From Birch Gold Group
Whether or not you’re relying on a pension for part of your retirement, there is a grim future on the horizon for retirees tied to the pensions’ demise.
John Mauldin shines a light on the math that seems to explain why public pensions aren’t living up to their task:
So, when we say a plan is “fully funded,” it may not be so if the assumptions are wrong. Almost all public pension funds assume investment returns somewhere around 7% (and some as high as 8%+). That’s highly unlikely due to the debt we’ve accumulated, and debt is a drag on future growth.
Setting aside the fact that “assuming” anything isn’t a good idea, public pensions are basing their calculations on the assumption of a 7% return, but Bloomberg reports they aren’t even close to hitting the mark (emphasis ours):
The median public fund, which typically has a fiscal year ending June 30, returned 3.25% for the three quarters through March 31, according to Wilshire Associates Trust Universe Comparison Service.
According to the same Bloomberg report, on top of failing to meet needed 1Q returns by more than half, public pensions started 2019 off with a $2 trillion deficit.
Pensions in Illinois, New Jersey, and many other states are suffering (see the blue states in the map below):
According to the World Economic Forum, the global pension crisis may hit $400 trillion by 2050.
It’s safe to assume that public pensions are doomed, but the problem doesn’t end with public pensions.
Corporate Pensions are (Still) Suffering
Another older Bloomberg piece sheds light on a $382 billion funding gap for the top 200 defined benefit programs as of 2016. This year that has improved, but not by much, as the same programs still remain underfunded by $240 billion (see chart):
Although Bloomberg called this improvement a “good thing,” it’s important to remember that these same programs were fully funded in 2007. So things got worse during the last 12 years.
Even behemoths like GE and Bristol Myers-Squibb are at a dangerous “fork in the road,” deciding whether or not to ditch their pension programs altogether.
Keep in mind, whether someone has a public or private pension plan, they were promised to be paid in full during retirement for their contributions. And now, they face the risk of not having that promise fulfilled.
But it’s not only pension holders who are in trouble. Even retirees who don’t have a pension could be negatively affected.
Prepare for the Grim Future that May be Approaching
Public services like police, fire, and medical may be in jeopardy if States make cuts to satisfy retirement obligations, no matter the state they’re in.
States could hunt for extra funds in education, public works, and other places to pay promised pensions. This means infrastructure could suffer too.
Tax increases could also be leveraged at the local level, but no one likes the idea of paying more taxes. John Mauldin brings the broader point home in his Forbes piece:
As with the federal debt, some portion of this unfunded pension debt is going to get liquidated in some way. Any way we do it will hurt either the pensioners or taxpayers.
No matter how you look at it, it appears we’re all going to bear some of the burden for the pension programs that are in trouble. Which means, it would be wise to not put all your eggs in one basket.
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Some time in the near future, those with the least debt will win. Plan accordingly. A little AU, AG, PB doesn’t hurt so long as you can hold it in your hand.
Being out of debt means your need for current income is much lower (because you don’t have payments of that nature to make.) I’ve been debt-free for a long, long time. My kids didn’t borrow for college, either. Debt is a trap, sometimes unavoidable, sometimes it’s a gamble that pays huge dividends, but it’s like playing with fire….especially if we do finally roll into the Greater Depression. When I lost my job, knowing that I had a roof over my head as long as I could pay the taxes helped, it helped a lot.
The problem is that taxes, esp. property taxes, are the Big Threat.
I suspect that in the run-up to complete failure, states and others will attempt to PROPERTY-TAX their way to solvency. What is the end result of ramping property taxes to the sky? It will DESTROY the market value of property.
Imagine you have a house worth $200,000. You own it free and clear, but the property taxes on it are $5,000 per year. You will lose the house if you don’t have the $5k. But then there’s a crisis and the taxing authority needs a major increase in loot for pensions. Taxes are hiked to $20k on your property.
What is its market value now?
LOWER. Probably a lot lower.
We face a situation where the total value of a piece of property may CONVERGE on its annual tax bill. Short of setting off a shooting revolution, there’s no reason the CLOWNS in government can’t try to obtain your property by driving you out of it with tax increases. After all, if your formerly $200k house goes in a tax auction for $20k, the Clowns couldn’t care less. It’s YOUR LOSS, they still gain the $20k. And they probably sold the property to one of their nephews, and HIS taxes on what was once YOUR house will be a tiny fraction of what they tried to steal from you, before they just cut out the middleman and stole the entire thing from you forever.
I expect EXACTLY this scenario in states like Illinois and New Jersey. Anyone who carries ownership of any property in these states and doesn’t treat it like it’s essentially a 100% write off already is a fool….
And I LIVE in one of those states. (Don’t ask why…long story.)
