I see a lot of debate about having a gold and silver emergency fund. Some would swear by it while others claim that you shouldn’t bother. US dollars are fine for an “everyday” emergency, but let’s face it – it’s likely you are preparing in the first place because the dollar is failing. Let’s cut the hype and I’ll show you how real emergency savings can save you in a crisis.
1. Keep it Accessible.
An emergency fund won’t work if you can’t get to it. That means no banks or safety deposit boxes. In a financial crisis, your bank will be the first place to close. And last I checked, you can’t get gold from an ATM. So store your gold and silver emergency fund at home or at another trusted, accessible location.
Your fund must also be portable. If you had evacuate or change locations in an emergency, don’t try to carry 75 pounds of silver on your back. For one to four people, 100-200 ounces of silver and a few ounces of gold should do the trick. Scale up for larger families.
2. Keep it Valuable.
One question for your gold and silver emergency fund – how much? The total value (in today’s dollars) should be about $5000 to $10,000, depending on family size. And you’ll need both gold and silver. Silver is the workhorse and will be used for everyday purchases, like food or fuel. Gold will be used as a store of wealth and portability (1 oz. gold = 5 lbs. silver).
3. Keep it Secure.
Don’t hide it under your mattress. A quality burglary-fire safe is the best protection. Don’t buy a cheapo model from Home Depot. And most gun safes aren’t up to the task, either. Good ones have a UL security rating.
For more information, check out this safe ratings guide. Even a heavy safe can be removed by a couple of strong thieves. So bolt your safe to the floor in a concealed location. Avoid the master bedroom – it’s the first place thieves look.
4. Keep it Expendable.
If you hold a large amount of gold or silver, you may become a target for thieves… or government confiscation. So keep your emergency fund limited to what you can afford to lose.
Remember, the crisis won’t last forever and it’s not worth being murdered because you wouldn’t give up $100,000 in gold sitting in your safe. Lower the stakes and stay alive.
5. Keep it a Secret.
The best protection from thieves starts by not letting them know what you have. Usually it’s the wrong person overhearing an innocent conversation that tips a thief off. So don’t talk about your emergency fund out in public or with anyone outside your most trusted circle of family and friends.
And when you do tell someone, maybe because you are trying to help them do the same, emphasize the importance of secrecy.
6. Keep it Spendable.
A common mistake is to buy gold and silver at the lowest possible cost. Bullion bars may have a slightly lower premium than bullion coins, but you will pay the price later. Bars often require an assay to verify purity and weight. And bars are also easy to counterfeit by silver or gold plating low cost metals like tungsten.
So set up your emergency fund with 1 ounce bullion coins minted by large governments and purchased from a reputable dealer. Examples are the American Eagle, Canadian Maple Leaf and Austrian Philharmonic. These are recognized worldwide and are more difficult to counterfeit (though there are fakes made in China – check out Mike Maloney’s video on how to avoid fakes).
Another option is so-called “junk” silver. Most US coins minted prior to 1965 contain 35%, 40% or 90% silver (http://en.wikipedia.org/wiki/Junk_silver). In an emergency, you want to keep things simple. So my first recommendation is to stick with 1 ounce bullion coins. But if you want some “junk” silver to supplement your fund, get a bag of 90% coins.
7. Keep it Easy When You Buy.
Do some research to find a reputable, competitive dealer. Don’t buy on price alone. Some dealers hound you with pushy sales calls and are just not worth the hassle. Others may be out of stock, putting your order on hold for weeks… or even months.
And worst case is they may have counterfeit coins. You can buy locally or online. Reputable online dealers (like Kitco.com) will ship in discreet packages that are fully insured with verified genuine coins. If you are unsure about a local dealer, test them with a small order first, then ramp up if they do well.
Here’s When You Can Expect Social Security Cuts
Social Security is a retirement cornerstone for tens of millions of Americans. According to the Centers for Budget and Policy Priorities, every year it keeps 15 million retirees out of poverty.
Unfortunately, the program is facing massive financial hurdles. It has been collecting a net cash surplus for the last 38 years. However, starting next year, it is projected to run a $21.1 billion net cash outflow.
