You may have heard of the pension crisis and wonder what it is about. Pensions are actually large pools of invested capital. They pay retired workers their promised retirement benefits. It sounds like a great idea, and it was when they started them.
The problem is that today, a huge number of pensions funds throughout both the United States and the entire world no longer have sufficient assets in order to pay out the obligations which they owe millions or retired workers. In the U.S. the problem is acute.
Consider that there are pensions for federal, local, and state government workers. These run around $7 trillion in funding short of what they must have in order to pay retirees the benefits which they promised to them. This of course does not include the $49 trillion worth of not yet funded obligations from Social Security. You can imagine where this is heading.
It also does not say anything about the private sector pensions in America. As many as 1,400 corporate pensions have a total $553 billion in shortfall. That may not sound so bad, but analysts forecast that a full one-quarter of them will go under over the coming decade. Who is going to clean up that mess?
This sounds horrible, but it is not the worst of it. Unfortunately the global problem is even worse than the American one (and that is truly bad enough). Look at the year 2015. The global pension funding gap amounted to $70 trillion, per the World Economic Forum.
To put that into perspective, this amount represents more than the twenty biggest global economies put together. It is bigger than the G7 —the U.S., Japan, Germany, the United Kingdom, France, Italy, and Canada, plus China, India, Spain, Australia, the Netherlands, Brazil, South Korea, Russia, Mexico, Indonesia, Turkey, Saudi Arabia, and Switzerland all combined!
Per the World Economic Forum the shortfall will hit $400 trillion no later than 2050.At Davos they have some suggestions for how to improve the problem. They want all nations to deliver a pension for everyone. It may be a great idea, but who will pay for this and how will it be better than the $49 trillion short falling Social Security system in the U.S.?
The WEC also wants to raise the amounts of employee contributions. This is a nice way of saying that presently working folks need to give more in taxes to help support the ones who are retired. That might work, though it would not be popular. The biggest problem is that the demographics of the world are going from bad to worse ever year. An insufficient number of children are being born to work and support retirees.
This is true in the U.S. as it is for nearly the whole world. Closer to home in the States, the U.S. Office of Personnel Management recommended cuts in the pensions amounting to $143.5 billion. This would be not only for those currently working, but also for the poor already retired government workers. The bold plan might be viable if it were nearly enough to stop the bleeding, but it is not.
Is Your Retirement Portfolio Prepared for The Festering Pension Crisis?
American government pensions are fully $7 trillion in the red. The United States has its worse fertility record in the country’s 225 year plus history. When the pension systems around the world fail, what is going to stop the financial world from going to pieces? Stock markets will not like it much when all the defaults become a constant recurring theme and background noise. The truth is that any or all of these scenarios could lead to a financial meltdown. This is why you must take proactive steps to protect your retirement portfolio today.
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