Every week there are more new money management corruption stories unfolding. Every so often I share one to remind you just how utterly corrupt and self-serving our existing system of personal money management has become. The only way to win is to know the games constantly being played against you and then manage your money yourself. It’s your money, and as I have shown you and will continue to show you, nobody can manage your money as well as you.
So here’s a Reuters story that came out on Monday–Study shows $1.2 trillion gap for public pensions.
The story is about the results of a study released by the Milliman Company, one of the world largest actuarial firms. The study discloses that our largest 100 public pension funds, pensions for government employees at all levels–county, schools, states and the federal government–have around $1.2 trillion of unfunded liabilities which is about $300 billion above the nearly $900 billion they reported themselves. That means they owe their employees $1.2 trillion more, or about 33% more, than they are able to pay.
If you’re receiving or expecting a government pension you’re probably sitting there wondering how much are you are likely to get in the end, and with good reason. If you’re not expecting a government pension you should still be concerned because a lot of the shortfall is going to come from all of us in the form of more taxes, reduced Social Security and Medicare.
This is really bad news–another example of fiscal irresponsibility–and yet the ridiculous spin laid out by the Milliman Company in describing their findings is also par for the course. The article said, and I quote:
“…the multibillion-dollar difference was good news. Rebecca Sielman, the report’s author, said results should reassure the public that America’s public pensions in general are accurately reporting their funding shortfalls. The difference between what public pensions across the United States have reported and what Milliman found wasn’t significant, Sielman said.”
Good news? Not significant? Accurately reporting their shortfalls? What world do these people live in? And are they really short 30%? No they’re not. It’s a lot worse than that. Here are two more quotes from later in that same article:
“The 100 funds Milliman studied used a median rate of return for their investments of 8 percent. But the recession slashed into the market, dropping actual median returns to just 3.2 percent for the last five years, according to data from Callan Associates.”
“Moody’s Investors Service said in July that the collective gap would be $2.2 trillion if funds used a 5.5 percent discount rate.”
Do you think for one minute with all the problems our economy is facing going forward that they’ll get an 8% return, the same as the stock market average of the last 50 years or so? People who, in my opinion have usually underperformed the market since their inception 25 years ago?
Using a realistic return going forward their real shortage, 2.2 trillion, is an amazing 50%!
To me what they’re doing here is more than just kicking the can down the road. It’s either gross incompetence or flat out lying. Probably both! And these are “trustees“?
So what do I think? I think the shortfall is more like 50%; that all kinds of political pressure will come to bear, with the result that if you’re getting one of those pensions, expect to get only 75 cents on the dollar, and if you’re a taxpayer, well I already told you what I think, that it’s you and me that will end up paying the other 25%. I don’t realistically see any way around it.
The public pension system is utterly corrupt just like the financial services industry at large and so you really can’t depend on anyone but yourself to ensure your future. You can’t depend on your friendly financial advisor, the alleged experts of the financial media, or on any level of government. You must save and put a plan in place, manage your own investments, and depend only on yourself. This may sound daunting, but it is very doable and all the information you need to get it done is in Money Smart and on www.moneysmartonline.com.