It?s become almost fashionable these days to talk about the impending bankruptcy of Social Security, as if its demise is all but a done deal. But is that even the case? Will Social Security be there when YOU retire? And how should we plan for what ever we might expect to get from the system when our turn at retirement comes along?
Let me state at the outset that I?m not a blind optimist cheering on the ?company line? about Social Security as if dark clouds weren?t looming on the horizon. The fiscal ship that is 21st Century America is not an enviable one and the bill will certainly come due either gradually (let?s hope) or suddenly, but either way Social Security is likely to be there in the future?in some form or fashion.
Why the ?bankruptcy? of Social Security is unlikely
People speak almost casually of the bankruptcy of Social Security, as though the program exists in a vacuum where it can quietly implode without any collateral damage to the rest of the government or country. But what would happen if it did?
To believe that Social Security will disappear is to predict the collapse of the entire federal government. A Social Security bankruptcy would almost certainly be part of a much larger general bankruptcy by the US government. The same government that issues monthly checks to senior citizens also funds national defense, interest on the federal debt, various forms of welfare, transfers to the states, foreign relations and the administration of justice, among others. If it can?t afford to pay out Social Security, it won?t be able to cover all the other programs either, at which point it no longer exists as a practical matter.
Social disorder. Social Security is the largest of the entitlement programs and in a very real way it?s the bedrock of all of them. Much of government legitimacy rests on monthly checks to retirees and if that were stopped for any reason the trust the citizens place in the state would evaporate. The implications for general social order could hardly be measured, but we can fully expect that it won?t be pretty.
The affects on the already battered housing sector would be substantial. Part of the explosion in the number of households after the second world war can be directly traced to Social Security. With a monthly government check, a company pension and/or a stream of investment income, millions of seniors have been able to live independently of their children or third party care facilities. The disappearance of Social Security would almost certainly cause a massive collapse of the housing market (and its price structure) as millions of households would disappear.
Widespread impoverishment of the elderly. For millions of seniors, Social Security is either the largest part of their income or their only income. If it were taken away many would be unable to feed themselves or seek even basic medical care. Those who don?t have family or friends to move in with could quite literally be out on the street; that?s tough enough for the young, let alone for the elderly.
Political unfeasibility. Because of all of the above, the political party holding power presiding over the demise of Social Security will be voted out of office at the next election, never to make a significant appearance on the national political scene again. Politicians know this, and will do everything possible to prevent it from happening.
I?m not predicting any of this will play out, but I am hoping to show that if you believe Social Security will (or even can) go bankrupt, what you?re really calling for is doomsday.
The ramifications of the collapse of Social Security would be so far reaching, so catastrophic, that it would be impossible to believe that the program would go under and leave the rest of the country intact. The same conditions that would eliminate Social Security would be so severe that the possibility of having anything like a functional society?let alone a comfortable retirement?would almost certainly be out of the question.
To expect the bankruptcy of Social Security is to believe the United States as we now know it would no longer exist.
Planning for what ever the future of Social Security will be
If after all of that, you still believe that Social Security will go away, you?re best plan of action won?t be to save and invest money, but rather to map out some strategy for radical self reliance. Instead of concerning yourself over the most promising growth stocks or with paying off your mortgage, your time would be far better spent finding some raw land to grow your own food, as well as a power source and water supply to go with it. Beyond that, plan on working until you drop.
That?s the kind of world that will almost certainly exist if Social Security were to disappear. Not entirely because the program would no longer exist, but more because of the factors that will have caused it. I?m not certain we can even prepare for that outcome.
Now the doomsday scenario aside, what?s a more likely outcome and how should we be preparing for it?
More likely, Social Security will be there no matter what your current age. What the Social-Security-is-going-bankrupt prophets miss is that the cost of not having it are far greater than the cost of keeping it.
Yet you don?t have to be a prophet to understand that the program is due for a major day of reckoning. It?s probable that benefits will be reduced, made 100% taxable, or we?ll be paid in currency that?s worth far less than it is today. We should expect that there will be some benefit from Social Security, but also that it will be considerably less than it is now, especially in real terms.
It?s hard to prepare for a scenario that?s short on specifics, but flexibility and adaptability will be critical. Overall, plan for a lower cash flow at retirement than current retirees are now receiving.
Some steps to take now in preparation for less help from the government:
- Plan on a part time career or business for as long as you?re healthy enough to work
- Practice living beneath your means well before retirement
- Get out of debt and learn to live without it
- Save and invest more money than you ever imagined you could
- Invest your money conservatively; Social Security is a ?social safety net??if it?s cut back you?ll have less margin for error with your investments
- Invest globally; the economic fortunes of the world are changing quickly and not all of the best investment opportunities are here in the US
- Scale back expectations for retirement; plan on being happy even if you won?t own a vacation home in the tropics!
If you’re interested in developing additional income streams, either for retirement or to help prepare for it and fund it, check out my posts on freelance blog writing or running an online store. They’re the kind of work and business you can easily run well past retirement age.
I?ve kept this discussion restricted only to Social Security, but its sister program, Medicare, may be even more worrisome.
What do you think–will Social Security be there when you retire?