Why You Need Self-Directed IRAs – Social Security Won’t Cut It

The reality is that your Self-Directed IRAs and conventional retirement assets, along with other forms of private saving, are going to be even more important for your retirement security going forward.

Motley Fool’s Chuck Saletta came out this week with an article more people should be taking to heart: Even the limited Social Security benefits that yesterday’s and today’s retirees enjoy are in serious jeopardy.

Here are some of the top takeaways from Saletta’s piece:

  • Social Security is not designed to be your only retirement income. Yes, most people we work with grasp that intellectually. But too often we notice that people don’t actually behave as if they grasp that fact. For the average retiree, the amount of their average earnings that Social Security benefits replace is about 40 percent. That’s the current ‘replacement ratio’ covered by Social Security. For higher income earners, the ratio is even lower, because Social Security is generally redistributive.

On average, the typical beneficiary receives about $1,328 per month, and the maximum amount anybody can get is $2,663 per month. The only way to qualify for that would be to earn out the maximum Social Security income (currently $118,500) per year. If that’s you, that takes your replacement ratio down to about 22 percent, rather than 40 percent.

So from the perspective of maintaining a given lifestyle in retirement, your private retirement savings in Self-Directed IRAs, conventional IRAs, Roth and traditional accounts, 401(k)s and other stores of future income become more important as you move up the earnings ladder, not less!

  • Social Security is actuarially insolvent. Yes, there are many politicians out there, resistant to reform ideas, who insist that there’s no problem – that Social Security is solvent and can pay benefits for the next 20 years or whatever the flavor of the week is. But the fact is that if a plan can only pay benefits for the next 20 years, or any other finite number of years, it is insolvent by definition. When the expected future liabilities exceeds the current value of a pool of assets, the program is insolvent by any reasonable definition.

At current rates of expenditure and interest rates, the portfolio of IOUs that comprises the Social Security “trust fund” is expected to dry up in 2033. At that time, they will either need to raise taxes dramatically to cover the shortfall, or drastically cut benefits.

  • Congress is already talking about raiding Social Security in the short-term. Saletta doesn’t mention this. But there are two other important federal programs that are in even more trouble than Social Security: Medicare and SSDI. There are proposals in play in Congress to divert assets from Social Security’s OASDI to shore up Medicare and disability benefits. If they do, it will buy some time for these other two programs – but it will hasten the Day of Reckoning for the Social Security Trust Fund.
  • The “trust fund” is a fiction, anyway. The reality is that the “trust fund” doesn’t even exist, in any reasonable sense. It’s an accounting fiction. The Social Security Trust Fund just owns Treasury Bonds. It’s prohibited by law from owning anything else. Every dollar in bonds it owns is money Social Security contributors lent to the federal government and that money has already been spent. Congress just funds Social Security out of current revenues and receipts. So the reality is that every dollar of benefits that Social Security pays just comes out of the general fund. There are no “savings” in the program to speak of. It’s a shell game.
  • Count on about $75 cents on the dollar. That’s about what we think Social Security will be able to pay out for those of you in your 40s or younger. If your incomes are very high, that figure is likely to be even less. People who have earned less than you will vote themselves money out of your Social Security Benefits, when push comes to shove.

That’s why we’re big believers in contributing to IRAs, in contribution to Self-Directed IRAs, and contributing early and contribution often.

American IRA, LLC is America’s leading authority on self-directed retirement investing. Whether your interest is in Self-Directed IRAs, real estate IRAs, gold and precious metal IRAs, solo 401(k)s, or you just want to expand your horizons and find out more information about Self-Directed IRAs, call us at 866-7500-IRA(472). Or visit us online and peruse our extensive library of informative articles at www.americanira.com.


We look forward to working with you!