The program entered the decade with a reserve of $2.9 trillion in assets. Although, many expect the net outflows to increase each year and chip away at the reserve by $1.1 trillion. This leaves the program with only $1.8 trillion in reserves by 2029.
The program isn’t facing bankruptcy or insolvency. Instead, it is more and more likely that retirees will soon face reductions in their benefits to keep the program afloat.
Two trusts actually make up Social Security. The first one is the Old-Age and Survivors Insurance (OASI) trust. It provides payouts to retired workers and survivors of deceased workers. The other is the Disability Insurance (DI) trust. This one supplies payments to workers that are long-term disabled.
When reporting on the state of the program, the Social Security Board of Trustees generally lumps the two trusts together. However, each trust is independent and faces individual risks.
Of the two, the OASI is projected to be in financial distress the soonest. The latest Trustee report estimates that the OASI will deplete its asset reserves by 2034. Meanwhile, the DI trust could possibly depleat its reserves in 2065.
But because the OASI is much larger than the DI trust ($2.8 trillion of the combined $2.9 trillion in reserves), the combined trusts are projected to become insolvent in 2035.
So expect the first major cuts to come in 2035 in an effort to avoid insolvency. Those efforts will involve a potential bitter pill for retirees to swallow.
Unless Congress finds a way to raise additional revenue and/or reduce outlays, retired workers and survivors of deceased workers can expect a 24% reduction in monthly benefits starting in 2035. While that seems a long time from now, it’s only 15 years away and will be here sooner than you think.
In real numbers, a retiree who receives the average monthly Social Security benefit of $1,503 today would see their monthly benefit reduced to $1,142 per month, or $361 less to live on. A married couple receiving $2,531 in monthly benefits would see their check cut by $608 per month, down to $1,923.
While the monthly reduction stings, looking at it from a lifetime benefit approach magnifies the worries for retirees trying to live out their golden years. A hypothetical worker who retires this year and starts receiving benefits would typically expect to collect about $500,000 in Social Security benefits. A 25% reduction means they would see their benefits cut by $120,000, down to only $380,000 in retirement benefits.
A married couple would see their projected $1 million in benefits reduced by $240,000 down to $760,000. That’s not an easily-replaced amount of retirement income.
If there is a glimmer of hope, it’s that Congress can take action to avoid – or delay – the day of reckoning. Yes, they’ve known since 1985 that the program would one day run out of money. But if there is one thing that the government is good at, it’s waiting until the last minute to really dig in and find a solution.
Let’s hope they can set aside their differences and put America’s retirees first.
4 Ways To Get Your Retirement Plans Back On Track
Whether you are nearing retirement or already enjoying your golden years, the recent market correction – and subsequent rally – has millions of Americans reconsidering their retirement plans.
If you’ve found that your retirement accounts aren’t quite where you would like them to be, don’t worry, there’s still time – and steps you can take – to improve your financial situation.
Play “Catch Up” In Your Retirement Accounts
If your nest egg isn’t as sizable as you had hoped it would be by this stage, there is some good news. If you are over the age of 50, you can make what are called “catch-up contributions to your retirement accounts. These allow you to put more money into your retirement account each year than is permissible for those under the age of 50.
For example, the 401(k) contribution limit for those 50-and-under in 2020 is $19,500. But for those over 50 years of age, you can contribute an extra $6,500 this year as a “catch-up” contribution, for a total of of $26,000.
The same thing goes for a traditional IRA. The typical limit for 2020 is $6,000 per person. But for those over 50, you can contribute an additional $1,000 to catch up, for a total of $7,000.
Convert Your IRA To a Roth IRA
As Suze Orman recommended a few weeks ago, if you have a traditional IRA, it might make sense to convert over to a Roth IRA this year. With a traditional IRA, your money is invested pre-tax and you don’t pay any taxes until you start withdrawals.
With a Roth IRA, your deposits are after-tax, so you don’t pay any taxes when you withdraw money in retirement. Given the massive budget deficits our country is running, there’s a very strong likelihood that taxes will be much higher in the future than they are today.
