Another Warning Signal for Those Expecting Pension Payments
Loyal followers of Savings Beagle are familiar with my quarterly stock market return posts.
These pieces aren’t targeted toward fat-cat investors; rather, it’s the average Joe and Mom and Pop that need to be intimately familiar with how the stock market is behaving, and, more importantly, how stock market returns will impact retirement benefits.
In each stock market quarterly update post, I note how stock market returns in the range of 7-8 percent annually are needed to ensure pension (government and private) obligations will be met.
Those levels of returns haven’t been seen in some time now. And many predict they won’t be returning any time soon.
Which means, pension funds – and those expecting payments from pensions – must adjust their expectations.
The underfunding problem of pensions throughout the United States has been kept mostly quiet.
However, more and more is being written about the looming problem as it’s realized a magic solution isn’t going to appear out of thin air.
In my post, “The Surprising Second Quarter Stock Market Results” I linked to an article titled, “Calpers Reports Lowest Investment Gain Since Financial Crisis.” For those unaware, Calpers is the California Public Employees’ Retirement System, the largest public retirement system in the U.S.
This news is not surprising for those who’ve been following this problem.
For many, however, this headline, and many other warnings that divulge the truth about pension funding, does come as a surprise.
Unfortunately, the even bigger surprise will come to government retirees in California (and other states) when the news is released that the promised monthly payments cannot be made in full because of the lack of investment returns by said retirement system.
Or when current pension plan participants see a sizable amount removed from each paycheck to cover payments to current retirees.
Or when all California residents – and the residents of other states where pension funding is in question –are levied a tax solely to cover the public pension shortfall.
In another corroboration of the problem, The Wall Street Journal today has a piece titled, “Era of Low Interest Rates Hammers Millions of Pensions Around World.” The article, written by Timothy W. Martin, Georgi Kantchev and Kosaku Narioka, illustrates that this pension funding problem is not isolated to just the United States. Which doesn’t bode well for worldwide economic growth.
The article states, “Managers handling trillions of dollars in government-run pension funds never expected rates to stay this low for so long. Now, the world is starved for the safe, profitable bonds that pension funds have long needed to survive. That has pulled down investment returns and made it difficult for funds to meet mounting obligations to workers and retirees who are drawing government pensions.”
That snipit highlights the main thrust of the article. You may, or may not, be able to access the full text behind The Wall Street Journal’s firewall using the link above. If you can, I encourage you to give it a read.
If you can’t, the down-and-dirty overview is: the future’s not so bright.
Why does a site focused on finding deals and providing money saving advice focus on such an issue?
To emphasize the importance of relying on your own money for future needs.
Much easier said, than done, I understand. Especially in an economic environment where middle-class wages have stagnated over the past few decades, eroding real spending power.
But, any amount of saving is better than none.
And, we at Savings Beagle are here to help you down that saving path, one step at a time.
So be sure to bookmark our site, follow us on Facebook, join us on Twitter or subscribe to our posts to ensure you receive every savings opportunity we’re able to pass along.
Saving money and planning for the future’s hard – let us help you make the process a little easier.
image courtesy of Idea go at freedigitalphotos.net
