WSJ: US Faces $5 Trillion Pension Hole, Same Size as Japan's Economy

[Hydrogen]

Financially strapped cities and states can’t afford the retirement payouts they made to public workers years ago and The Wall Street Journal reports that by one estimate they are short $5 trillion, an amount that is roughly equal to the output of Japan, the world’s third-largest economy.

Many retirement funds could face insolvency unless governments increase taxes, divert funds or persuade workers to relinquish money they are owed, the Journal warned.

“Uncertainty over public pensions is one reason some Americans are reaching retirement age on shaky financial ground. For this group, median incomes, including Social Security and retirement fund receipts, haven’t risen in years. They have high average debt, and are often using savings for their children’s educations and to care for their elderly parents,” WSJ.com explained.

“A technology-led stock market boom in the late 1990s produced a brief period of surpluses in pensions, according to figures from Pew, before deficits began to creep higher in the mid 2000s. Deficits accelerated following the 2008 financial crisis, which caused steep losses for many funds just as large numbers of baby boomers began to retire,” the Journal explained.

“State and local pensions lost roughly $35 billion in assets between 2008 and 2009, according to Pew. Liabilities, meanwhile, ballooned by more than $100 billion a year, widening the difference between the amount owed to retirees and assets on hand. Not even a nine-year bull market in stocks could close that gap.”

Meanwhile, Maine has adopted a risk-sharing plan for municipal employees that participate in the system starting the fiscal year than began July 1. Under the plan, the risks of investment gains and losses aren’t just assumed by taxpayers, but shared between local governments, their employees and retirees.

Most U.S. public pensions were fully funded as recently as 2000, but the collapse of the internet bubble and the Great Recession caused by the financial crisis of 2008 -- combined in some cases with years of contribution shortfalls and unfunded benefit increases -- resulted in pension debt exceeding $1 trillion, Bloomberg reported

Between 2003 and 2013 the cost of making required pension payments almost doubled, according to a 2017 report from the Pew Charitable Trusts.

In response, some pensions have adopted formal cost-sharing mechanisms, adjusting contributions or benefits, instead of making unplanned benefit cuts or contribution increases. Almost 30 defined benefit pension plans in 17 states use cost-sharing mechanisms to manage risk, according to the Pew report.

Some states, such as Illinois and New York, have constitutional or statutory prohibitions on changing retiree benefits.

Maine capped contribution rates by municipalities at 12.5 percent and 9 percent for employees, giving both parties certainty about how high costs would go to make up for investment losses. If pension losses exceed the capped contribution rates, retiree cost of living adjustments are reduced. Maine’s local governments and employees share in investment gains and losses at a 55 percent to 45 percent split.

Had Maine’s plan been in effect after the financial crisis, contribution rates would have increased to 12.5 percent and 9 percent and held there for five years. Retirees would have had a 30 percent annual reduction in cost of living adjustment for seven years, according to Gene Kalwarski, chief executive officer at Cheiron, a McLean, Virginia-based actuarial and financial consultancy.

“Under a traditional plan, you have one lever that deals with something like a recession, that’s the employer contribution," Kalwarski said. “Here we’ve got the COLAs as well as the member contributions that reduce what otherwise would have been an employer contribution spike."

When the markets rebound and investment gains exceed the assumed investment return, the COLA would increase until reaching a cap of 2.5 percent. Further gains would allow employers and employees to reduce contributions for services performed by current members when the plan is fully-funded, to a minimum of about 14 percent, 7.7 percent for employers and 6.2 percent for employees.

https://www.newsmax.com/finance/personal-finance/wsj-pension-japan-economy/2018/07/31/id/874780/

....

Definitely a critical issue in the years to come.

Here we see a market with future potential for ICO tokens and crypto currencies.

Crypto currencies like bitcoin, which are deflationary in nature, and built around producing long term value, could represent an ideal vehicle for retirement or pension funds as they are designed to appreciate in value over time. This inflation in value could help a pension fund to stave off additional liability costs in terms of people living longer lifespans or being in better overall health.

"Be greedy when others are fearful," is one investment quotation people love to quote. There is a lot of fear in pension plans and retirement funds which could mean its a good area to be greedy in atm.

Practically everything said about why pensions and retirement plans are failing is false. There are valid and easy to explain reasons for why these things fail and the real reasons are never mentioned.

