Social Security's Problem is Our Opportunity

by Andrew Zatlin March 17, 2023 12:50 pm ET

Social Security is a hot topic these days...

So, I decided to look at what's going on.

What did I find? A few problems, sure – but also some key investment opportunities.

For a transcript of this video, see below. This transcript has been lightly edited for length and clarity.

Social Security's Problem is Our Opportunity

Nikki Haley, a former South Carolina governor, has presidential aspirations. And to garner support, she's rallying a block of voters roughly 70 million strong.

I'm referring to senior citizens, the millions of folks eligible for Social Security.

For years, this source of income has been under a microscope, with many fearful that the system won't be effective for much longer.

Is that truly the case? Let's take a look...

A Rundown on Social Security

To kick things off, let me briefly explain how Social Security is designed to work.

During your working years, you contribute to Social Security. And when you retire, you withdraw funds from this pool of money.

But contrary to popular belief, the money you put in during your working years isn't set aside for you. Rather, the money you put in today pays for today's retirees. And the money you'll collect when you're retired will come from contributions from those working at the time.

Makes sense, right? It used to, anyway...

A Trip to the '50s

Look at this chart:

This is the U.S. population in 1950, broken down by age group.

Notice how it resembles a pyramid. You had a lot of younger folks working and a smaller number of older people – i.e., those collecting Social Security.

This was a recipe for success. More people were paying into Social Security than were taking funds out. The ratio was about 3:1.

Unfortunately, that's not the case today...

The Landscape Changes

Look at this:

As of 2020, the age breakdown looks more like a chimney than a pyramid. What's changed?

Most importantly, there are more older folks around. They're reaching the age of retirement and are taking more money out of Social Security.

Furthermore, not only are there more older folks today, but they're also living longer, meaning they're spending more time withdrawing funds. When Social Security first launched, the average life expectancy was 79 years old. Today, it's 85.

And keep in mind, the chart above still shows a large number of working folks – those contributing into Social Security. But the ratio of those contributing versus those withdrawing funds is now down to 1:1. That's not sustainable.

A Different Point of View

Clearly, Social Security has a problem. But earlier, I mentioned that this topic also presents some potential investment opportunities. Here's what I mean...

First, let's rethink what these demographic breakdowns represent. Sure, a larger group of baby boomers means more pressure on Social Security.

But it also represents a group that's getting ready to enjoy their golden years. In other words, they're ready to spend, spend, spend!

Soon, these retirees will be spending much more on things like travel, leisure, and clothing.

Additionally, plenty will need care in assisted living facilities and nursing homes. And almost all will see their need for health care increase. These are prime sectors we certainly want to keep an eye on.

Now let's focus on the other end of the spectrum...

Don't Forget About the Youths

While baby boomers are a large generation, so are millennials, those in their 20s and 30s. And they've got their own list of priorities.

To start, they want housing. And with many starting families, they're going to be spending more on things like baby food, toys, and clothes.

Then there's the massive transfer of wealth that's about to happen.

Over the next several years, you're going to see millions of dollars handed down from aging boomers to these millennials. And a large chunk will head into areas like the economy and stock market.

Bottom line: Social Security is a system that needs rethinking. But its discussion brings to light specific spending trends...

And it's here that we can find some exciting opportunities to profit.

Speaking of profits, if you're a "Pro" subscriber, I'll reveal a company that's on the rise and whose customers include those from every age group.

We're in it to win it. Zatlin out.