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The Federal Reserve Is Systematically Destroying Social Security And The Retirement Plans Of Millions Of Americans

Last week the mainstream media hailed QE3 as the “quick fix” that the U.S. economy desperately needs, but the truth is that the policies that the Federal Reserve is pursuing are going to be absolutely devastating for our senior citizens.  By keeping interest rates at exceptionally low levels, the Federal Reserve is absolutely crushing savers and is systematically destroying Social Security.  Meanwhile, the inflation that QE3 will cause is going to be absolutely crippling for the millions upon millions of retired Americans that are on a fixed income.  Sadly, most elderly Americans have no idea what the Federal Reserve is doing to their financial futures.  Most Americans that are approaching retirement age have not adequately saved for retirement, and the Social Security system that they are depending on is going to completely and totally collapse in the coming years.  Right now, approximately 56 million Americans are collecting Social Security benefits.  By 2035, that number is projected to grow to a whopping 91 million.  By law, the Social Security trust fund must be invested in U.S. government securities.  But thanks to the low interest rate policies of the Federal Reserve, the average interest rate on those securities just keeps dropping and dropping.  The trustees of the Social Security system had projected that the Social Security trust fund would be completely gone by 2033, but because of the Fed policy of keeping interest rates exceptionally low for the foreseeable future it is now being projected by some analysts that Social Security will be bankrupt by 2023.  Overall, the Social Security system is facing a 134 trillion dollar shortfall over the next 75 years.  Yes, you read that correctly.  The collapse of Social Security is inevitable, and the foolish policies of the Federal Reserve are going to make that collapse happen much more rapidly.

The only way that the Social Security system is going to be able to stay solvent is for the Social Security trust fund to earn a healthy level of interest.

By law, all money deposited in the Social Security trust fund must be invested in U.S. government securities.  The following is from the official website of the Social Security Administration….

By law, income to the trust funds must be invested, on a daily basis, in securities guaranteed as to both principal and interest by the Federal government. All securities held by the trust funds are “special issues” of the United States Treasury. Such securities are available only to the trust funds.

In the past, the trust funds have held marketable Treasury securities, which are available to the general public. Unlike marketable securities, special issues can be redeemed at any time at face value. Marketable securities are subject to the forces of the open market and may suffer a loss, or enjoy a gain, if sold before maturity. Investment in special issues gives the trust funds the same flexibility as holding cash.

So in order for the Social Security Ponzi scheme to work, those investments in government securities need to produce healthy returns.

Unfortunately, the ultra-low interest rate policy of the Federal Reserve is making this impossible.

The average rate of interest earned by the Social Security trust fund has declined from 6.1 percent in January 2003 to 3.9 percent today, and it is going to continue to go even lower as long as the Fed continues to keep interest rates super low.

A recent article by Bruce Krasting detailed how this works.  Just check out the following example….

$135 billion of old bonds matured this year. This money was rolled over into new bonds with a yield of only 1.375%. The average yield on the maturing securities was 5.64%. The drop in yield on the new securities lowers SSA’s income by $5.7B annually. Over the fifteen year term of the investments, that comes to a lumpy $86 billion.

So what happens when the Social Security trust fund runs dry?

As Bruce Krasting also noted, all Social Security payments would immediately be cut by 25 percent…..

Anyone who is 55 or older should be worried about this. Based on current law, all SS benefit payments must be cut by (approximately) 25% when the TF is exhausted. This will affect 72 million people. The economic consequences will be severe.

In other words, it would be a complete and total nightmare.

Sadly, the truth is that the Social Security trust fund might not even make it into the next decade.  Most Social Security trust fund projections assume that there will be no recessions and that there will be a very healthy rate of growth for the U.S. economy over the next decade.

So what happens if we have another major recession or worse?

And most Americans know that something is up with Social Security.  According to a Gallup survey, 67 percent of all Americans believe that there will be a Social Security crisis within 10 years.

Part of the problem is that there are way too many people retiring and not nearly enough workers to support them.

Back in 1950, each retiree’s Social Security benefit was paid for by 16 U.S. workers.  But now things are much different.  According to new data from the U.S. Bureau of Labor Statistics, there are now only 1.75 full-time private sector workers for each person that is receiving Social Security benefits in the United States.

And remember, the number of Americans drawing on Social Security will increase by another 35 million by the year 2035.

Another factor that is rapidly becoming a major problem is the growth of the Social Security disability program.

Since 2008, 3.6 million more Americans have been added to the rolls of the Social Security disability insurance program.

Today, more than 8.7 million Americans are collecting Social Security disability payments.

So how does this compare to the past?

Back in August 1967, there were approximately 65 workers for each American that was collecting Social Security disability payments.