So while it may be appealing to let your money grow tax-deferred in a traditional IRA, you could end up paying a higher tax rate in the future. If you convert your IRA to a Roth IRA, you would pay your taxes in the year you convert. This could be extra-beneficial if you will fall into a lower tax bracket this year due to job losses or retirement. Pay the taxes this year at a lower tax rate and let the money grow tax-free going forward.
Review Your Social Security Blanket
Social Security is a major part of every retiree’s monthly income. Fortunately, that monthly income won’t ever decrease, and is automatically adjusted for inflation every year. So it makes the decision of when to start collecting Social Security very important.
You can start collecting as early as age 62, but your benefits will be permanently reduced as much as 30%. If you were born between 1943 and 1954, your full retirement age is 66, and for those born between 1955 and 1960 the full retirement age is 67 – and is also 67 for everyone born after 1960.
Here’s where some patience can pay off: if you can afford to wait until age 70 to collect your benefits, your monthly checks will be 8% larger for every year you delay claiming your benefits.
Pay Off Loans Against Your Retirement Savings As Soon As You Can
Pay off any 401(k) loans as soon as possible. A loan against your 401(k) is counter to your goal of saving for retirement. inadequately funded.
Also, the money you are paying your loan back with has already been taxed, so you are paying back pre-tax money with after-tax money. To further frustrate you about taking out the loan, when you eventually retire and start withdrawing from your 401(k) you will be taxed again.
So you will end up paying taxes twice. It’s better to not take a loan against your 401(k). Although, if you must, pay it back as soon as you can.
Proposal: Cut Taxes On Two Lowest Income Brackets By 50%
Democrats hope to pass the $3 trillion HEROES Act. On the other hand, Republicans discuss another round of stimulus checks or “back to work” bonuses. These bonuses aim to help Americans struggling to financially recover from the coronavirus pandemic. While all this is happening, a new idea has been proposed: cut taxes in the lowest two income brackets by 50% or more. This will really help those who need it the most.
The idea is from John C. Yoo, a professor at the UC Berkeley School of Law, and he says it would “turbocharge” the economy.
“Little doubt exists that the U.S. economy needs the help,” Yoo says. Additionally, his proposal, although unconventional, would immediately help those in need.
“The president could establish an economic recovery deferred action program that cut taxes immediately for those in the lowest brackets by 50 percent or more. This could accelerate the economic recovery far faster than current proposals for more unemployment payments or business aid, which help alleviate suffering but do little for growth. Trump could establish an economic recovery deferred action program that cut taxes immediately for those in the lowest brackets by 50 percent or more,” says Yoo.
“Turbocharging” the Economy
The tax savings, according to Yoo, would far exceed any potential stimulus check the government would issue. It would also provide immediate help.
“Imagine the boost to the economy if Trump cut taxes on the lowest two brackets to zero. A married couple making up to $20,000 would save $2,000 in federal taxes, while a married couple making $80,000 could save an additional $7,000 or so.”
“These families would not have to wait upon government checks in the mail; they could see the funds immediately in their paychecks.” Yoo said.
Yoo points out that the benefits would be more than just a tax break, it could also revitalize small businesses.
“Tax cuts would mean larger paychecks, which would create an incentive to return to work rather than remaining unemployed and on public assistance. Middle-class families would have a greater incentive to run the risks of starting or operating small businesses if they could keep more of the profits, instead of handing them over to the federal government.”
A Plus for The Administration
Yoo says cutting taxes on the lowest income brackets will help President Trump show support for the poor and minorities.
“A broad tax cut could answer accusations that the administration does not care about the poor or minorities. Trump could focus his deferred tax collection program to benefit the poorest the most, says Yoo, before adding, “He could also target certain geographic areas, such as the inner cities, for full tax breaks regardless of bracket. State COVID lockdowns have impacted the poor the most by shutting down restaurants, travel and hospitality, retail stores, and other businesses dependent on face-to-face interaction.”
While Yoo’s proposal is unconventional, it’s also practical. It avoids adding to our already ballooning national debt. It also satisfies the need to provide immediate relief to families. Also, it shows a good-faith effort to bridge the wealth gap by truly giving a tax break to those that need it most.
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