You read that right—not doubled, tripled, or quadrupled—quintupled. That’s nice when it happens on a slot machine, not so nice when it’s money you owe.
You will also notice in the chart that much of that change happened in 2008.
Why was that?
That's when the Fed took interest rates down to nearly zero, meaning it suddenly took more cash to fund future payments.
According to a 2014 Pew study, only 15 states follow policies that have funded at least 100% of their pension needs. And that estimate is based on the aggressive assumptions of pension funds that they will get their predicted rate of returns (the “discount rate”).
Kentucky, for instance, has unfunded pension liabilities of $40 billion or more. This month the state budget director notified local governments that pension costs could jump 50–60% next year.
That’s due to a proposed reduction in the system’s assumed rate of return from 7.5% to 6.25%—a step in the right direction but not nearly enough.
Think About This as an Investor: How Can You Guarantee 6–7% Returns These Days?
Do you know a way to guarantee yourself even 6.25% average annual returns for the next 10–20 years? Of course you don’t. Yes, some strategies have a good shot at doing it, but there’s no guarantee.
And if you believe Jeremy Grantham’s seven-year forecasts (I do: His 2009 growth forecast was spot on), then those pension funds have very little hope of getting their average 7% predicted rate of return, at least for the next seven years.
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5 comments:
Hope you clowns city of Salisbury are reading this because if Day stays mayor much longer this will be you. He's already taken money from active budget for police and fire to pursue personal interests what else gas he done or is he willing to do without publics consent
Left wing policies coming home to roost but they won't blame themselves they will blame Capitalism and Democracy.
I did that math 43 years ago on what the Unions were offering and opted for private industry.
Good call.
Government is next to Folk you.
private sector will pay for government employees fat pay and outrageous benefits.
Norway's pension fund has over 1 trillion dollars in it and has had average growth of nearly six percent since 1998. Thats larger than Mexico's GNP. Crazy.
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