Too bad the property owner doesn’t have a SOLD option when getting the evaluation, meaning the eval office has to buy the property at that value if the owner takes that option.
Might start seeing more accurate assessments.
Oh well, another pipe dream.
Agree that property tax (according to the ten planks of communism) is a nuclear option for robbing everyone of personal property, and in the meantime turns everyone into permanent renters.
Over promising on public pensions is an ongoing problem in so many states. My one teacher buddy told me he will retire from public school in 9 more years, with guaranteed 67k/year. This is in PA where they tax pensions at ZERO. So he will effectively be making far more take home then he does now where he earns around 77k. Mind you he already got a masters degree paid for on the public dime. He also gets 3 months+ off a year, so prorated he makes amazing money. He actually does far better than my buddy with a PH.D who took on far more debt, and barely makes anymore than he does working at a public University. So 80k for 9months, or 77k at 9months at an elementary school. But the one guy didn’t start making any money until age 29 basically, whereas my teacher buddy was making money at 23.
In terms of effort my elem teaching buddy just does mediocre. He’s no go getter that’s for sure. But it didn’t matter b/c his contract paid him guaranteed raises no matter what he did, it only mattered how long he worked there. You can be the best teacher at the school and not make a dime more. Plus there is no real portability, if you leave your district, you pretty much have to start over somewhere else near the bottom of the ladder. So yet another thing that stifles competition, and certainly makes alot of teachers feel stuck unless they want to take a massive paycut. He did a practicum at an inner city Philly school 20yrs ago, and said it was so eye opening, he would rather work at a convenient store than teach at the school he went to. He was only there for one stinking week. Of course my elem teacher buddy is basically a demo commie at this point, and my Ph.D friend has to pretend to be a liberal so he doesn’t lose his job. People talk openly just assuming that everyone is an anti-trump Democrat, they don’t give two shits if other folks feel demeaned or uncomfortable.
As worrying as that article is I think it was a softball. Most of the pensions are “invested” in BBB or worse bonds which are filled with junk and the stock market is a sham waiting to collapse as well. When the dust settles there will be 25% (tops) of what is believed to be in these funds. It’s already gone (the money) regardless of what anyones tells you. There are too many promises backed by lies and crap.The debts and your pension will never be repaid.
Paraphrasing Zappa, When they take down the curtains all you’ll see is a brick wall.
I’ve posted this allegory (below) before. THE MONEY IS ALREADY GONE
If we had some meat we could make a sandwich, if we had some bread.
My Story: I was born in Allentown PA. It was a boom town. Bethlehem Steel, Mack Trucks, AT&T… on and on. My dad was an accountant for the Bethlehem Steel. They had a generous pension plan. Fortunately for my dad he took his pension ‘early’ and he died in 1997 before Bethlehem Steel went bankrupt – and fucked the pensioner’s up the ass. But my mother lived another 3 years. She was to get lifetime medical insurance – she got fucked too. As for all the other companies – well they were ‘acquired’ by another conglomerate – that had no legal responsibility to fund the pensions.
Ditto at the Beth Steel plant & Shipyard , the place where the largest oil tanker ever built sailed away and paid for itself on the first cargo run . Then there was #2 Machine Shop the only place in the world that could fabricate the heat shields for the Apollo Missions to the moon . We all got fucked there especially the surviving widows of “Steel Men” who died after 40 or more years of service . Some of these widows received a whopping $85.00 bucks a month . Now the local and federal governments have and continue to raise taxes on the few of us former “Steel Men” so some cheese dick government pencil pusher can get a 20 or 30 year retirement in their mid 50’s .
See how well socialism works for the government connected while average working tax paying Americans get fucked hard and often till death .
Any question why our freedoms to speak out or defend ourselves are under attack constantly .
The badge wearing minions can and will evict you from the property you thought you own but are really renting from your local government . When you decide to eat instead of paying property taxes for government support to continue your demise you will be out in the street or dead …. think about that !
Got a pension buy out offer from the telecom I worked for 20 years (some years later in 2014) at 150% of what the lump sum would have paid. Rolled that into a no-fee, variable rate annuity with an upfront 15% bonus. Yielded double digits in 2017. It’s a 10-year maturity annuity, and will pay lifetime income starting in 2024. The funds are tied to a choice of stock indexes, or you can reset once a year to a combo of that and/or fixed interest. Guaranteed not to lose money even if the market is down, and lifetime payments can increase annually if there are interest gains.
Did I say no fees? Yup.
I’m set. Are you?
Given what is entirely possible in coming years, you are NOT set. Your insurer CAN go under. If the banking system detonates (an entirely plausible path ahead) then you, too, will be in the soup with everyone else.
