First Social Security was supposed to run out of money in 2041. Then, a study by the Social Security trustees earlier this year showed that funds will run out by 2037. The same study says that Medicare will not be able to pay its hospital bills in just eight years.
So where do the Social Security trustees get their information to make their current projections? Looking at their 2004 projections shows the worst case scenario is already close to reality here in 2009. From the 2004 OASI Fund Trustees Report (OASI stands for Old Age Survivor Insurance):
Uncertainty of the Projections
Significant uncertainty surrounds the intermediate assumptions. The Trustees have traditionally used low cost (alternative I) and high cost (alternative III) assumptions to indicate this uncertainty. Figure II.D7 shows the projected trust fund ratios for the combined OASI and DI Trust Funds under the intermediate, low cost, and high cost assumptions. The low cost alternative is characterized by assumptions that improve the financial condition of the trust funds, including a higher fertility rate, slower improvement in mortality, a higher real-wage differential, and lower unemployment. The high cost alternative, in contrast, features a lower fertility rate, more rapid declines in mortality, a lower real-wage differential, and higher unemployment.
This “high cost alternative in the 2004 report is represented by the numeral III in the graph below, showing Social Security funds to run out by 2031.
Question to Ponder: If the governments own projections from five years ago have resulted in the worst case scenario coming to fruition in just a few short years, what does this hold for today’s projections on how long the Social Security Fund will last?
Today’s projections show a projection of funds running out shortly after the beginning of 2028 as shown in the graph below. Please note that the Trustees graphics have gone downhill in the last five years. It looks like government is cutting back in some areas.
The Truth of the Matter
One can choose between I. low-cost projections, II. intermediate-cost projections and III. high-cost projections in the graph above. If you believe the Social Security Trustees high-cost projections, the fund for Social Security benefits and Disability benefits combined will run out in the year 2025. The Disability portion is scheduled to run out by the year 2016. That’s just seven short years from today, assuming things remain the same.
Why Use the “High-Cost” Projections?
Take a look at what our past and current administrations are doing to the economy. The current budget deficit is slated to run 1.6 Trillion for 2010 and $9 Trillion for the next decade to include $1 Trillion for an overhaul of the nations health care system.
To make matters worse, the interest on the assets in the fund are projected to be lower through 2012 than in last year’s report because of the lower interest rate environment.
Social Security Won’t Run Out of Funds…..However….
How is adding debt to more debt going to solve any of America’s problems in following through with the promises to seniors who have trusted their government to at a minimum give them their money back they put into the system?
Answer? The Government is very capable of paying all the money back that they have collected from citizens over the years. The problem is that the dollars they collected will have a much, much lower purchasing power than the dollars they are paying out.
This is the effect of the U.S. government creating and carrying so much debt. The government can always, through the Fed, create as much money as it needs to pay seniors their social security check just by the press of a button. But what most in America don’t understand is what effect the current spending will have upon their future income’s purchasing power. If you’re asking for health care overhaul today, how will it be paid for tomorrow?
The System Is Broke, Sure, But Should I Be Worried?
Unfortunately for those who live on Social Security, the answer is yes, you should be worried. The prices of items just ten short years ago are much lower than they are today. Ten years from now, prices will be much, much higher than they are today. If you rely on just social security CPI adjustments, they will come, but won’t keep pace with real inflation. Some of you will be forced to make alternative decisions on where to live. Younger families will be forced to take in their older relatives.
For those that have time on their side, they can do something about it by buying gold to insure they are prepared for the dollar devaluation that is sure to come. Gold since 2000 has kept up with inflation and will continue to do so.
Your financial advisor won’t tell you about gold because most of them are ignorant of how gold fits into a diversified portfolio. Financial guru Dennis Gartman was on CNBC just today talking about how he would recommend 2% to 3% invested in gold, but laughingly said at the most 5% because, “you can’t eat gold.”
Well Dennis, you can’t eat paper dollars either, can you? Ask yourself this question: “Will 5% of your portfolio in gold protect the 95% that is subject to the fall of the U.S. dollar?” Answer: No. This is what Gartman and other financial advisors don’t understand.
I met Gartman once. He said he is wrong over 80% of the time. You can count his current comments about gold in that 80%. Sure, gold could fall in price from here with a temporary dollar move higher. But in the end, all of this government spending will come back to bite seniors pocket books every time they head to the grocery store. Our Government reaps what it sows.
Doug Eberhardt is a 28 year financial services veteran and precious metals broker selling gold and silver at 1% over wholesale cost. Doug has written a book to help investors understand how gold and silver fit into a diversified portfolio, how to buy gold and silver, and what metals to buy. The book; “Buy Gold and Silver Safely” is available by clicking here Contact phone number for Buy Gold and Silver Safely is 888-604-6534
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