Retirement, or grabbing for the brass ring of leisure and relaxation after a lifetime of toil in one or more jobs, is the ultimate dream for many Americans!
Some will arrive at this destination comfortably, at least in terms of finances, while others may struggle if they ever actually have the ability to retire at all. Remember this disturbing statistic…
Federal Reserve Board Governor Lael Brainard – “…44 percent of all respondents could not cover an unexpected $400 emergency expense or would rely on borrowing or selling something to do so. The survey also shows that many adults have no savings for retirement.” (Source)
For those who have worked or are currently working in the public sector, they will often be the beneficiary of pension benefits. For those in the private sector retirement saving is typically up to us in the form of IRA’s and 401K’s.
And, of course, there’s Social Security distributions for all.
Public Pensions: Stable Retirement Funding Or A Ponzi Scheme That Eventually Will Come Crashing Down?
Investments, Returns and Risk
A pension plan will estimate the return the investment portfolio will earn. For public pensions that number is currently in the 7.5% annually range as the sample chart below indicates.
And by examining the pie chart above, it’s very apparent that investment growth is a significant piece of the pension fun asset pie. Low interest rates post-financial crisis have hurt and while the stock market has had a great run, an economic downturn or significant selloff would be very detrimental.
And add to this the fact that these low interest rates have pension managers forced to move out on the risk spectrum, investing a greater percentage of assets in stocks as the only real appreciation or return game in town. While many are too young to remember that stocks can go down as well as up, this increases the potential for the already potent underfunding pension plan issue to continue or worsen.