the void pouring into the void.
Paul Ryan wanted to boost retirement age for social security to 70 but take note he is retiring with a full federal government pension at age 48 .
A better idea is to pull the over 2 trillion stolen by congressional action from social security by bankrupting all congressman and senators NUREMBERG STYLE . Then forensically do a major accounting for all the tax favors and crony capitalism decisions picking winners and leavin a huge percentage of Americans holding a bag of debt also a company funded retirement plan should have never been allowed to be considered an unsecured debt to screw the little middle class people while the Circlejerk of Wall Street to K-Street to Capitol Street thrive off shoring everything including what was nailed down .
Good Advice for young people , maybe but they should also invest in lead and brass and the delivery platforms !
Drop public pensions, and force all of that money and the people into SS. Then I can finally stop listening to the crap about them not being on SS, and why they should be able to pull in a huge pension at 55.
Hilarious – since the ‘money’ for SS and every other program coming out of .gov is using ‘money’ created out of thin air am I supposed to believe we’re running out of air now.