Today, there are only 16.2 workers for each American that is collecting Social Security disability payments.

The Social Security Ponzi scheme is rapidly approaching a crisis point.

Sadly, the Federal Reserve has made it incredibly difficult to save for your own retirement.

Millions upon millions of Baby Boomers that diligently saved money for retirement are finding that their savings accounts are paying out next to nothing thanks to the ultra-low interest rate policies of the Federal Reserve.

The following is one example of how the low interest rate policies of the Fed have completely devastated the retirement plans of many elderly Americans….

You can understand the impact of the invisible tax on the elderly by watching the decline of interest income from $50,000 invested in a five-year Treasury obligation. As recently as 2000, this would have yielded about 6.15 percent and an interest income of $3,075 a year. Now the same obligation is yielding 0.7 percent and an interest income of $350 a year. This is the lowest yield on this maturity of Treasury debt since the Federal Reserve started keeping an index of the yields in 1953.

But it’s more than a low interest rate. It’s an income decline of nearly 89 percent in just 12 years.

And after you account for inflation, those that put money into savings accounts today are actually losing money.

Of course most Americans have not saved up much money for retirement anyway.  According to the Employee Benefit Research Institute, 46 percent of all American workers have less than $10,000 saved for retirement, and 29 percent of all American workers have less than $1,000 saved for retirement.

Overall, a study conducted by Boston College’s Center for Retirement Research discovered that American workers are $6.6 trillion short of what they need to retire comfortably.

So needless to say, we have a major problem.

Baby Boomers are just starting to retire and the Social Security system is still solvent at the moment, and yet the number of elderly Americans that are experiencing financial problems is already soaring.

For example, between 1991 and 2007 the number of Americans between the ages of 65 and 74 that filed for bankruptcy rose by a staggering 178 percent.

Also, at this point one out of every six elderly Americans is already living below the federal poverty line.

So how bad are things going to be when Social Security collapses?

That is frightening to think about.

In the short-term, millions upon millions of retired Americans that are living on fixed incomes are going to be absolutely crushed by the inflation that QE3 is going to cause.

Just like we saw with QE1 and QE2, a lot of the money from QE3 is going to end up in agricultural commodities and oil.  That means that retirees (and all the rest of us) are going to end up paying more for food at the supermarket and gasoline at the pump.

But those on fixed incomes are not going to see a corresponding increase in their incomes.  That means that their standards of living will go down.

Things are tough for retirees right now, but they are going to get a lot tougher.

Right now, there are somewhere around 40 million senior citizens.  By 2050 that number is projected to increase to 89 million.

So how will our society cope with more than twice as many senior citizens?

Sadly, we will likely never get to find out.

The truth is that our system is almost certainly going to totally collapse long before then.

We are rapidly approaching a financial crisis unlike anything we have ever seen before in U.S. history, and the foolish policies of the Federal Reserve just keep making things even worse.

Broken Promises: Pensions All Over America Are Being Savagely Cut Or Are Vanishing Completely

How would you feel if you worked for a state or local government for 20 or 30 years only to have your pension slashed dramatically or taken away entirely?  Well, this exact scenario is playing out from coast to coast and in the years ahead millions of elderly Americans are going to be affected by broken promises and vanishing pensions.  In the old days, things were much different.  You would get hired by a big company or a government institution and you knew that the retirement benefits that they were promising you would be there when you retired in a few decades.  Unfortunately, we have now arrived at a time when government institutions and big companies have promised far more than they are able to deliver, and “pension reform” has become one of the hot button issues all over the nation.  Many Americans that have been basing their financial futures on their pensions are waking up one day and finding that their pensions are either gone or have been cut back dramatically.  According to Northwestern University Professor John Rauh, the latest estimate of the total amount of unfunded pension and healthcare obligations for state and local governments across the United States is 4.4 trillion dollars.  America is continually becoming a poorer nation and all of that money is simply not going to magically materialize somehow.  So where is that 4.4 trillion dollars going to come from?  Well, either pension benefits are going to have to be cut a lot more all over America or taxes will need to be raised dramatically.  Either way, we are all going to feel the pain of these broken promises.

There simply is not enough money out there to keep all of the pension commitments that have been made.  Something has got to give.  In the end, millions of elderly Americans will likely be plunged into poverty as pensions disappear.

Some local governments around the nation are already declaring bankruptcy and are either eliminating pensions or are cutting them very deeply.  Just check out what just happened in Central Falls, Rhode Island….

For years, city officials promised robust union contracts and pensions without raising revenue to pay for them. Last August, the math caught up with them. Central Falls was broke, its pension fund short $46 million. It declared bankruptcy.

“My daughters grew up here, went to school here. It’s all gone,” said Mike Geoffroy, a retired firefighter.

