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I’m not going to mince words, today. Whether you’re far away from retirement like I am, or you’ve already stopped working, you face at least three critical threats …
Retirement Threat #1: The Social Security Situation Is Worsening!
Last year, Social Security’s trustees were calling for a permanent state of underfunding — meaning the program would take in less money than it paid out in 2016. But in fact, the system ended up running a deficit in 2010 while current recipients were also denied a cost of living increase.
Now, two weeks ago, the Congressional Budget Office said permanent underfunding is already here! And 2011 also marked the second year in a row without a cost of living benefit for current recipients.
If anything, I have been too optimistic about lawmakers’ intentions to address the systemic problems with the system. Politicians not only continue to kick the can further down the road, but they are exacerbating the problems further …
One example is the recently-passed tax package — which gives workers a two-percentage-point reprieve in their contributions to the system. It has taken what would have been a $45 billion shortfall this year and tripled it to an estimated $130 billion funding gap!
Retirement Threat #2: We Are Seeing Similar Problems Come
Home to Roost in Other Traditional Retirement Plans …
Last year, at least 16 states altered the terms of their pension plans to retirees, and three became involved in court battles with current retirees.
Meanwhile, it’s estimated that less than half of state retirement systems can pay even 80 percent of what they’re currently promising … which is eerily similar to Social Security’s current number (less than 80 percent of promised benefits by 2037).
Recent studies have suggested that Illinois’ plan could be broke by 2018, and that three more states could see their plans fail a year later (New Jersey, Connecticut, and Indiana).
Cities are seeing similar crunches. For example, New York City’s pension costs have tripled in the last decade!
And let’s not forget that we have already seen the failure or closure of many private pension plans, too. Many retirees and near-retirees have watched their pensions go up in smoke. The government backup — The Pension Benefit Guarantee Corporation — is running massive deficits of its own. And very few new employees will have any hope of retirement support from their current employers — other than some 401(k) match money if they’re lucky.
Retirement Threat #3: Many of the So-Called Safe Investments
Are Not Worth Adding to Your Personal Nest Egg Right Now!
While I don’t believe current or soon-to-be retirees are going to lose all their income from the traditional sources, I also don’t think anyone should rely solely on them, either.
And the farther you are from retirement, the more true that is!
Even at today’s full rates, the average Social Security check is only about $1,100 a month … hardly enough to sustain ever-rising energy bills, healthcare costs, and a whole host of other regular expenses.
Yet when you scan the current interest rates available out there — largely the result of the Federal Reserve’s policies — it’s obvious that getting a reasonable rate of return from your private investments is anything but easy.
You’ll see that a one-year CD is paying just a little more than 1 percent …
A 5-year CD is handing you just 2.2 percent …
And even 10-year Treasuries are only good for about 3.4 percent right now.
So while it’s obvious that you need to build a private income portfolio, the government is not making it easy for you to do so.
This is precisely why I’ve been pounding the table for dividend stocks.
Best wishes,
Nilus