[davis196]

The US pension funds will never buy bitcoin or any other crypto because:
1.They are restricted by the regulations.
2.They know that cryptocurrenices are too risky,the crypto markets are manipulated by the whales and 90% of all ICOs are scams.
The only way to solve this "pension hole" is the Federal Reserve to print 5 trillion USD.

[audaciousbeing]

Definitely a critical issue in the years to come.

Here we see a market with future potential for ICO tokens and crypto currencies.

Crypto currencies like bitcoin, which are deflationary in nature, and built around producing long term value, could represent an ideal vehicle for retirement or pension funds as they are designed to appreciate in value over time. This inflation in value could help a pension fund to stave off additional liability costs in terms of people living longer lifespans or being in better overall health.

"Be greedy when others are fearful," is one investment quotation people love to quote. There is a lot of fear in pension plans and retirement funds which could mean its a good area to be greedy in atm.

Practically everything said about why pensions and retirement plans are failing is false. There are valid and easy to explain reasons for why these things fail and the real reasons are never mentioned.

This is going to be a serious issues and not only on the retirees but their dependents. Its sad to see retirees face this kind of uncertainty concerning their pensions being owed by the same economic institutions they worked all their youthful years to build. The most worrisome in all of this, is seeing a country like the United States still not being able to get its pension debacle right despite the several reforms and planning that have been put in place over the years.

In my own opinion, for this to solve itself there is need to put a tight leash by law on the areas of investment pension funds can be invested or else this issues will continue to arise and the pensioners would be the ones bearing the brunt and forced to cut down their basic cost of living while people making their investment decisions would always be taking care of in terms of consultancy services. Pension fund for any reason in my opinion should not be invested in the stock market, or the crypto currency for now (due to its volatility) but on largely stable investment such as government backed securities, mutual funds with adequate guarantee. A pensioner to me would appreciate his monthly fairly stable inflow than high inflows that could end up with him losing all.

[the13thsymphony]

This is going to be a big problem for the incoming retirees in the years specially to the professionals that we have today and even the people who has blue collar jobs and it will haunt the US government and they should make a move on how to resolve it right away without getting their government into a debt because that happens a new recession will occur in the US.

[butterflies04]

Print Print Print (or die). Soon 5 trillion will be nothing.  The economy and debt must grow at all costs or the world economy will die.  May want to buckle up.  Things may get a bit bumpy. 

[Netnox]

It is very simple. These payments will never be made and the pensioners will be pissed off. It is not surprising that the vast majority of these cities are being ruled by Democrat mayors. And we should remember that Democrats are very experienced in ruining economies.

[stompix]

Here we see a market with future potential for ICO tokens and crypto currencies.

Crypto currencies like bitcoin, which are deflationary in nature, and built around producing long term value, could represent an ideal vehicle for retirement or pension funds as they are designed to appreciate in value over time.

Yeah, right.
So cryptos are designed to appreciate in value....is that forever?
I mean, probably in 100 years you could buy a solar system with a satoshi!

The pension crisis is pretty simple, there are not enough contributions to pay the pensions.
People live longer, contribute less and less and it's quite easy to see where this is going.
Bitcoin or some "ico" (really?) will not solve this, but an "ico" has the potential to destroy the entire system once for all.

What you need is one of those, a higher workers/retired ratio or higher contributions.
It's simple math, not magic.

[Hydrogen]

The pension crisis is pretty simple, there are not enough contributions to pay the pensions.
People live longer, contribute less and less and it's quite easy to see where this is going.
Bitcoin or some "ico" (really?) will not solve this, but an "ico" has the potential to destroy the entire system once for all.

What you need is one of those, a higher workers/retired ratio or higher contributions.
It's simple math, not magic.

Bolded: exactly. What would happen if a corporation in the private sector tried to run a retirement plan the way governments do I wonder? Would it be shut down? There could be a substantial difference between how states and corporations run retirement plans to consider.

I think there is potential for an ICO or a crypto currency offering a retirement plan based on the concept of compounding interest and a viable long term growth plan. There is a real need for it. Crypto could be better suited for that purpose than fiat. Especially crypto with a limited supply which would be guaranteed to not be overprinted or devalued.

