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Social Security Concerns for Current and Future Retirees

It’s been announced! The Social Security Administration (SSA) published a press release last year and again on April 22, 2019, that states, “The combined asset reserves of the Old-Age and Survivors Insurance and Disability Insurance (OASI and DI) Trust Funds are projected to become depleted in 2035 …” (this new press release adds another year of benefits between the trust funds). It’s true.

The fact is, in 2020, SSA costs will surpass income, and this will impact many individuals and families. This news has current and future retirees very concerned and searching for answers. To contribute to this pain, consider that baby boomers reaching retirement ages create an added level of uncertainty. Just think, the fund’s workers paid into most of their lives and are now expecting for a sustainable retirement and nearly depleted. Part of the issue stems from the fact that Social Security is funded merely from tax revenue and interest on the trust funds. The truth is simply this: funds will begin to exceed income within the year.

Those nearing retirement ages are asking some serious questions: Will I be issued a social security check in my later years? Will the amount of my monthly social security payment be what I’ve worked for? Should I take it out on the earliest date, or wait until I’m 70? Do I need an alternative financial portfolio I can rely on?

The government has already indicated it may not be able to pay full benefits to those who are under the age of 72. Imagine the current mindset of
the 77 million post World War II baby boomers born between 1946 and 1964. These people are rampantly meeting with their financial advisors to re-evaluate their retirement portfolios.

Many fixed-income Americans will not be able to sustain without their expected monthly benefit amount from Social Security. It is an amount you have known about and strategically planned for over your many years as an employee.

In addition to this concerning news is the latest update on Medicare insurance. This hospital insurance fund is expected to be depleted in less than ten years (by 2026), and the added costs for this critical senior-age insurance will skyrocket. The depletion of these funds is sure to turn into a real crisis for many retirees that have paid into the system and counted on these returns for their financial future. Not only that, the repercussions of these failing systems will affect the economy with a significant hit to the national debt and the value of the dollar.

What can be done? The government may make choices regarding for you regarding Social Security, Medicare, and Disability and, like every decision they make, the results are positive for some and negative for others. The real question is, what can you as an individual do to counter this disappointing news? Regardless of the government’s response, you as individuals must make financial retirement plans that secure your assets into the future. These uncertain times will never be the same as they once were. You must take your financial future into your own hands! There is no silver lining you can count on when it comes to our government insurance funds.

Look at the current headlines for precious metals, and you’ll see that gold is one solution some retirees have already thought of. The demand for gold is rising as is the cost, and the unsettling news about Social Security and Medicare are driving investors to rethink their financial portfolios. A diversification plan is essential, and a tangible asset is attractive to many seniors.

Even Russia is on the bandwagon, acquiring gold by millions of ounces. They are shown to hold 18% in precious metals in central banks. Russia owns over $85 billion in gold. Russia is, in fact, one of the leading producers of gold. The central banks, in general, have relied on gold as a stronghold for their national reserves.

According to Statista.com, “Gold has always been one of the world’s most precious and coveted metals. Rarity is the primary reason for its value. Estimates on global reserves are not much higher than 56,000 metric tons.” Gold is also a popular commodity for the electronics and jewelry industries. Statista.com also states that the United States is the 4th largest gold producing country, with the highest gold product from Nevada. Eight out of the top ten gold mines in the United States are located in Nevada. “Over the last decade, global demand for gold has increased constantly.”

Many are looking at this precious metal as a hedge for their retirement portfolio in the case
of a downturn or financial crisis such as our Social Security situation. A diversified portfolio that includes stocks, bonds, and precious metals is an attractive alternative when you consider that our government programs are failing us and the economy is in a constant state of fluctuation. Investors, especially those nearing retirement, are re-evaluating their portfolios to compensate for the kind of press release we just received from Social Security. The concerns are high for current and future retirees, family member, and new generations, but a tangible asset you can touch may well be the real security you need for your retirement peace of mind.

You may not want to wait to review your financial portfolio and consider a replacement for the monthly Social Security benefit you were expecting — just in case the government doesn’t come through for you. These funds today are somewhat like an inheritance; you really can’t count on them.

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How Pareto’s 80/20 Principle Applies to Investors

You’ve likely heard of Pareto’s 80/20 Principle, coined in 1895 by Economist and Mathematician, Vilfredo Pareto. While the principle initially links to the relationships between the general population and wealth, it was soon discovered that it applies to most every life and business situation.

