4 ms·

Pension funds assume 6-8% real returns in their actuarial calculations (and even then, most are painfully underfunded). If real returns come in much lower than

by nugget 7y ago

Pension funds assume 6-8% real returns in their actuarial calculations (and even then, most are painfully underfunded). If real returns come in much lower than that, then many of the State, local, and private pensions will be destabilized. Social security and Federal pensions should be fine no matter what.

rebuilder 7y ago
What secures social security and state pensions against a long-term recession?
- nugget 7y ago
  Feds control the currency and can print money. After watching QE, I don't believe printing a few trillion dollars would create meaningful inflation, especially while the USD remains the world's reserve currency.
akeck 7y ago
Interestingly optimistic. I've been doing my recent retirement calculations with 5% nominal returns. I suppose it's because I'd rather be pleasantly surprised in retirement than starve.
- wcoenen 7y ago
  30 year treasury bonds are currently yielding around 2.6%. Doesn't that mean that investors are pricing in a significant risk that they won't get a better return on other investments over the next 30 years? The world might be following Japan's lead here.
- lowdest 7y ago
  5% nominal returns, then ~2% inflation and income taxes on withdrawal. That's going to require a high savings rate.
  - akeck 7y ago
    Yes, unfortunately.
lotsofpulp 7y ago
Hah, they already are destabilized. Look at all the cuts in government services and increase in taxes.
- pedasmith 7y ago
  Cite, please. America went through a painful contraction in tax revenues during the giant recession but have bounced back since then. Taxes have not notably increased.
  - lotsofpulp 7y ago
    Look up your local governments budget history to see the portion of tax revenue going to pay for defined benefit pension and other post employment benefits (OPEB). In the vast majority of cases, this is increasing, due to underfunding, bad or corrupt investments, and over promising to buy votes. This is just for states: https://www.federalreserve.gov/releases/z1/dataviz/pension/funding_status/map/#year:2016 https://www.federalreserve.gov/releases/z1/dataviz/pension/f... 2017 numbers: https://www.bloomberg.com/graphics/2018-state-pension-funding-ratios/ https://www.bloomberg.com/graphics/2018-state-pension-fundin... Note the numbers are based on rosy government assumptions, not real IFRA standards that private entities are subject to (for no other reason than politicians can vote themselves an exception). If your city/state hasn’t been hit yet, just wait. The people of CT/IL/NJ/KY are finding out now, and it’s going to get worse. Further decreases in funding for colleges, infrastructure, selling government assets (e.g. Chicago selling parking fee revenue) that can be put off into future. Increases in taxes, toll roads, government college tuition price, property taxes, vehicle registration fees. I have businesses in various states and locales, and all of them get various new taxes such as “elevator inspection fee” or something similar which was never itemized before, and of course they always go up.

by nugget 7y ago

rebuilder 7y ago

What secures social security and state pensions against a long-term recession?

nugget 7y ago
Feds control the currency and can print money. After watching QE, I don't believe printing a few trillion dollars would create meaningful inflation, especially while the USD remains the world's reserve currency.

akeck 7y ago

Interestingly optimistic. I've been doing my recent retirement calculations with 5% nominal returns. I suppose it's because I'd rather be pleasantly surprised in retirement than starve.

wcoenen 7y ago
30 year treasury bonds are currently yielding around 2.6%. Doesn't that mean that investors are pricing in a significant risk that they won't get a better return on other investments over the next 30 years? The world might be following Japan's lead here.
lowdest 7y ago
5% nominal returns, then ~2% inflation and income taxes on withdrawal. That's going to require a high savings rate.
- akeck 7y ago
  Yes, unfortunately.

lotsofpulp 7y ago

Hah, they already are destabilized. Look at all the cuts in government services and increase in taxes.

pedasmith 7y ago
Cite, please. America went through a painful contraction in tax revenues during the giant recession but have bounced back since then. Taxes have not notably increased.
- lotsofpulp 7y ago
  Look up your local governments budget history to see the portion of tax revenue going to pay for defined benefit pension and other post employment benefits (OPEB). In the vast majority of cases, this is increasing, due to underfunding, bad or corrupt investments, and over promising to buy votes. This is just for states: https://www.federalreserve.gov/releases/z1/dataviz/pension/funding_status/map/#year:2016 https://www.federalreserve.gov/releases/z1/dataviz/pension/f... 2017 numbers: https://www.bloomberg.com/graphics/2018-state-pension-funding-ratios/ https://www.bloomberg.com/graphics/2018-state-pension-fundin... Note the numbers are based on rosy government assumptions, not real IFRA standards that private entities are subject to (for no other reason than politicians can vote themselves an exception). If your city/state hasn’t been hit yet, just wait. The people of CT/IL/NJ/KY are finding out now, and it’s going to get worse. Further decreases in funding for colleges, infrastructure, selling government assets (e.g. Chicago selling parking fee revenue) that can be put off into future. Increases in taxes, toll roads, government college tuition price, property taxes, vehicle registration fees. I have businesses in various states and locales, and all of them get various new taxes such as “elevator inspection fee” or something similar which was never itemized before, and of course they always go up.