[BTCballa]

It is not a secret that worldwide economic system as it is right now is just unavoidably moving towards a big crash and Crisis, so cryptocurrency in that case would be an accent, that will be operating developing countries to move for.

[wxa7115]

The pension crisis is pretty simple, there are not enough contributions to pay the pensions.
People live longer, contribute less and less and it's quite easy to see where this is going.
Bitcoin or some "ico" (really?) will not solve this, but an "ico" has the potential to destroy the entire system once for all.

What you need is one of those, a higher workers/retired ratio or higher contributions.
It's simple math, not magic.

Bolded: exactly. What would happen if a corporation in the private sector tried to run a retirement plan the way governments do I wonder? Would it be shut down? There could be a substantial difference between how states and corporations run retirement plans to consider.

I think there is potential for an ICO or a crypto currency offering a retirement plan based on the concept of compounding interest and a viable long term growth plan. There is a real need for it. Crypto could be better suited for that purpose than fiat. Especially crypto with a limited supply which would be guaranteed to not be overprinted or devalued.

I think differently, I think the problem is the mere idea of retirement, that is relatively new, in almost all the history of mankind you did not retired, you worked during all your life and only those rich enough to stop working did that, the rest worked until they were unable to do it.

The idea that the average person should be able to retire worked in the previous decades simply because there were many workers and few retired people but now that the demographics have changed and the ratio between the current workers and the retirees has changed as well it is impossible to pay for the pensions, my father always thought the pensions system was a scam and if you want to retire you need to make a plan by yourself and holding some bitcoin is not a bad idea.

[BitHodler]

my father always thought the pensions system was a scam and if you want to retire you need to make a plan by yourself and holding some bitcoin is not a bad idea.

It's debatable whether or not the pension system is a scam, but I completely agree with the fact that we should be doing the best we can to take care of ourselves instead of relying on external elements.

The older generation has a pretty decent pension budget they will be able to somewhat comfortably maintain themselves with, but that's completely different for the younger generation. We are literally on the wrong side.

If I don't do anything myself to build up enough capital to later on retire with, I'm in a very bad situation, that I know right now. Bitcoin is the only element that I have confidence in to help me achieve my goal.

There is nothing for me to lose in this case. Not doing anything will make me a loser.

[aso118]

The US pension funds will never buy bitcoin or any other crypto because:
1.They are restricted by the regulations.
2.They know that cryptocurrenices are too risky,the crypto markets are manipulated by the whales and 90% of all ICOs are scams.
The only way to solve this "pension hole" is the Federal Reserve to print 5 trillion USD.

There may be ways to get around this
1) Pension funds can take indirect exposure to cryptocurrencies. They can invest in a regulated fund which invests in cryptocurrencies.
2) 90% of ICOs may be scams but pension funds are not forced to take exposure to all cryptocurrencies. They can play safe and take exposure to the top ones.

[stompix]

The pension crisis is pretty simple, there are not enough contributions to pay the pensions.
People live longer, contribute less and less and it's quite easy to see where this is going.
Bitcoin or some "ico" (really?) will not solve this, but an "ico" has the potential to destroy the entire system once for all.

What you need is one of those, a higher workers/retired ratio or higher contributions.
It's simple math, not magic.

Bolded: exactly. What would happen if a corporation in the private sector tried to run a retirement plan the way governments do I wonder? Would it be shut down? There could be a substantial difference between how states and corporations run retirement plans to consider.

I think there is potential for an ICO or a crypto currency offering a retirement plan based on the concept of compounding interest and a viable long term growth plan. There is a real need for it. Crypto could be better suited for that purpose than fiat. Especially crypto with a limited supply which would be guaranteed to not be overprinted or devalued.

Coins can't grow in value forever that would lead to situations where one coin would be worth more than all the goods in the world.
It's pretty simple math, you work for 40 years, you contribute with 10% but you stay retired for 20 and want a pension of at least half of your wage. Basically, you contribute for 48 wages but you want 120 back...
In some countries, the percentages are even worse, in some better but this how it looks in my country.

So that crypto would have to grow 2.5x at least for this, every generation.
You realize that no matter what at one point this is mathematically impossible?

[drm]

The US pension funds will never buy bitcoin or any other crypto because:
1.They are restricted by the regulations.
2.They know that cryptocurrenices are too risky,the crypto markets are manipulated by the whales and 90% of all ICOs are scams.
The only way to solve this "pension hole" is the Federal Reserve to print 5 trillion USD.