I have three “guaranteed” sources of income for my “retirement.” Each of them is threatened in some way by what I think is coming, but there’s really no getting around that. Even banknotes in a pile can be destroyed by legislative fiat or by monetary mismanagement. There are no set-and-forget systems.
Sure…and an EMP strike or nuke could go off over my house.
Not “deterred” by your comment, Deter!
More likely scenario – the helpful Fed govt will take over all pension plans.
There’s already been a few trial balloons thrown out about this.
what’s a pension? i’ve freelanced most of my life…never relied on anything except for what i invested and saved…
No “deterrence” meant, RS.
I just note that nothing sets up failure like success, and being smug is often the sensation that comes prior to getting creamed. Been there, done that.
If it all works out for you, good for you. I really don’t give a rat’s tail. I only note that in my view, your approach is not without risks, and not just one-off Zombie Apocalypse risks. I didn’t even mention (because it’s self-evident) that none of us is promised to even be alive in 2024. You might have an aneurysm. Or fall down the stairs. Life’s uncertain.
Cheers!
1. That which can’t be paid won’t be paid.
2. Collective belief can keep the current morass rolling far longer than imaginable.
3. There’s no way to know for sure when Shit’s Going To Get Real.
4. We’ve HAD our inflation. It was of the credit variety, and its lingering stench is the size of the bond market.
5. There are simply TOO MANY promises to pay: Pensions, “entitlements,” even paying back creditors when bonds mature in the future.
6. People herded into this. It’s a mania so high that it’s a Mania^2.
7. The nominal prices for EVERYTHING are bid to the stratosphere by fog-a-mirror credit creation/debt issuance.
8. The last 40 years were a machine that turned savings capital into post-consumer landfill material.
9. It’s the largest game of CHICKEN ever. Chicken out too early, you get crushed. But anyone who’s still “in the system” when it goes “Toes to Jesus” will get stiffed. We’re all just whistling past the graveyard.
I’d have said, Panic now and beat the rush, but that was my view 25 full years ago. I was wrong, catastrophically wrong, for over two decades….proving to ME that
I.
Don’t.
Know.
Shit.
And suggesting to me that no one else does, either, including people who write articles about these subjects.
10. If pensions fail, bond prices fall, stock prices fall, and people’s wealth evaporates, how the F*%# is the gold market supposed to make you money? If you’re playing Monopoly(tm) and someone burns half the money in the bank, what happens to the price of Boardwalk, Park Place, the Railroads and (by inference) gold?
Will people WANT gold so much that they’ll….what? Hook to get scarce money so they can buy gold? Sell off their gun collection in order to acquire GOLD?
It’s all BS.
Gold exists in a market, same as real estate, corn, shares of IBM, radial tires, etc., etc. Those who tell you that you need to BUY THEIR GOLD should have to explain why, if banks and bonds and pensions all detonate, the price of gold will for some reason soar. Suggesting that it will do so because a future legislature or dictator will MAKE IT SO is so stupid I lack the words to describe it.
Physical ownership is always an alternative insurance policy. In a currency devaluation it can replace a portion of your losses, but if the currency fails, it will be re-valued in the favor of a government that will be disinclined to honor the true exchange value.
In general, whatever faction ends up on “top” will determine who wins and who loses. If we try to do what they do (or what we think they may be doing) then maybe that too is an insurance policy.
Because I see the unprecedented buildup in debt as evidence of the largest credit inflation in history, I conclude that the future Path must pass through a period of catastrophic debt-collapse deflation. That is what the “pension crisis” represents, in part.
What will be THE thing to physically possess in a huge monetary deflation? The answer to that question is a paradox of our age.
The value of gold is universal – that is, it has a value in dollars, yuan, rubles, pounds and so on. It is also intrinsically valuable – that is, it can be used in making things. Catalysts, corrosion-proof coatings and computer contacts, lots of other uses.
When (not if) the dollar goes to zero, all the other fiat currencies (some listed above) can also go to zero, and probably will. If by chance dollars are worthless but rubles are still worth something (and you can sell some gold for rubles and find a seller who will take them), you can still buy necessities you forgot to stockpile enough of. But gold has value beyond money, which is why it has been used for thousands of years. Silver is the same, and can make an antibiotic that no microbe can become resistant to.
It’s not really so much that the value of gold will soar (although it will, due to ongoing price suppression schemes failing) as all paper money will go to zero. It comparison with that, being able to buy a gallon of gasoline (assuming still available) with 1/10 ounce of gold versus NO gasoline with $100,000 paper dollars is valuable.
Public pension problems cannot disappear. They cooked the books and nobody paid attention til it was too late. They had nothing to loose, and, got away with it. now states report ‘unfunded pension liabilities’. nice words that people tend to ignore. having seen the retirement parties, you would understand how this debt ‘crisis’ happened. The math is not hard.