Underfunded Government Pensions Could Wreak Havoc on U.S. EconomyJohnathan Douglas
Tick, tock, tick, tock – that is the sound of the ticking time bomb that is about to wreak havoc on the U.S. economy. The aftermath of underfunded government pensions has wracked up a $1.3 trillion bill, which is about to send a wave of shock across the public services sector. Underfunding will likely contribute to public services cuts, debates and a backlash that could mirror Greece’s debt crisis six years ago. Bank workers died, financial institutions were set on fire, and groups of angry protesters marched through the streets of Athens during that time. While the current situation in the U.S. may not see a repeat scenario of the anti-austerity movement in Greece, something similar could be on the horizon.
Unfunded government pension liabilities are predicted to hit a whopping $1.75 trillion through fiscal 2017. Ongoing market weakness has psychologically affected the baby boomer generation. In fact, the vast majority of retirees are being forced to stay working. The founder of Money Strong LLC, DiMartino Booth, spoke about the situation. He said, “The decision to stay in the workforce won’t work for much longer.” Pensions will be put under an immense amount of pressure in the coming months, particularly since the number of retirees withdrawing from their pensions is growing at a rapid rate.
Weak Investment Performance for U.S. Pensions
According to Moody’s Investors Service, half of the states in the U.S. have failed to stash away enough funding for the retirement system to function properly. Even in cases when certain states met the contribution levels, the standard amount was not enough to fund state public pensions. Milliman confirmed that the 100 biggest pensions lacked 70 percent funding as of June 30, 2016. This information was disclosed after a separate study was conducted. The outlook is bleak and Boston College’s Center for Retirement Research highlighted concerns in states that are majorly underfunded, such as Connecticut, Kentucky and Illinois.
Rising Costs for American Citizens
City residents of various states around the U.S. are about to feel the full effects of the U.S. pension crisis. Let’s take Chicago, for example. Pension debt stood at $33.8 billion in 2015, which is significantly higher than in 2014, when debts stood at $8.6 billion. As market conditions continuously change, attempts to sell $426.3 million worth of bonds in Chicago have been delayed. These kinds of problems are noticeable in other regions too, and rising living costs are making it even more difficult for retirees to lead a comfortable lifestyle, let alone having to worry about having minimal (if that) funds in their pension. Life expectancy is said to be driving up the cost of state spending, but can longevity really be to blame? The pension crisis build-up has been ongoing for almost 15 years. According to the Financial Times, 45% of working-age households have no retirement savings.
The majority of people who are feeling the fiscal effects of underfunded government pensions tend to work in a small company, or are self-employed. When you consider the fact that policemen, firemen, and other public sector workers will also be affected, low contributions could have a direct effect on social implications and the U.S. economy. However, it is never too late to begin saving for the golden years.