Sunday, June 22, 2025

Social Security Armageddon

A friend recently sent me a link to an article about the precarity of the US Social Security system. The headlines read:

Social Security’s Finances Erode Further, Risking Benefit Cuts

The nation’s key program for retiree benefits continues to see financing shortfalls. Unless Congress acts, those drops could lead to payment cuts in eight years.
[NYT 6/18/25]

Photo courtesy Pixabay

Of course it scared her. She noted: Not good news for us old folks.” I had to respond: The solution is either to find remedies or go broke. 

I am not as worried as my friend. I don’t think any politician will be willing to reduce payments to current seniors receiving benefits or to those soon to receive benefits. That would be suicide. (Voter participation by age; Voters by age group Table 1) 

On the other hand, I do hope that eventually (actually sooner rather than later) our legislators will have enough sense to do one or more of the following (and it will need more than one)

  1. Raise the retirement age for most categories of older workers except a few that work in jobs that are physically demanding; and do it for generations down the line, not the ones coming up to retirement age in five years. This is in order not to penalize those who are counting on benefits soon, and to insure that the younger ones will have time to prepare themselves or find a source of help. 
  2. Reduce the payments for more wealthy seniors.
  3. Increase the threshold for taxation of higher salaries.
  4. Find ways to get people to put more in their 401(k)s.
  5. Enlarge the 401(k) and other retirement programs, or create new types of portable or individual retirement savings accounts for people who don’t have them through their employer.
  6. Teach people at a young age to save more money instead of spending everything they earn. They should be able and encouraged to establish an independent retirement fund for themselves. Most people, especially those who are on the lower salary levels (i.e. those who need it most), believe they are going to be covered by Social Security in their later years and just don’t know how (or want) to save money. And yet it is possible even on a tight budget. Small regular savings-accounts contributions will increase in value dramatically over time with compounded interest. And for those who truly cant seem to save a penny because of family obligations or other difficulties, the focus should be on improving professional skills and hence one's financial situation (fun and yet still very instructive videos about budgeting and getting oneself out of debt and into financial security).
  7. For the truly indigent and needy individuals, pass legislation encouraging local nonprofits to expand their aid programs and to function in a more targeted and community-oriented way.
  8. Educate youngsters – and adults – about the dangers of the overuse or abuse of credit, and about the terrible losses that can occur due to the punitive (and rightly so) expense of not paying revolving credit accounts within the first month or so. (This is compound interest in reverse times ten.)
  9. Other options that do not involve increasing government intrusion into the marketplace or inventing unconstitutional legislation, but that would cure some injustices in the status quo. (More on those another day.)

That may sound hard and/or unrealistic, but that’s what I believe must be done. Do I think it will be done? I’m not betting on it.

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Sunday, March 27, 2022

What Should Young People Do With Their Money Today?

We are living in unusual times. The US has never had so much debt, and its central bank has never created so much money out of nothing. Most central banks around the world are following suit. 

As of March 27, 2022 at 4:45 PM Eastern Time
Watch it evolve here:
National Debt Clock

History suggests that at some point the crap will have to hit the fan. What will that moment look like, and how will it affect the younger generation? 

Most youngsters have no idea what’s coming or how to protect themselves. Those that have some savings probably won’t have much choice other than to put them in a bank account. Most will have little money to save, so they will be forced to go with the flow, "play it by ear" as I like to say.  

But still, there are traditional rules to follow. The first rule seems to be to put some money aside as soon as one is able. The purpose is to build a cushion for the proverbial “rainy day.” Young people should do this now before trouble begins. And this advice applies most urgently to young families. Common knowledge says to put away, little by little, about six to twelve months of living expenses. 

Young people should keep credit to a bare minimum, pay off the principal every month, and watch impulse buying. Be smart and humble. Make do with a good second-hand car and merely adequate housing until they have the necessary savings put aside.

And budget, budget, budget. My own rule as a young adult was actually very simple: “Spend nothing above the essential, with only very rare exceptions.” That worked very well.

Buying of gold coins can be entertained at some point once the above is achieved. (But be careful where they are stored.) 

Then one could venture out towards other investments. Examples: Depending on one’s capacity to manage rental property (land or habitat), and also on the state of the real estate market (i.e. not now), that might be an option. Depending on one's plans for moving or not, one could buy a home.

Then, if finances permit, there's the option of branching out from there to rental property of some sort. That’s assuming, of course, that one will not be changing jobs and moving to another state right away, and that one has the time and inclination to devote to this side business (for that's what it is).

Eventually stocks and bonds can be considered, in an effort to build up a retirement account that will grow and provide an adequate income later in life. One can find reasonable advice about that almost anywhere. Caveat: If the investor decides to go with an investment advisor, just be careful about the fees. Compare, compare, compare.

And here again, watch the timing in a “macro” sense. The best time to buy is when the market is in a recession and the investor's own employment situation is secure – a rare combination. Some say don’t try to time anything at all. Just start accumulating little by little over time. That’s possibly the safest way to go about it.

If the whole show comes to a halt because of the monetary nonsense that has been going on since the last century, then it will be survival mode for most of us. The young will do whatever they can just to get through it, but they will have little to lose. Those who have some savings will need to keep a level head, not panic, and stick to the basic rules we have trusted to date.

One really can’t say much more. The current situation is unusual in many ways, and yet in other ways it's classic. As has happened so many times throughout history, currencies all over the world are all being debased, which is easy to do because they are all reliant on a “fiat” monetary system. In other words, no currency in the world has a solid foundation, such as a gold standard or equivalent, as was common in the past. They have all been manipulated, inflated, and deformed to the point of potential rupture. 

In our modern world, cryptocurrencies have been introduced, which is of course new. We don't know yet how they will turn out. Meanwhile, some old standbys are still available. One such is gold, which retains its “barometer” function over the long term, from what one can see so far. 

The Swiss franc is also still a beacon in a sea of monetary folly. In the 1970s it was 4 Sw.fr. to US$1. Now it’s 1 Sw.fr. to US$1.07. Unfortunately, Switzerland no longer accepts US citizens' money in their banks, due to burdensome reporting regulations between the two countries. Other forms of investing there might exist, however.

It would seem to me that a disruption is inevitable. But if, when, and how? Only a fortune teller would pretend to know. 

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