1 all regulations will go out of the windows when all hell breaks loose and that pension hole starts to be a problem
2  and devalue the dollar even more, just waiting for everything to crumble down  

[Indamuck]

Does this really even matter? The Government will just print more USD to pay for what it wants. The entire system is based off debt, there are more debts in the world than money to pay them all back.  The only thing that keeps the USD a global currency is the military force backing it.

[pereira4]

Does this really even matter? The Government will just print more USD to pay for what it wants. The entire system is based off debt, there are more debts in the world than money to pay them all back.  The only thing that keeps the USD a global currency is the military force backing it.

Maddof schemes can only work for so long. Eventually it's a non sustainable dead-end. The question is, for how long can the US be forced down everyone's throats as the global unit of account/world reserve currency?

Given past precedents, it's only a matter of time that the USD hegemony ends. I don't give it more than 20 years, unless the USD for some reason destroys any past precedents which I doubt. What matters is what will fill the gap that the USD leaves: The CNY or Bitcoin?

[wxa7115]

It's debatable whether or not the pension system is a scam, but I completely agree with the fact that we should be doing the best we can to take care of ourselves instead of relying on external elements.

The older generation has a pretty decent pension budget they will be able to somewhat comfortably maintain themselves with, but that's completely different for the younger generation. We are literally on the wrong side.

If I don't do anything myself to build up enough capital to later on retire with, I'm in a very bad situation, that I know right now. Bitcoin is the only element that I have confidence in to help me achieve my goal.

There is nothing for me to lose in this case. Not doing anything will make me a loser.

That is what I keep telling my friends, almost every week there are articles about how our generation will be unable to retire because the pensions we will receive in the future will be incredibly low and that we need to begin to save right now and invest if we want to have a chance to retire in the future, and those predictions are not taking into account the economy of the world crashing, which we know it will happen at some point of our lives

Does this really even matter? The Government will just print more USD to pay for what it wants. The entire system is based off debt, there are more debts in the world than money to pay them all back.  The only thing that keeps the USD a global currency is the military force backing it.

Yes, it does matter, there are only two ways out of this, increase taxes or use the printing machine, the government has a preference for the printing machine but eventually other countries will realize that Uncle Sam is abusing that power and will stop storing dollars and will spend them immediately causing the money velocity to increase and causing inflation to grow as well.

[1Referee]

Given past precedents, it's only a matter of time that the USD hegemony ends. I don't give it more than 20 years, unless the USD for some reason destroys any past precedents which I doubt.

People said the exact same thing back in the 90's. The USD is still here today, and I would even say that it has become more dominant in the world economy. It will eventually implode, but eventually can just as easily mean somewhere in the next 50-100 years. I know people love to see the USD implode today rather than tomorrow, but it's not going to happen any time soon, so forget about it for now.

What matters is what will fill the gap that the USD leaves: The CNY or Bitcoin?

The choice is up to the people this time. If Bitcoin really lives up to its expectations as currency, which I think it will with tier 2 implementations, you can choose whichever currency that you consider the safest option. In my case that's definitely Bitcoin, which is why I don't sell any of my coins. Why should I sell money?

[Mikado_]

Unfortunately a massive money printing will be necessary to pay pensions, resulting in more and more inflation.

Bitcoin is a valuable asset in this context.

[darkangel11]

The pension crisis is pretty simple, there are not enough contributions to pay the pensions.
People live longer, contribute less and less and it's quite easy to see where this is going.
Bitcoin or some "ico" (really?) will not solve this, but an "ico" has the potential to destroy the entire system once for all.

There's also another factor: migration.
For instance in Europe pension funds in most countries were doing fine. Not great, but they weren't on the verge of collapsing. Then the EU happened and people started to migrate like crazy because suddenly they could travel without a passport and get a job without problems. Why should they stay in a country where wages are 4 or 5 times lower compared to its neighbors.

What you need is one of those, a higher workers/retired ratio or higher contributions.
It's simple math, not magic.

IMO what is needed is for the governments to stop bullshitting people that pension funds are sustainable because in many countries they are already bankrupt. The only thing that keeps them going is government bailouts - tax money funneled into pensions.