Retirement Crisis: Greater Personal Control Over Savings Could Help

In recent years, conversations have been buzzing about a potential retirement crisis in America. Most of that talk centers on the number of Americans who’ve saved little-to-nothing for the day they finally stop working.

To be perfectly honest, the numbers are startling. According to research by PricewaterhouseCoopers, 45 million Americans will retire in the next 10 years, yet the median retirement savings account balance for individuals aged 55 to 64 is just 120,000 dollars.¹ Moreover, PwC’s data reveals that 30% of Americans aged 45 and older have no retirement savings whatsoever.

In my view, there’s more to the pending retirement crisis than Americans’ woefully inadequate savings. Even folks with a fair chunk of money set aside are not necessarily in the clear when it comes to future retirement worries.

Projections of Social Security shortfalls and underperforming financial markets are two worries – and reasons Americans with bigger IRA or 401(k) balances should maybe consider strategies designed to help keep savings moving forward in the face of turmoil. For those savers, opening a self-directed IRA and using it to purchase alternative assets such as precious metals could be one potentially useful option.

Social “In-Security”: Retirement Trust Fund on Track for Depletion by 2031 

Social Security retirement benefits legally may only come from the program’s dedicated retirement trust fund. And the Social Security Administration’s own estimates say the retirement trust fund is on pace to be fully depleted by 2034 and ongoing tax revenue at that time will cover only 76% of anticipated benefits.²

But the news could be even worse. The Social Security estimate of trust fund depletion does not take into account the effects of the pandemic, which immediately cued a higher unemployment rate that persists to this day. Chronic higher unemployment translates into fewer people paying into Social Security. A Congressional Budget Office (CBO) projection says the retirement trust fund now will be depleted by 2031.³

The status of Social Security remains highly relevant, even for those who have meaningful savings accumulated. How do we know this? Nearly 90% of Americans age 65 and older receive Social Security benefits. Retired workers – plus their dependents – are the recipients of nearly 75% of the benefits paid by Social Security.⁴

In other words, it’s clear that, even among those who’ve managed to save considerably more than that median figure of 120,000 dollars, Social Security is an important component of financial security in retirement.

Goldman Sachs: Future Market Returns Will Be Much Lower

Another potential obstacle to a worry-free retirement could be the returns of financial markets in the years ahead. Retirement savers enjoyed market returns over the last decade that were robust, to say the least. But a growing number of experts these days are suggesting that future returns will not be anywhere near those to which many savers have become accustomed.

Last year, Goldman Sachs raised eyebrows when the global investment giant projected that S&P 500 returns through 2030 will be less than half of what they were through much of the previous decade. According to Goldman, the S&P 500 posted an annual average return of 13.6% from July 2012 to July 2020. However, Goldman said last July that savers should look for average annualized returns of just 6% from July 2020 through 2030.⁵

Similarly, Schwab analysts are expecting U.S. large-capitalization equities to average 6.6% annualized from January 2021 through December 2030.⁶ Schwab cites several reasons for their projection of lower returns, including predicted lower economic growth. Schwab notes “consensus forecasts” by economists that say average annual GDP growth will be 2.3% over the next 10 years, considerably lower than the 3.1%-per-year average GDP growth the country has experienced since 1948.

Another factor expected to mute equity returns in the years ahead is valuations. Schwab analysts see equities as largely overvalued right now, suggesting it isn’t likely future earnings will be able to justify the higher prices.

Self-Directed IRAs and Precious Metals: Potential Retirement-Defense Tools

So how do retirement savers overcome these challenges?

One idea that seems to have gained traction in recent years is simply continuing to work during what are supposed to be one’s retirement years. A recent survey revealed that nearly half of the respondents aged 60 to 75 are planning to work part-time throughout “retirement,” while 12% said it’s their intention to work full-time for the rest of their days.⁷

But that “solution” is not as simple and straightforward as it sounds. It’s one thing to declare you’re going to work forever when you’re 55 and in good – perhaps even great – health. But we all know there’s no shortage of ways life can throw curve balls at us, and one of those is unanticipated ill-health and physical or mental disability. In my opinion, it simply is not a sound “retirement” security strategy to bank on being able-bodied and able-minded enough to continue working for the rest of your days.

Rather than planning to work until death or depending entirely on the uninterrupted productivity of financial markets, I think individuals should take greater control of their own retirement destiny. That’s where the self-directed IRA comes in – and using it to purchase alternative assets such as precious metals. More typical IRAs and 401(k)s are not equipped to handle the unique custodial and administrative responsibilities associated with nontraditional assets, and so they do not permit their purchase by account owners. But self-directed IRAs are set up through independent third-party custodians with a sole function of administering these unique accounts.

Earlier, I mentioned precious metals as assets eligible for purchase in a self-directed IRA. And retirement savers worried about the future stability of their savings might take comfort in knowing institutional asset managers with the same concern expect to derive significant value from gold in the years ahead.

A couple of weeks ago, I detailed results of a report by Greenwich Associates and the World Gold Council that noted a full 40% of institutional managers that do not own gold presently plan to buy it within the next three years. Declared reasons for this significantly greater interest in gold by the world’s biggest asset managers include (1) the metal’s potential diversification benefits and (2) its capacity to serve as a “long-term return generator.”

As a matter of fact, gold has been the best-performing asset since the beginning of the millennium (aside from cryptocurrency).⁸ From January 2001 to today, gold has appreciated roughly 560% – and silver hasn’t been terribly far behind, climbing roughly 430% over the same period.

There’s no way to know how gold and silver will perform going forward. But the potential of non-mainstream assets to post such long-term returns – particularly within tax-advantaged self-directed IRAs – could be useful for savers seeking options as they navigate possibly rougher financial seas in the future.

¹ CNBC.com, “What’s behind America’s retirement crisis” (March 30, 2021, accessed 7/29/21).

² Social Security Administration, “Status of the Social Security and Medicare Programs: A Summary of the 2020 Annual Reports” (accessed 7/29/21).

³ Congressional Budget Office, “The 2020 Long-Term Budget Outlook” (September 2020, accessed 7/29/21).

⁴ Social Security Administration, “Fact Sheet” (accessed 7/29/21).

⁵ Matthew Fox, Business Insider, “Stocks will beat bonds and deliver annualized returns of 6% over the next decade, Goldman says” (July 15, 2020, accessed 7/29/21).

⁶ Veeru Perianan, Schwab.com, “Why Market Returns May Be Lower and Global Diversification More Important in the Future” (May 3, 2021, accessed 7/29/21).

⁷ Palash Ghosh, Forbes.com, “A Third Of Seniors Seek To Work Well Past Retirement Age, Or Won’t Retire At All, Poll Finds” (May 6, 2021, accessed 7/29/21).

⁸ Claudio Grass, Eurasia Review, “Precious Metals Are And Always Have Been The Ultimate Insurance – Interview” (April 9, 2021, accessed 7/29/21).