Today, more evidence that pensions are a slow-moving disaster that will in your lifetime consume our nation like the inexorable creep of hot lava down a volcano’s edge consumes everything in its path.
Pensions depend on earning certain long-term investment returns in order to ensure that they have enough money to pay out to retirees when their time comes. The very short reason (besides instances of corruption and wanton mismanagement) that pensions throughout the country are walking directly towards a cliff: they are not earning enough money. And the long term trend is for returns to go down, down, down. The longer this goes on, the worse the reckoning will be.
Twenty-year annualized returns for public pensions in the U.S. are poised to decline to 7.47% once fiscal 2016 results are released in coming weeks, according to an estimate from Wilshire Trust Universe Comparison Service, which tracks pension investment returns.
That would be the lowest-ever annual mark recorded by Wilshire, which began tracking the statistic 16 years ago. In 2001, near the height of the dot-com boom, pensions’ 20-year median return was 12.3%, according to Wilshire.
These long-term returns are, of course, raised by the higher returns of past years; the short-term returns are much worse.
Many, many, public and private pensions will sooner or later, to greater or lesser degrees, run out of money. And then what will happen? The people owed money by these pensions will demand payment. And then we will have a political fight that will be incredibly vicious. And no matter which side wins, millions of people will be screwed—either retirees who won’t be paid what they thought, or government entities that will see their budgets drown in pension obligations, necessitating deep and unpopular cuts elsewhere.
That’s math! We all have this to look forward to.