Is this what the pension crisis will look like?

Discussion in 'Economics & Trade' started by GodTom, May 1, 2018.

  1. GodTom

    GodTom Well-Known Member Past Donor

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    I was looking at the headlines and this article about Venezuela vaught my eye;
    Venezuela minimum wage up 155 percent, down 13 percent in dollar terms

    This might be a good way to demonstrate how this pension crisis is going to playout in the western world. As more people retire and collect benefits, that's if they're even paid out, the supply of dollars will increase, thus leading to this kind of inflation Venezuela sees.

    In the long run paying out these pensions, without massive reconstructing, will actually remove purchasing power. If we pay these pensions out, we will actually lose money. Does anyone understand what is coming down the road?
     
  2. Kode

    Kode Well-Known Member

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    Using Venezuela as a predictor is illogical and misleading. They are printing money as fast as they can in a desperate frenzy to stave off complete collapse, and creating collapse in the process. But they are between a rock and a hard place.

    In our case, pensions have been, and continue to be, devastated by recessions and market crashes. Take the California PERS for an example. At the beginning of the 2007 market crash they were 101% funded and looking very, very good. Then the market crashed yet they still had to pay out monthly benefits to retirees, but now with shares that were previously worth much, much more. In the ten years following that they managed to rebuild the fund to where it is now 65% funded, but they know they are facing another market crash, near-term. They fear it will drop the fund below 50% funded, which actuaries believe will make recovery very difficult if not impossible.

    https://calpensions.com/2017/07/10/old-cause-of-pension-debt-gets-new-attention/

    People who don't know these details of the effects of market crashes on retirement funds still, in their ignorance, call for investment of Social Security Trust Fund assets in equities (stocks and bonds). Fixed assets are the best and safest choice for investment of excess retirement funds even if they barely beat inflation.
     
    Last edited: Oct 27, 2018

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