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About The Author:
John Schroder of Ascot Advisory Services writes articles for a number of publications and e-zines regarding topics and issues of interest or concern to clients.  As an expatriate himself, John has lived abroad for many years, and assists clients with services related to the topics on this web site.
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Social Security:  Now What Are We Supposed to Do ?
The call it Social Security, but a better term would probably be Social Insecurity.  The Social Security System is Broke.  It is broke in the US, it is broke in Europe and also Japan.  They know it, but do you?   Your taxes are going up - your benefits are going down.  What do you want to do about it?

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Social Security in the United Sates, and many other countries for that matter, have a very similar arrangement, and the concept was certainly perhaps a noble idea on the part of politicians, albeit not a economically sustanable one.  However, the problem is that most people really did not understand what the system was all about, and how it truly functions.  If they really knew, they most likely would have rejected the idea from the start.  Which is to say, many people think (or thought) the government was taking money out of their paychecks every month and putting it away somewhere in a special account.  In other words, many people were lead to believe that the government was saving money on that persons own behalf for retirement.  Not True, or in the least this is not the way it works.  It was a nice party while it lasted, and now comes the hangover.
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Almost all of these programs are what is known as a Pay As You Go program.  In simpler terms we can say it was a sort of modern day Robin Hood government wealth transfer process.  People that were currently working and making payments into the system were (and are) really supporting the people that are currently retired (or those persons taking a check).  The concept of course was based upon demographics.  Demographics, which have changed, and really the problem has been that such changes have never been addressed in terms of how the system operates.  In addition, as the years have progressed, the politicians have also changed whom and for what Social Security funds are meant to pay for.  This is also a major part of the problem and why a crisis in looming on the horizon.
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When former US President Roosevelt signed Social Security into law on August 14, 1935 the United States was experiencing a deep economic crisis - or the Great Depression if you prefer.  The idea behind Social Security was to act as an economic stimulus.  In other words, a way to put funds into the hands of retirees so they could spend it and have the cash flow needed to stimulate the economy (the applied economics theories of John Maynard Keynes).  Of course it was sold to the general public as a plan to help the elderly, which it did do at the time of course.  Regardless, Social Security was originally envisioned and meant to be an income supplement, and NOT a full-fledged government sponsored retirement program.  In addition, coverage for medical care expenses (Medicare Social Insurance for the Elderly), benefits to widows, orphans and the disabled were all added on later as additional draws on the Social Security system.  So, also as a result, the benefits and who was eligible to receive them expanded in later years.
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In any event, when the system was originally put into place (1935) there were anywhere from roughly 30 to 40 persons (depending upon what statistics you look at) paying in for each one person taking out a check.  So, of course the amount of the check for one was spread out among 30 or 40 people and the payments these people made at the time were fairly minimal as a result.  Things have changed.  The United States witnessed a surge in birth rates directly following World War II, the period from about 1945-1965, or the baby-boom generation.  After that period (1965 and onward) the affects of inflation and changing societal issues meant that it took two incomes to offer up the same middle-class lifestyle as before.  In other words, many couples decided to have only one child or in some cases, none at all.  The result was a drastically reduced birth rate and lower population coming into the work force to support the so-called pay as you go system.
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You might ask - What about the Social Security surplus or trust fund often talked about?  Well, this came from all those baby-boomers paying in, or more correctly, the fact that a surge of people in the population that were in reality paying in an excess of what was needed.  Supposedly this money was put aside or saved by the politicians into a special trust fund, but the truth is they spent it all.  Which is to say that these funds were placed into a so-called trust fund and carried on the accounting records of Social Security as a surplus, BUT it was then loaned out to the federal government and in its place, an IOU was given to the trust fund in turn.  So, the money was spent and the only way to replace it is if the US Federal Government (and of course the tax payers) collects even more new money in the future to replace these borrowed funds.  What if the government put that money into gold or other kinds of investments whereby the politicians could not touch it?  Well, for sure it would result in a much better scenario than what exists today, but even still, this would not eliminate the problem completely.
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There are a variety of different statistics floating around, and in some cases these figures even contradict each other.  However, the fact remains that this group of baby-boomers will start to retire and ask for social security checks right NOW in 2005, and the wave of new retirees will continue exponentially each year afterwards.  Regardless, starting in 2012 (and some statistics claim other dates, indicating from 2012 up until 2017) Social Security will pay out more in benefits than it collects in revenues.  Also, as of 2004, Medicare has already been operating with a deficit, and generally speaking health care costs have been rising more rapidly than any other expense (at double digit rates).  Also, in 1950, the average worker paid 2.96 percent of their salary or income into the social security system.  Today that amount is almost 16 percent.  In effect, this means that since Social Security is broken out as separate so-called contribution payment (they do not call it or classify it as income tax, but rather a contribution towards Social Security, abbreviated as FICA), it is actually a hidden additional tax against income amounting to about 16 percent on average.  So, if you think you are in a 32-percent tax bracket, you had better think again.  In reality, one way or another, you are probably giving the government almost 50 percent of your earnings away in tax payment (32 plus 16 equals 48).
