Social Security Benefits: How To Avoid The Coming Entitlement Meltdown
by Alexander Green, Chairman, Investment U
Investment Director, The Oxford Club
Monday, February 11, 2008: Issue #762
A recent survey by Bankrate.com found that 68% of adults avoid news about the cost of retirement. Why? Some see their parents living fairly well on Social Security and pensions. Others simply lack the discipline to save. In a Fidelity survey, only a quarter of respondents said they would make a lifestyle change now to save for later.
These folks might want to go back and read Aesop’s tale about the ant and the grasshopper. Thanks to healthier lifestyles and modern medicine, Americans are living longer than ever. In fact, according to Allstate, which has a vested interest in this sort of thing, the average 65-year-old woman can expect to live to 87, and the average 65-year-old man to 85.
An increasing number of Americans will spend up to three full decades in retirement. That’s expensive. But there’s always Social Security benefits, right? Yes and no.
Social Security Benefits Aren’t Your Legal Right
Social Security, the nation’s biggest entitlement program, is about to get hit by the “Silver Tsunami.” The first of almost 80 million babies born between 1946 and 1964 are now receiving Social Security benefits. More than 10,000 a day are being added to the rolls.
This would be great if the money for future payments was actually in the “trust fund,” a figment of Congress’ imagination, or if benefits were paid by aliens from another planet.
Unfortunately, that’s not the case. And the long-term outlook is not good.
David Brooks of The New York Times recently wrote that “the U.S. government has $43 trillion in unfunded liabilities, or $350,000 for every taxpayer. Standard & Poor’s projects that in 2012, the U.S. will lose its AAA bond rating.”
Laurence Kotlikoff, an economist at Boston University, calculates that future workers would have to pay tax rates from 55% to 80% over their lifetimes to sustain current Medicaid, Medicare and Social Security benefits.
Let’s be honest. That ain’t gonna happen. And that means entitlements will eventually be cut. Some people have trouble believing that Uncle Sam won’t keep his promises. But there’s the rub.
Social Security Isn’t A Government Promise
Entitlement obligations are not a contractual government promise like a Treasury bond. In a landmark 1960 decision, Flemming v. Nestor, the Supreme Court ruled that there is no legal right to Social Security.
Sobering? So is this: The federal government’s own website says the “current Social Security system is unsustainable in the long run.”
I’m not an alarmist. But facts are facts. There are not going to be enough workers to maintain the current level of benefits indefinitely.
Sure, the nation’s #1 entitlement program will survive in some form. But many New Deal and Great Society programs were designed for another era - and cannot be maintained at current levels indefinitely. Even in the most optimistic scenario, workers should only count on Social Security benefits to cover a small portion of their retirement expenses.
Prepare To Do Some Heavy Lifting
I received a lot of great feedback about my recent Investment U column about Larry Winget’s book, “You’re Broke Because You Want to Be.”
Most applauded my advice to get a handle on spending and take control of your financial destiny. That begins, of course, by saving as much as you can, as soon as you can, for as long as you can. Frankly, this is something an increasing number of Americans are unwilling to do.
If you’re retired or close to it, you can count on politicians - most of whom value incumbency like the rest of us value oxygen - to keep current benefits coming. For those further out, you better plan on your investment portfolio doing some very heavy lifting.
In the meantime, our free Retirement Planning Zone is loaded with ways to put your portfolio into overdrive. Take a look at today’s Investment U Crib Sheet, too, for a few more ideas.
Good investing,
Alex
Today’s Investment U Crib Sheet
- In his 4th edition of “Stocks for the Long Run,” Jeremy Siegel proves that the “Dogs of the Dow” strategy is the only technical system that’s really beaten the market over the long run. For a current list of the Dogs of the Dow, and for six more ideas from Jeremy Siegel, see Investment U Issue #758, Stocks for the Long Run: 7 Market Conclusions from Wharton Professor Jeremy Siegel. (Scroll to the bottom to see the current “Dogs” list.)
- Did you know you can make money risk-free right now? What’s the catch? In an excerpt from our latest research project, The Zero-Downside Profit Report, you’ll find out how to get stock-like returns without risking a penny, right on the American Stock Exchange. They’re called principal protected notes (PPNs). And in this article you will find the first one you’ll want to own.
- Top blue-chip pick: Everyone’s got to eat. And the demand for food is ever increasing. In fact, the world population expands by about 75 people every 30 seconds. Non-cyclical investing isn’t sexy. But the story’s different for one company in particular. Get the details in Investment U Issue #738, Blue Chip Stock: Here’s A Stock that Keeps On Winning, No Matter What.
![]() |
The World's Safest, Smartest Oil Play. Period.
Oil stocks are too volatile. Futures are just too risky. But certainly there has to be some way to capitalize on oil's 105% run-up.
There is.
It's a "secret" oil investment that most Americans know nothing about. Yet it's practically "guaranteed" to hand you a steady stream of income for months to come. You could easily make more than $600 every month.
And this report shows you how.
Related Articles:
- Your Retirement Plan: Have You Calculated Your Number?
- Target Retirement Funds: How to Put Your Investment Portfolio on Autopilot
- Stocks for the Long Run: 7 Market Conclusions from Wharton Professor Jeremy Siegel
10 Responses to “Social Security Benefits: How To Avoid The Coming Entitlement Meltdown”
Comments
**By submitting your comment you agree to adhere to our Comment Policy and Privacy Policy.Check out our selection of daily Investment Research:



















August 12th, 2008 at 2:07 pm
[...] benefits: With 78 million Baby Boomers retiring, Social Security and Medicare unfunded fiscal promises exceed the nation’s annual GDP by a factor of [...]
August 22nd, 2008 at 2:41 pm
[...] Your Investment Portfolio - Why You Don’t Need A Financial Planner: Issue #764 02/11/2008 - Social Security Benefits: How To Avoid The Coming Entitlement Meltdown: Issue #762 02/08/2008 - Sir John Templeton: How To [...]
August 26th, 2008 at 11:49 am
[...] are going the way of the Dodo bird. They’ve been replaced by 401(k)s. And, for young workers, Social Security benefits are a demographic time [...]
September 11th, 2008 at 11:01 am
[...] what the government has committed to pay in Social Security and Medicare benefits in excess of revenues. As of January 1, 2008, current and promised future [...]
October 22nd, 2008 at 1:02 pm
[...] best to consult not only a tax professional, but to also consult Medicare, Social Security and a Medicaid administrator to see what specific rules might affect a particular situation, since [...]
November 3rd, 2008 at 10:37 am
[...] what the government has committed to pay in Social Security and Medicare benefits in excess of revenues. As of January 1, 2008, current and promised future [...]
November 4th, 2008 at 11:06 am
[...] - Social Security Benefits: How To Avoid The Coming Entitlement Meltdown: Issue [...]
January 7th, 2009 at 3:18 pm
[...] Department’s 2007 Financial Report, we currently face $7 trillion in unfunded liabilities for Social Security, $34 trillion in unfunded liabilities for Medicare and $12 trillion in unfunded liabilities for [...]
January 7th, 2009 at 3:48 pm
[...] what the government has committed to pay in Social Security and Medicare benefits in excess of revenues. As of January 1, 2008, current and promised future [...]
May 7th, 2009 at 8:11 am
[...] are going the way of the Dodo bird. They’ve been replaced by 401(k)s. And, for young workers, Social Security benefits are a demographic time [...]