It’s almost impossible to be anything but skeptical about the long-term viability of Social Security benefits in this country, and with good reason. Even though indicators early in this administration point to better times ahead in terms of higher wages and lower unemployment, there is continued volatility in the stock market and no clear path for nervous investors.
Other types of investments, gold for instance, are equally uncertain. Unless you’re a financial professional, you’re likely to have questions about annuities, bonds, tax-free accounts and foreign investments.
Even savvy investment counselors disagree about the specifics of how best to assure future financial stability.
What’s with the Stock Market?
It’s twitchy right now, seemingly influenced by every headline. Record highs are counterbalanced by large drops and subsequent big gains. This is probably not the time to increase investments in the market unless you have nerves of steel and cash to lose, even though your gains might be substantial. Experts advise a stock market investment that represents a reasonable percentage of total portfolio.
Over the long term, that has proved to be a balanced approach. Know that your personal investment performance is not likely to match the records of the DOW or the S&P. The greatest risk, according to Daniel Crosby, a behavioral finance expert, is “not the volatility of the market but the volatility of your own behavior.
Flash of Gold and Silver
News from Washington is anything but good lately, and new revelations, investigations, charges, and congressional gridlock seem destined to continue for the next few months at least.
An analysis of gold prices contrasted with stock market performance during Nixon and Clinton terms is interesting, although neither mirrors exactly current partisan concerns. Those previous scandals developed over a longer period of time, and were certainly resolved differently. But in Washington today, it’s hard to predict tomorrow’s headlines.
Suffice it to say that gold might be a better than average bet for investment. But it all depends on the makeup of your portfolio.
Cash in the Bedpost and in Banks
While it may be laughable today to think of hoarding cash in a sock or building a savings account up to its insurable limit, it also is not necessarily a bad idea to stockpile a reasonable “stash” of cash. Better ideas, though, are short-term bonds of various types, including tax-free municipals.
As with any investment, risk must be balanced against return, and you must do some homework before making an investment decision.
Social Security Conundrum
Even the Social Security Administration (SSA) acknowledges that its funds are in trouble. The bare truth is that its funds were never designed to be the sole source of support for the nation’s retired population.
Today, payouts through SSA far exceed the dollar amounts paid in. The latest analysis points to 2020 as the year of reckoning when benefits paid will exceed fund income. The fund will be depleted by 2034.
There are only two solutions: Enact much higher taxes for those currently working and paying into the fund; or slash benefits substantially, including raising the age threshold for collection of benefits. Both, of course, are under consideration in Washington.
In any case, Social Security alone is not a secure way to approach retirement.
Moving Forward
While there may be no simple answers, there is little reason for despair. The economy may be in flux, but good times and bad times are as cyclical as the seasons. Time-tested advice includes the dictum that it’s always wise to reduce debt and save more. That’s just as true now as it ever has been.
If you currently have individual retirement accounts or funds in an employer-sponsored pension account, you have taken the initial step toward retirement stability. Nearly 30 percent of workers eligible to enroll in a 401(K) or shared contribution account, however, have not done so, based on data collected in 2014.
If you are still working, now is the time to act so that you’re well-situated to weather any coming storms and look confidently ahead to retirement. Remember that you hold the keys to financial stability. Even though many people today plan to work to a ripe old age, either out of necessity or by choice, the average American can expect to be retired for 20 years or more.
Regards,
Ethan Warrick
Editor
Wealth Authority