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In the 1990s, social security spending increased at 6% per year (double inflation), while Medicare continued at over 11% growth per year (3-4 times faster than inflation). According to the 2005 Trustee Report, Medicare went into deficit spending in 2004. 
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http://mwhodges.home.att.net/soc_sec.htm
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REPUBLICAN REVOLUTION?  Oct 14, 2005 - by Mark M. Alexander
What on earth has happened to Republicans in Washington? Twenty years ago, we conservatives could only dream of an opportunity like the one our elected representatives are now squandering: a Republican President with majorities in both houses of Congress, and two chances to nominate constitutionalists to the Supreme Court. For reasons we can't begin to explain, the Republican Party is in the midst of an identity crisis. Indeed, with each passing week, they behave more like the Democrats we elected them to displace. From education to prescription drugs to transportation to hurricane indemnity, today's Beltway Republicans can't seem to stop redistributing our money.
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Modest proposals to cut the rate of Medicare and Medicaid growth were dropped. Even promised cuts to wasteful federal education programs, to Amtrak and to public broadcasting, quietly disappeared. In all, discretionary, entitlement and interest spending for FY2006 will exceed $2.5 trillion.
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But as egregious as pork barrel spending is, it isn't responsible for the fiscal crisis we face. The ever-expanding largesse of federal entitlement programs -- government do-gooding ad nauseam -- actually threatens the solvency of the Republic.
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Social Security faces collapse in just a few decades. According to the 2005 report of the Social Security actuaries, the entitlement's un-funded liability is $11.1 trillion in perpetuity. That's "trillion" with a "T." To his credit, President Bush has sought to reform the big-government enrichment scheme known as Social Security, though without success to date or much hope in the near future.  When compared to Medicare, however, Social Security's liabilities are a mere pittance. Medicare's total un-funded liability is $68.1 trillion in perpetuity. (If you are not appalled by this number then you are not alone; precious few humans can comprehend the immensity of one billion, much less sixty-eight thousand billions.) And the program could go belly up in just a few years. To lend further perspective to our misplaced Social Security angst, the total indebtedness of the recently enacted (but un-funded) prescription drug benefit accounts for $18.2 trillion -- more than one and a half times the entire Social Security liability. Summing up, never let anyone tell you that you're getting free drugs from Uncle Sam. Your grandchildren will most certainly be paying for them.
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http://www.townhall.com/opinion/columns/markalexander/2005/10/14/171436.html
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Social Security is hurtling toward a cliff; that is clearly one of the ways in which it is getting worse over time. Because it is a pay-as-you-go scheme, with current retirees' benefits paid from current workers' taxes, it can remain solvent only as long as the ratio of workers to retirees stays comfortably high. But that ratio is plummeting -- from 17-to-1 in the 1950s to only 3-to-1 today. With more retirees than ever living into their 80s and beyond, and with millions of baby boomers soon to retire, the pressure on the system is only going to get worse.
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SOCIAL SECURITY STILL NEEDS FIXING - October 13, 2005 by Jeff Jacoby
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In little more than a decade, payroll taxes will no longer be enough to cover benefits. Social Security's deficits will rapidly explode. By 2020, it will be losing $72 billion a year. By 2030, losses will be $275 billion a year. Between now and 2070, Social Security will need to come up with an estimated $27 *trillion* (in 2004 dollars) over and above what it is scheduled to collect in taxes. To keep the system from collapsing, Congress will have no choice but to massively hike taxes, slash benefits -- or both.
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That isn't the only way in which Social Security is getting worse over time. When the program began, payroll taxes consumed a tiny fraction of American paychecks -- just 3 percent of the first $3,000 of income, or a maximum of $90 a year. On that "investment," workers could expect to earn a very handsome return, assuming they lived to retirement age.
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But over the years, payroll taxes have been relentlessly raised -- the rate is now 12.4 percent of the first $90,000 earned, or as much as $11,160 a year -- and the return on those taxes has dwindled to almost nothing. According to Stuart Butler of the Heritage Foundation, the average male worker about to retire today will realize only a 1.27 percent return on his lifetime of payroll taxes -- less than he would have gotten from a savings account. For younger workers, the outlook is even worse. A 25-year-old employee can now expect a lifetime return of minus-0.64 percent -- a net loss. And the more Social Security takes out of Americans' paychecks, of course, the less Americans have left to save for themselves.
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http://www.theconservativevoice.com/articles/article.html?id=8937
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THE BOTTOM LINE
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So, the question remains: What do You Want to Do About It?  What do you think the politicians will end up doing?  Will they cut benefits, raise taxes, and extend the eligible retirement age - or not?  Will the situation get better or worse?  If worse, who is going to suffer?  The politicians always like to say when there is a problem:  We  are all in this together.  What is this we business?  Who is this we that had control over the money?  Who do they use the word we, when they really mean you?   
