Do you know that many municipalities in the US are filing for bankruptcy due to retirement pension default? A recent report released by Bridgewater states that 85% of them will fail in a specific time frame. How confident are you that your pension will last you the rest of your living years? This is why pension concerns are alarming for millions of people in the US. It is a frantic time for anybody who is dependent on that pension succeeding because most are hanging on a short financial string. A sharp scissor is ready to cut funding and politicians could care less. The problem in my opinion is that the people who manage the funds, are not doing enough to grow it, or are misusing the money for the municipality’s other budget shortfalls.
Private pensions are on the same boat as the public pensions. The corporation who was set up to help failing pensions is 34 billion in deficit. The numbers do not lie as it beckons anyone who believes pensions will be around to support them. As quoted in Forbes, “Over the past forty years the Pension Benefit Guaranty Corporation has assumed responsibility for thousands of failed plans. Traditional defined benefit pension plans offered by private employers are rapidly facing extinction and with the PBGC’s deficit recently hitting a record $34 billion, the future of private pensions looks grim.”
Now let’s focus on what can we do to avoid getting a heart attack due to worries that your pension might go under very soon. It all boils down to realizing you have to save more while in your working years. See the pension as gravy if you get it when you retire. Never be dependent on that income from day one and you will see things differently.
Pension Concerns are Alarming:
If you are close to becoming retired, can you from the first check received, save it in an after tax account to be invested. Why would you invest more money after you just retired? Because you cannot predict how long your pension will last, so to protect your future income, invest in the short term all the pension dollars until it can give you an income equal to 50% of the defined monthly amount. Invest it in low cost index funds that follow US equities or place it in dividend champion companies. The compound interest of the investments will increase every year and offer you a hedge against a possible pension failure. Remember this will be a short term fix and when you reach your goal, then you can begin to use the pension dollars to do as you please.
I fully understand that public and private pension organizations have an obligation to their participants who contributed to their retirements in a perfect world, they keep their promise. If not then avoid complaining as it will only waste your mental energy. If you prepare and plan then you can smile if your pension gets eliminated or slashed. The future can be written by you watching your money hence the name of this site. Do not live life in imaginary bliss above means, and depending on Social security / pensions. Stand on your own two feet by saving early and often. Make compound interest your friend not your enemy. As always do your best to talk about money and don’t shy away from it, because the people who talk about it on average learn how to grow it.
Resources:
Bank Rate Article
Comment if you are expecting a future pension? How confident are you that it will be around when you qualify to take it?
Rich Uncle EL
I am not counting on anyone but myself to fund my retirement.
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That’s the right way to live, Steph. Keep it up, thanks.
I am a government employee and therefore hope and pray that my pension is available throughout my retirement. But as you've expressed in your article, there are definitely growing concerns about the long term availability and reliability of many pensions both public and private. For that reason, I have begun looking to build other alternatives incomes streams just in case one day my pension check is either reduced or eliminated due to unfunded liabilities and/or bankruptcy. If all goes well, my pension will simply be icing on the cake. 🙂
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Im glad you’re taking the bull by the horns, good luck on your journey.
We should prepare for our retirement because we are the only one who will benefit from it. By saving as early as now and consistency is the right key.
I agree it’s a better plan to be proactive and not fully depend on a pension.
I have a pension and I feel pretty secure that it will be there, but I'm not relying solely on it. They keep watering down the pension to new members and honestly I think they should replace the pension with a good matching 401k…though my colleagues would say that was blasphemy.
Just stay quiet for now, they will eventually grand father you guys in at 100%. After that then you enroll in the 401k. Sounds good, Thanks.