Authored by Simon Black via SovereignMan.com,
I’ve been talking a lot about the looming pension crisis...
My short thesis is, if you’re depending on a pension for your retirement, it’s time to start looking elsewhere.
Pensions are simply giant funds responsible for paying out retirement benefits to workers.
And today, the nation’s 1,400 corporate pension plans are facing a $553 billion shortfall. And, according to Boston College, about 25% will likely go broke in the next decade.
Think about that… A full one-quarter of US, non-government employees expecting a pension to fund their retirement will likely get zilch.
And it’s even worse for the government…
According to credit-rating agency Moody’s, state, federal and local government pension plans are $7 trillion short in funding.
The reason for this crisis is simple – investment returns are too low.
Pension funds invest in stocks, bonds, real estate, private equity and a host of other assets, hoping to generate a safe return.
But with interest rates near their lowest levels in human history, it’s been difficult for these pensions to generate a suitable return without taking on more and more risk.
And that’s another big problem with pensions – their investment returns are totally unrealistic.
Most pension funds require a minimum annual return of about 8% a year to cover their future liabilities.
But that 8% is really difficult to generate today, especially if you’re buying bonds (which is the largest asset for most pensions). So pensions are allocating more capital to riskier assets like stocks and private equity.
And so far it’s working.
The California State Teachers’ Retirement System (CalSTRS) and California Public Employees’ Retirement System (CalPERS) both earned more than 8% for the second fiscal year in a row. CalPERS is the largest public pension in the US. And, together, the two funds manage $575 billion for 2.8 million public workers and retirees.
Two 8%+ years isn’t the norm. Over the past 10 years ending June 30, CalSTRS returned an annualized 6.3% a year – well below its target. And CalPERS has returned a dismal 5.1% over the same period.
And that’s been with the tailwind of one of the longest equity and fixed-income bull markets in history.
It’s clear these inflated gains can’t last.
And the two California pension giants are even admitting the game is up.
No, no more 8% target return, as we teeter on the edge of what could be the largest market correction of our lifetime.
CalSTRS is making the bold move to drop its f
http://www.zerohedge.com/news/2018-07-24/two-giant-us-pension-funds-admit-theres-big-problem?utm_source=feedburner&utm_medium=feed&utm_campaign=Feed%3A+zerohedge%2Ffeed+%28zero+hedge+-+on+a+long+enough+timeline%2C+the+survival+rate+for+everyone+drops+to+zero%29
Realist - Everybody in America is soft, and hates conflict. The cure for this, both in politics and social life, is the same -- hardihood. Give them raw truth.
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