This is a post I began writing in June 2009. I thought it still had merit and should be shared.

Social Security’s Inadequacy

According to the 2009 Social Security Trustees’ report if you plan to live for the next 19 years, your Social Security benefits will be dependent on the income tax deduction from those in the workforce. Projected demand for Social Security benefits between now and 2016 will surpass any excess and begin to deplete the “trust” account held on the Treasury Department’s books.

The trust fund will be totally depleted by the year 2037 according to projections. This will require a decrease in Social Security Benefits or an increase in taxes to cover this shortfall.

Bruce Bartlett, a former Treasury Department economist, writes in The 81% Tax Increase:

Most Americans believe that the Social Security trust fund contains a pot of money that is sitting somewhere earning interest to pay their benefits when they retire. On paper this is true; somewhere in a Treasury Department ledger there are $2.4 trillion worth of assets labeled “Social Security trust fund.”

The problem is that by law 100% of these “assets” are invested in Treasury securities. Therefore, the trust fund does not have any actual resources with which to pay Social Security benefits. It’s as if you wrote an IOU to yourself; no matter how large the IOU is it doesn’t increase your net worth.

This fact is documented in the budget, which says on page 345: “The existence of large trust fund balances … does not, by itself, increase the government’s ability to pay benefits. Put differently, these trust fund balances are assets of the program agencies and corresponding liabilities of the Treasury, netting to zero for the government as a whole.”

Prudently including Social Security benefits should be a part of a plan to achieve Retirement Freedom. However, to rely solely upon Social Security will most likely produce a pauper’s retirement.

Real Estate Investments for Retirement Income

There is hope to counteract the pauper’s fate provided by Social Security. Purchasing real estate in growth regions, using prudent leverage can produce solid retirement income.

The Benefit of Control

Social Security’s weakness for an investor is the lack of control. The average U.S. citizen does not have control over how the funds are invested or whether they are invested at all.

Investment property offers an investor much more control. An investor can choose where to invest, what type of property to buy, whether to use debt or not, how a property is managed, and when to pull money out of the investment.

The Benefit of Capital Growth

Social Security benefits are similar to the returns of annuity. When an investor buys an annuity they plunk down a pile of cash and expect to earn a specified payment over time. The amount of return is solely dependent on how much cash is invested up front.

Social Security pays retirees the same way. Retiree benefits are dependent upon their contributions during their working years.

Real estate investing offers the ability for investment growth. An investor may start with $50,000 initially invested. Over time with prudent choices based on prudent advice, $50,000 may grow to $200,000. Invested wisely $200,000 can generate a lot more income than $50,000.

The Benefit of Tax Shelter

Social Security benefits may be taxable depending on retirement income.

Real estate investors use favorable tax laws to provide greater after tax cash flow from their investments and other sources of  income. More cash flow allows greater freedom to pursue their dream retirement.

I would love to hear your thoughts on social security and real estate. Which do you think is better?

If your ready to free yourself from dependency on the government’s handout for your retirement goals, contact us for your free consultation.