Thursday, September 1, 2016
More sad pension news
The dilemma we face is that we have made future promises and don't have enough money set aside today to pay them. Therefore someone has to make up the shortfall. Instead of trying to determine who makes up the shortfall, we try to bury our heads in the actuarial sand of high expected returns.
But where can Illinois get the additional $5 billion a year? And where can America get the additional $6 trillion?
And if the bet doesn’t work then who will pick up the pieces?
In 2010, Stanford Prof. Josh Rauh estimated that if state pension funds earned an average return of 8% on their assets, then states would in aggregate run out of funds in 2028. If average returns are only 6%, then state funds in aggregate will run out in 2024. That’s only eight years from now.
This then shifts the burden to future taxpayers. As this burden becomes more apparent, Rauh speculates that taxpayers may choose to relocate from states with high unfunded pension liabilities. This would, in his opinion, increase the likelihood of a federal taxpayer bailout. Failing that, states would have to resort to what has so far been unthinkable — cutting benefits.
Or as has been said before, "that which cannot be paid will not be paid".
Its good to see that the mainstream media is finally reporting on what many of us in the blogosphere have been saying for years. The only thing you can count on regarding pensions is higher taxes, lower benefits, and broken promises. In order to financially independent and financially secure one must rely on ones self. I am sorry if that scares people or pisses them off but it is the truth. The sooner people begin to take back control and responsibility the sooner we will be able to truly address these issues.
You can lay much of the fault right at the doorstep of the Federal Reserve. Everyone hates socialism yet not many people think it is a bad idea for academics with no real world experience to set the rate of interest rates. As if a dynamic $16 trillion dollar economy can be controlled by raising and lowering short term interest rates.
Notice that not one politician is event discussing this issue and they will not.