Editor’s note: If you’re like most readers, you’ve been paying into Social Security your entire working life. You might even be counting on that money to last you through retirement.
Tom Dyson, co-founder of Palm Beach Research Group, thinks that’s a dangerous assumption. In today’s essay, Tom explains why the government could “terminate” your Social Security money without warning.
The good news is that there’s another option. Tom explains how to defend yourself against this threat.
You probably thought Americans had a “right” to collect their Social Security in old age, right?
Most people see Social Security as a contract between themselves and the government. You pay money into the system, and the system pays it back at a later date—guaranteed by law.
But nothing could be further from the truth…
You have no choice when it comes to paying your Social Security tax. It comes out of your paycheck automatically.
But did you know the government isn’t under the same rigid contract?
In fact, by ruling of the United States Supreme Court, the federal government is under no obligation to pay you a Social Security check.
This is the clear precedent set in the case of Flemming v. Nestor.
Ephram Nestor was an immigrant from Bulgaria. He moved here in 1918 and paid Social Security taxes from the very beginning of the program in 1936.
In 1955, when he retired, Nestor began receiving Social Security checks for $55.60 per month.
But, just one year later, Nestor was deported. Turns out, he’d been an active member of the Communist Party in the 1930s, giving the U.S. government grounds to kick him out.
When he was deported, his Social Security checks stopped. Nestor sued the U.S. government, arguing that, since he had paid money into the program, he had a right to those benefits.
The Supreme Court ruled against Nestor, saying the government had the right to terminate Social Security at any time.
The people who sign the Social Security checks sum it up this way:
[Nestor] appealed the termination, arguing, among other claims, that promised Social Security benefits were a contract. In its ruling, the Court rejected this argument and established the principle that entitlement to Social Security benefits is not a contractual right.
Takeaway: You have no contractual right to Social Security.
That historical precedent means it has the power to cut Social Security anytime it wants.
It could end tomorrow, and there’s nothing you can do about it. (Interestingly enough, the SSA has a full page on its website devoted to the Nestor case.)
Now, this doesn’t mean the government will suddenly stop paying Social Security benefits. Not now, anyway. (Suggesting an end to this system is political suicide.) But the risk, as unlikely as it seems, is possible.
Meanwhile, recent signals from the U.S. government are foreboding.
On November 2, 2015, Congress and President Obama already struck down two massive Social Security loopholes called “File and Suspend” and “Restricted Application.”
For some, these rule changes cut up to $60,000 of Social Security benefits over a retiree’s lifetime starting in April of this year.
Could these cuts be just the beginning?
I think so. You see, no politician wants to let Social Security cuts dominate the conversation during an election year.
That’s why the government is working on all kinds of sneaky and indirect ways to pay out less money in benefits. It has to do with COLA (cost-of-living adjustment). I won’t get into all the details here, but know this:
A small clause in the Social Security Act says that if there is no cost-of-living adjustment for Social Security, then, by law, Medicare premiums can’t be raised for the majority of middle- and lower-class Americans.
Instead, 3.1 million select Americans will absorb the full increase. If you’re one of them, you’ll see Medicare premiums rise 52%. In some cases, you could lose as much as $4,200 in 2017 alone…
That’s like having nearly three months’ worth of Social Security benefits ripped away from you.
What we have here is a Social Security cut disguised as a Medicare cost increase.
If you’re affected, your Social Security money is going to be taken away from you to subsidize health care coverage for lower-income Americans.
I think this could be one of the first changes coming immediately after the 2016 election.
Bottom line: If you’re not actively working on a plan B for the coming Social Security cuts, you should be. Congress has just given a couple of big hints of what’s to come in the months, years, and decades ahead.
Editor’s note: For years, retirees have relied on three main sources of income: pension plans, Social Security, and personal retirement accounts such as 401(k)s.
Unfortunately, this model is on the verge of complete collapse…
To help you protect your wealth, Tom and his colleagues are putting on a first-ever Retirement Rescue Roundtable this Tuesday. Their entire team of experts will be there—including Doug Casey’s longtime friend and colleague, Mark Ford.
To learn more about Tom’s retirement strategy, click here to watch this free video.