This website uses cookies to collect usage information in order to offer a better browsing experience. By browsing this site or by clicking on the "ACCEPT COOKIES" button you accept our Cookie Policy.

What Some People Are Doing (and Not Doing) to Prepare for Retirement Without Social Security

By:

CEO and Chief Investment Officer

Social Security is in worse shape than we thought. The program’s Old-Age and Survivors Insurance (OASI) Trust Fund is now expected to be insolvent by 2033, a year earlier than anticipated.

According to the annual report, its finances have been “significantly affected” by the pandemic and 2020 recession, not to mention “rapid population aging.”

Indeed, the ratio between contributors and beneficiaries has been shrinking for decades. In 1941, there were about 42 workers for every Social Security recipient. Today, that figure is around 2.5 workers per beneficiary.

A tipping point will occur in 2034: Americans age 65 and over will, for the first time ever, outnumber those 18 and under, according to Census Bureau estimates.

It’s believed that around 40% of older Americans only receive income from Social Security, and there have been calls to expand the program. I’ll leave that to lawmakers to decide.

For my part, I’ll say that it might make sense just to assume Social Security won’t be there when you’re ready to retire. Either that, or the income will be even less sufficient than it is now—especially if inflation proves not as “transitory” as Jerome Powell insists it is. I think it’s very telling that next year’s Social Security cost-of-living adjustment is expected to be above 6%. That would be the biggest bump since the early 1980s, when consumer price increases were sky high.

2022 Social security cost of living adjustment set to be biggest in decades

I don’t want to insult anybody’s intelligence or preparedness, but if you’re reading this and haven’t been participating in a defined-contribution (DC) plan such as a 401(k), or if you haven’t been contributing to an individual retirement account (IRA), I urge you to get started today.

If you have been doing those things, you might want to consider increasing your contributions. A 2021 survey found that just over half of older U.S. workers have less than $50,000 saved for retirement.

Retirement Balances Hit Record High, Retail Trading Volumes Up

Now for the good news. Americans who’ve already been saving and investing for retirement saw their account balances hit record average highs in the second quarter of 2021. That’s according to Fidelity Investment’s analysis of more than 30 million IRA, 401(k) and 403(b) retirement accounts.

Looking just at 401(k) plans, Fidelity found that the average balance was just under $130,000, a new record high. That may not sound like a lot, but this includes everyone with a 401(k), including young people who may have just got started. The overall average balance for employees who have been contributing continuously for the past 10 years crossed above $400,000 for the first time ever, while that of people who have been investing for 15 years exceeded half a million dollars.

average 401k plan balances hit a new record high in the second quarter

Individual investors and traders have also gotten more involved in the market, at least since the start of the pandemic. A recent article in the Economist shows that the number of trading accounts at brokerage firms, including Robinhood, has exploded from 59 million at the end of 2019 to 95 million today. Retail trading has likewise expanded. As a share of total trading volume, retail activity spiked to over 40% in the first quarter of this year, twice the volume from a decade ago. To meet the surging demand for stock and ETF trading, Fidelity is planning to hire as many as 9,000 new employees by year end.

trading volumes by type of investor

Granted, trading is not the same thing as investing—and certainly not the same as planning for retirement—but I’m encouraged to see interest in personal finance improve among young people.

Only 12% of Americans Own Gold, 15% Own Silver

I believe gold and silver should also be part of a diversified retirement portfolio, but too few Americans are invested. One survey in 2019 found that only 15% of respondents held silver, and a little over one in 10 held gold.

Hopefully people will change their minds about hard assets, especially as we face the after effects of unprecedented monetary and fiscal stimulus measures. I agree with emerging markets investor Mark Mobius, who earlier last week recommended people buy gold in anticipation of “significant” currency devaluation as a result of runaway money-printing.

It appears more and more Europeans are getting the message. I’ve shared with you already that German investors’ gold purchases were highest in the first half of 2021 than in any period since at least 2009. The World Gold Council (WGC) attributes this activity to negative real rates and asset purchases made by the European Central Bank (ECB). As you can see below, euro-priced gold has closely tracked negative-yielding debt. 

gold has closely tracked total euro area negatively yielding debt

As always, I recommend a 10% weighting in gold, with 5% in physical bullion and 5% in high-quality gold stocks and ETFs. I also recommend no more than 2% in cryptos, particularly Bitcoin and Ether. Remember to rebalance on a quarterly basis.

Originally Posted on September 7, 2021 – What Some People Are Doing (and Not Doing) to Prepare for Retirement Without Social Security

Please note: The Frank Talk articles listed contain historical material. The data provided was current at the time of publication. For current information regarding any of the funds mentioned in these presentations, please visit the appropriate fund performance page.

All opinions expressed and data provided are subject to change without notice. Some of these opinions may not be appropriate to every investor. By clicking the link(s) above, you will be directed to a third-party website(s). U.S. Global Investors does not endorse all information supplied by this/these website(s) and is not responsible for its/their content.

Frank Holmes has been appointed non-executive chairman of the Board of Directors of HIVE Blockchain Technologies. Both Mr. Holmes and U.S. Global Investors own shares of HIVE. Effective 8/31/2018, Frank Holmes serves as the interim executive chairman of HIVE.

Holdings may change daily. Holdings are reported as of the most recent quarter-end. The following securities mentioned in the article were held by one or more accounts managed by U.S. Global Investors as of (06/30/2021): Amazon.com Inc.

Disclosure: Forex

There is a substantial risk of loss in foreign exchange trading. The settlement date of foreign exchange trades can vary due to time zone differences and bank holidays. When trading across foreign exchange markets, this may necessitate borrowing funds to settle foreign exchange trades. The interest rate on borrowed funds must be considered when computing the cost of trades across multiple markets.

Disclosure: Digital Assets

Trading in digital assets, including cryptocurrencies, is especially risky and is only for individuals with a high risk tolerance and the financial ability to sustain losses. Eligibility to trade in digital asset products may vary based on jurisdiction.

Disclosure: Futures Trading

Futures are not suitable for all investors. The amount you may lose may be greater than your initial investment. Before trading futures, please read the CFTC Risk Disclosure. A copy and additional information are available at ibkr.com.

trading top