He said he could not make the payments on his house after his pension was cut by $1,100 a month.

When will the math catch up with the city where you are living?

For years and years most of our state and local politicians have been ignoring this problem.  But eventually a day comes when you simply cannot ignore it any longer.

Check out what Pensacola Mayor Ashton Hayward said about the situation in his city recently….

“When our annual pension liability is more than our yearly property tax revenues, we have to do something”

Keep in mind that taxpayers don’t get any new services for money spent on pensions.  It is money that goes straight into the pockets of retired workers.  State and local governments are desperately trying to pay retired workers what they are owed and fund ongoing government functions at the same time, but many have reached the breaking point.

All over the country, state and local governments are going broke.  The following is from a recent article by Duff McDonald….

Alabama’s Jefferson County has actually gone bankrupt. Stockton, California is all but ready to do the same. And all you have to do is look to Detroit—or any of the nearby auto towns named after a Buick model of one sort or another—and you see fiscal crisis playing out right now. Look in your own backyard—or at the potholes on your neighborhood roads—and you will likely find the same.

Things are so bad in Stockton, California that they are actually skipping debt payments….

The city of 290,000 that rode the wave of the housing boom in the late 1990s and early 2000s now finds itself littered with foreclosed homes, saddled with pension, health care and other obligations it can’t afford, and unable to pay its bills.

The City Council voted last month to suspend $2 million in bond payments and begin negotiations with bond holders, creditors and unions.

And did you notice what is being blamed for the financial problems in Stockton?

Pension and healthcare benefits.

Sadly, we are seeing pension nightmares erupt all over the nation right now.

For example, check out what is happening to the Public School Employees’ Retirement System and State Employees’ Retirement System in Pennsylvania….

PSERS had an accrued unfunded liability of nearly $26.5 billion, the amount of money the fund is short to cover existing retirement benefits. That hole is expected to grow to $43 billion by 2019. SERS is $12.5 billion in the red, and that shortfall is expected to climb to nearly $18 billion by 2018. Unless the stock market makes giant sustained gains, taxpayers will have to refill those funds.

That doesn’t sound good at all.

In California, the Orange County Employees Retirement System is estimated to have a 10 billion dollar unfunded pension liability.

How in the world can a single county be facing a 10 billion dollar hole?

This is madness.

The state of Illinois is facing an unfunded pension liability of more than 77 billion dollars.  Considering the fact that the state of Illinois is flat broke and on the verge of default, it is inevitable that a lot of those pension obligations will never be paid.

In fact, there are going to be a whole lot of broken promises all over the country.

Pension consultant Girard Miller told California’s Little Hoover Commission that state and local government bodies in the state of California have $325 billion in combined unfunded pension liabilities.

That comes to about $22,000 for every single working adult in the state of California.

So where is all of that money going to come from?

But at least most state and local government employees are still covered by pension plans, even if they are failing.

In the private sector, pension plans are vanishing at lightning speed.

According to the Boston College Center for Retirement Research, the percentage of workers in America covered by a traditional pension plan fell from 62 percent in 1983 to 17 percent in 2007.

That isn’t just a trend.

That is a tidal wave.

And many of the private pension plans that still exist are massively underfunded.  For example, Verizon’s pension plan is underfunded by 3.4 billion dollars.

So what should Americans do in light of all this?

Well, the number one thing to realize is that the pension plan you have been counting on could disappear at any time.

We live in an economic environment that is extremely unstable, and about the only thing you can count on in this environment is rapid and dramatic change.

Do not plan your financial future around a pension plan.  If you do, you are likely to be bitterly disappointed.

Americans that plan to retire in the coming years should do their best to try to fund their own retirements.

Unfortunately, most Americans are not putting away much of anything for retirement.  As I have written about previously, one study found that American workers are $6.6 trillion short of what they need to retire comfortably.

Ouch.

Over the next 20 years approximately 10,000 Baby Boomers will be retiring every single day.

A lot of them are going to be blindsided by empty pension funds and broken promises.

We are facing a retirement crisis of unprecedented magnitude, and there is not much hope in sight.

And if there is a major stock market crash, things are going to be much, much worse.

Most pension funds and retirement plans are heavily invested in the stock market.  If we were to see a major financial crisis like we saw back in 2008 it would be absolutely devastating.  Millions of Americans could see their retirement plans wiped out in short order.

Once again, please do not place your faith in the system.

If you do, you are likely to end up holding a bag of broken promises.

A gigantic tsunami of unfunded pension obligations is coming.  A lot of state and local governments are going to go broke.  A lot of promises are going to be broken.

If you hope to retire any time soon, you better plan on being able to take care of yourself.

Finca Bayano

Panama Relocation Tours




 

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