The Pareto Principle states that “80% of the effects come from 20% of the causes.” This mathematical principal, impressing business leaders and financiers for decades, is one that lives on as a valuable formula. In terms of investing, this summation points to the fact: we may lack balance in our financial inputs versus outputs.

One investment scenario using the 80/20 rule might look like this: 80% of your monetary returns generates by only 20% of your financial portfolio. Or, try this: 80% of the investors are failing on wise investment strategies while 20% are taking intense action. To apply the 80/20 Principle to investing, let’s first understand how the rule came about. When Pareto planted a garden of pea pods, he noticed over several growing seasons that nearly 20% of the seeds were responsible for most (80%) of the successful peas. He went on to apply his theory in other situations, which lead to the success of his 80/20 Principle.

This general mathematical principle was later instrumental in key findings by many industries:

• Pareto observed that 80% of the land in Italy was purchased from only 20% of the total population.

• For many small businesses, 80% of the revenue is derived from 20% of the customers.

• Startups report that 80% of work productivity can be generated with 20% effort.

• Tech companies realized that 80% of system crashes were due to 20% of the common viruses.

• Athletic coaches saw that 80% of athletes’ performances were impacted by 20% of their training.

• In 1989, world GDP indicated that over 80% of world capital was held by 20% of the wealthiest.

• In the area of human health and safety, nearly 80% of mishaps are caused by 20% of the hazards. If we look deeper into how the 80/20 Principle applies to investment, some notable highlights may come as a surprise and support better diversification of a financial portfolio. Smart investors create diversified portfolios with a mix of assets. The 80/20 rules might suggest 80% in safe, low-risk bonds and 20% in high-risk growth stocks.

While this balance may feel right, consider what happens with this mix in an economic decline. Stocks are volatile and risky in a time of crisis. This balance doesn’t support long-term growth, and it is not likely to keep up with inflation. In the case of a disaster, smart investors generally hold on to their stocks but create a hedge to reduce risks. A hedge is simply a more advanced investment strategy that helps reduce risks and offset the chance that your paper assets might lose value. An alternative investment often includes precious metals in the form of gold or silver.

An 80/20 rule-based portfolio that could protect your assets from inflation and market volatility might look like this: 80% in cash, stocks, and bonds and 20% in gold.

Understanding how various markets affects our assets helps us apply the 80/20 Principle. In a recession, while we know stocks decline, did you know that gold usually rises? Bonds are safe in terms of steady returns, and dollar-cost averaging is possible. In a bull market, stocks indicate growth.

Gold may rise relative to the dollar. Bonds are safe, and dollar-cost averaging is possible. In a period of inflation, your bonds are devalued as well as your cash purchasing power. Stocks can offer continued growth. Gold is vital for preserving purchasing power and growing a financial portfolio. An 80/20 based portfolio that includes gold offers an added benefit toward achieving growth and creating a hedge to withstand most any economic scenario.

While many investors are using some form of the 80/20 rule to apply to their investments, whether they know it or not, unfortunately, this split is too narrow. Most investors have 80% in one investment and 20% in another (or some similar combination). There is a diversification and hedging error in this formula if you expect to achieve asset protection against growth and inflation. In fact, according to an Investopedia article, “The greatest returns seem to be when most people expect the biggest losses.” In 2009, when the economy was struggling, less than 20% of national investors were engaging in hedging to protect their assets. They also share a statistic that “between 1992 and 2006, 80% of active traders lost money, and only 1% of them were profitable.”

There is a small but growing percentage of investors that confirm physical assets in the form of precious metals are a worthy alternative for sustaining growth and protecting capital to withstand almost any market condition. Hedging practices are a natural action to support their financial portfolios during full market cycles.

These smart investors may make up only 5-10% of the total, but they use a strategy in which a portion of their assets is safeguarded outside of banking institutions. Rather than speculate with assets, they make safe and skillful growth investments for the long term. These investors also tend to be leaders unaffected by the media and they recognize that counterfeit fiat currency is not the path to real wealth.

Turning 20% of your financial portfolio into precious metals is a strategic hedge against whatever direction an unpredictable market and economy decide to go. Making the 80/20 Principle a practical guide for your financial future could require some adjustments to your portfolio, but it may serve as a useful exercise to prepare yourself in uncertain times.