Back in the day if you had a federal, state or municipal government job, you were the envy of your friends. You didn’t have to worry about updating your résumé, you didn’t have to grovel for a pay raise and you could ride out your sinecure to a well-funded retirement pension. Or so folks believed.
But life isn’t so rosy anymore for government workers – at least not in California. The California Public Employee Retirement System (CalPERS), the largest public retirement system in the United States, is now paying out more in benefits than it’s collecting in contributions. Or as California Public Policy Center Executive Director Ed Ring puts it, “For the first time in history, America’s public employee pension funds, managing well over $4.0 trillion in assets, are becoming net sellers, not buyers.”
Chances are then, if you happen to have a friend who’s a government worker, she’s going to delay her retirement. The word’s out: Retirement, at least for public employees, isn’t what it used to be.
This while more and more baby boomers enter retirement every year throughout the U.S. and the developed world. Instead of working, earning, contributing to their pension funds and increasing the value of their assets, they’re now gradually depleting those assets. As contributions to their pension funds continue to ebb, the value of the funds is decreasing accordingly.
So two major forces are depleting pension funds: demographics and the declining stock market in which those funds are invested. Furthermore, as Ring points out, debt as a percentage of GDP has more than doubled from one hundred fifty percent to three hundred fifty percent and stayed flat for the last seven years. During the same period the federal funds rate, the rate at which Federal Reserve funds are lent to banks, has dropped from the high single digits in the 1980s to just about zero and has stayed there until last month, when the Fed finally raised rates modestly.
Ring’s conclusion is that interest rates are no longer an effective means of stimulating the economy. We’ve had zero rates at the same time we’ve had a record bear market. Under the circumstances, how can we expect public pension funds to continue to earn the seven and a half or even six and a half percent they need to support an ever-increasing tide of retirees?
Obviously, public pension funds are overdue for reform, because fund managers are tied up in an investment game they can no longer win. It’s also obvious public employees can no longer rely on their pensions to provide them with a decent retirement.
There’s a message here for all of us. As the global economy weakens and markets fail, we need to rely less on pensions or Social Security. We need to be prepared to provide for our own retirements.
Both private and public sector pension funds employ professionals to invest their contributions, and the markets are failing them, forcing them to change strategy to save what they can. If huge pension funds, which get advantages you and I don’t, can’t see any upside to the stock market, what can there be for you and me?
And though big pension funds are turning to cash, you have a more inflation-resistant option – but for how long? While it’s still comparatively affordable, at each stock market plunge gold inches up. Physical gold is a hard asset not subject to the ravages of the stock market. In the face of a rabid bear market, the yellow metal has maintained and even increased its value, making it a no-brainer for retirement savings in a gold IRA, which lets you invest in physical precious metals in addition to other assets.
As more and more investors jump into gold for a safe haven, your gold IRA will increase in value. And you’ll have yourself to thank for breaking away from the crowd.