by Simon Black, Sovereign Man:

Ten years ago, at the peak of the global financial crisis, the Board of Trustees which oversees Social Security in the United States issued a stark warning:

They projected that Social Security’s enormous trust funds would completely run out of money in 2039.

Naturally nobody paid attention. Back in 2009 the economy in shambles, so focusing on a future economic crisis that was more than three decades away was a low priority.

And for the past decade, the US government has continued to ignore its Social Security problem.

But it’s become much worse.

Ten years later, the Board of Trustees now projects that Social Security’s primary trust fund will run out money in 2034.

That’s five years earlier than they projected back in 2009. And it’s only 15 years away.

Now, 15 years might seem like a long time. But take a minute to grasp the magnitude of this problem:

According to the US government’s own estimates, Social Security and Medicare combined are underfunded by $100 TRILLION.

$100 trillion is literally more than FIVE TIMES the size of the entire US economy. And this giant fiscal chasm is actually growing.

The big problem for Social Security is that tax revenue is no longer enough.

Every worker who is legally employed in the United States currently pays roughly 15% of his/her wages each month to help fund Social Security and pay benefits to retirees.

But there are now so many people receiving Social Security benefits that all the payroll tax revenue is no longer enough.

Social Security also derives a portion of the income it needs to pay benefits from the investment returns on its $3 trillion worth of assets.

Problem is– Social Security is forbidden by law to invest in anything EXCEPT United States government bonds.

Most countries who have large Sovereign Wealth Funds or Pension Funds have the latitude to invest that capital in a variety of asset classes.

I personally know several national pension fund and sovereign wealth fund executives in Europe and Asia, and they typically buy a wide variety of assets– real estate, private equity, stocks, bonds, etc., with a target annualized return of between 6% to 8%.

(Norway’s sovereign wealth fund earned an average 7.6% between 2010 and 2017. And California’s state employee pension fund, CALPERS, earned 6.7% last year.)

But Social Security doesn’t have this investment freedom. Instead, Social Security is required BY LAW to invest in US government bonds, which yield less than 3%.

In fact Social Security’s investment return last year was 2.9%.

You’re probably starting to see the problem–

At the moment, Social Security is the #1 owner of US government debt, having spent years stockpiling $3 trillion of dollars worth of US Treasury bonds.

Month after month, as payroll tax revenues exceeded the total retirement benefits paid out, Social Security invested its surplus into government bonds.

But now that flow of money is about to reverse.

We know that Social Security’s payroll tax revenue is no longer sufficient to pay out benefits. There are simply too many retirees.

We also know that the 2.9% invest return is pitiful and not going to help at all.

This means that Social Security is about to start burning through the trust funds in order to meet its monthly benefit obligations.

The Board of Trustees has already acknowledged this fact. And they project the trust funds will be fully depleted in 15 years.

But it could likely come much sooner than that.

Before they can use the trust funds to cover their financial shortfall, Social Security will first have to convert its government bonds into cash.

Read More @ SovereignMan.com