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Many people will post the argument that the government would never let Social Security fail - but what does that mean really?  Does it mean that they will run the printing presses like wild and give you money down the road that will be worth less and less due to inflation?  Does it mean they will tax all the younger workers to such an extent that they will feel resentment (not to mention the financial burden and reduced standard of living due to less disposable income)?  Does it mean that we have to wait until 85 years of age to check the get (if we live that long)?
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HERE ARE SOME IDEAS:
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Number One:  Forget about Social Security.  It is broke, and none of the possible options will do you any good (higher taxes, lower benefits, extended retirement age, the government printing of more money and more inflation, etc., and so on).  They tricked you, they fooled you, they got your money - so be it.  As my grandfather used to say - Let the harm of the year go with it.  However, to quote a famous song by Roger Daltry and the WHO - We won't be fooled again.  Hope for the best, but plan for the worse.  Which is to say, if you can figure out how to support yourself and how to retire on your own, it really does not matter what kind of nonsense comes down the line later on.  If they tell you - sorry, we have to cut your retirement check in half, be in a position to laugh instead of cry.  If they tell you they want to take even more money away from you going forward, tell them you decided to quit.  Tell them you resign.  Tell them you decided to fire them as a government and that you decided to go look for another.  Governments are a kind of service provider, just like the cable company.  Your current cable company gives you bad service and wants to double the bill for even worse service and benefits?  What do you do?  You cancel the contract and go look for another.  Same thing with where you are living at the moment.  You do have options and choices.  In addition, you do have ways to secure your own financial future without the help (or meddling) of any politician.
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Number Two:  Take heed of number one because it means you have to think long and hard about taking care of yourself.  This could mean some very interesting choices, such as expatriation for one thing.  Yes, expatriation - the idea of just saying no and going to live somewhere shall we say, less taxing?  Many Americans and Europeans have decided to relocate to places that do NOT have this looming problem (no extensive social welfare state to contend with), much lower cost of living, much lower housing costs, better year round climate, possibly much less taxes AND the ability to be far away from any possible negative social fallout that might occur as well.  Where are some of these places?  How about Argentina, Brazil, Bolivia, Dominican Republic, Panama, Thailand, and Cambodia - just to name a brief few.  What?  Me, live in a third world country?  Well, I have some news for you - these places just mentioned are far more modern than you might think.  Plus, they offer lower cost of living, lower housing costs, comfortable climate AND possibly even much. much (did I mention much?) lower taxes.  If you like the idea of taking care of yourself without the government picking your pocket, then you owe it to yourself to check out these and perhaps other destinations. 
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Number Three:  Get out of debt and buy your retirement home for CASH.  What a novel idea?  The lower that your fixed monthly expenses are, the better off you will be.  How much money would you need if your monthly expenses were simply electricity, telephone, cable, and grocery shopping only?  If you owned your own home mortgage free, this can be a reality.  The problem is where can you afford the same if not more of a home (in terms of space and amenities) than what you already have for US$150,000 or less?  Refer back to some of the countries mentioned above.  Where as to purchase a comfortable middle-class home for half the price of the home you are in now (without giving up too much in terms of size and amenities) in North America or Europe will be almost impossible, this is not so elsewhere in the world.
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Number Four:  Consider becoming a proactive and informed investor instead of just a helpless victim of foolish politicians and irresponsible government spending policies.  Also, remember that you are a sovereign individual and not the chattel property of any state.  This means that you have to right to live where ever you wish, and it also means you have the right to change countries and citizenship if that is your decision as well.  Part of the problem is the number of false stereotypes and rumors floating around.  Do not believe them, but instead investigate and go see for yourself.  Instead of doing what your normally do for an annual vacation, go visit another country that you think you might like to live in or retire to.  Go and visit the Dominican Republic, or Thailand or Argentina or Panama or anywhere else that you like.  Investigate for yourself if what the idiot from the accounting department (who never traveled anywhere in his life) told you at the office water cooler was true - or not.  I am going to bet after visiting a few of these places, you will become enlightened and more positive about what is possible, and what is indeed the truth.  In addition, you will come to realize how idiotic and nave some other people truly are, but so be it.  Your life is your own responsibility.  Live it to the fullest, invest in yourself and your own future.  It is certainly a worthwhile investment, do you not think?
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second passport
A Second Passport
or Second Citizenship:

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Why You Need One Now, and Fast.
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What is Dual Citizenship and it is legal?  What is the difference between residency and citizenship?   Why would someone want another passport or citizenship?
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Who are the new expatriates? 
Surprisingly enough, it is now the middle-class that are leaving the wealthier nations and often are Trading Places with those from poorer developing countries. 
Ascot Advisory Services 2014

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