One of the great issues we are faced today that will be a larger problem tommorrow is how to continue funding pensions. Certainly I am no expert on actuarial accounting or demographics. My concern is that the general public does not have a clue about the choices we are facing in the near future that will impact their ability to retire.
As an example let us consider some Net Present Value analysis for a hypothetical pensioner we will call Fred.
If Fred wants to retire with a full pension at the age of 55 after putting in many years of service, how much money needs to be set aside to fund this goal?
If we assume the pension is $42,000 yearly ($3500 per month) and that Fred will live to be 80 (25 years of pension) and that the fund earns 8% per year, we find that it takes $445,000 of initial money to fund this pension.
If the pension fund only earns 6% per year, we calculate that the initial sum of money required increases to $535,000 to pay Fred $42,000 annually!
If the pension fund earns only 4% per year, only a little higher than the rate of longer term US bonds, the intial sum increases to $656,000!! This represents a 50% increase in the amount of funding needed for the pension in this hypothetical example. Now multiply this shortfall by the millions of people looking at retirement in the United States, Canada, Japan and European countries in the next couple of years and one gets a sense of the magnitude of the problem.
As I am writing this article I came across a story that begged to be included:
For the full article click here:
http://www.tuscaloosanews.com/article/20090818/NEWS/908189977/1007?Title=Bachus-discusses-Social-Security-health-care
Comments: My question is, if you knew there would be a problem 15 years ago, why did you do nothing as a congress and continued to pour untold billions into military spending overseas?
If the general public understood what is going to happen unless there are massive changes, they would be rioting in the streets! The depths to which we have sunk as western nations astounds me. What kind of irresponsible democratic governments have we elected?
I am convinced now, more than ever, that governments will try to inflate their way out of this mess rather than take responsible actions. This process may take a while as we work through deflation for some time as deleveraging occurs and credit shrinks, but eventually there is a serious inflation risk in the longer term in my view. My strategies should be most effective against this onslaught of irresponsibility and waste. It is pretty difficult for even governments to debase gold.
For those who are interested Strategy #1 and Strategy #2 are here:
http://whatisthatwhistlingsound.blogspot.com/2009/04/strategies-part-2.html
http://whatisthatwhistlingsound.blogspot.com/2009/03/strategies-part-1.html
As an example let us consider some Net Present Value analysis for a hypothetical pensioner we will call Fred.
If Fred wants to retire with a full pension at the age of 55 after putting in many years of service, how much money needs to be set aside to fund this goal?
If we assume the pension is $42,000 yearly ($3500 per month) and that Fred will live to be 80 (25 years of pension) and that the fund earns 8% per year, we find that it takes $445,000 of initial money to fund this pension.
If the pension fund only earns 6% per year, we calculate that the initial sum of money required increases to $535,000 to pay Fred $42,000 annually!
If the pension fund earns only 4% per year, only a little higher than the rate of longer term US bonds, the intial sum increases to $656,000!! This represents a 50% increase in the amount of funding needed for the pension in this hypothetical example. Now multiply this shortfall by the millions of people looking at retirement in the United States, Canada, Japan and European countries in the next couple of years and one gets a sense of the magnitude of the problem.
As I am writing this article I came across a story that begged to be included:
Social Security could face a deficit within two years
Congressman Spencer Bachus, who represents Alabama's 6th Congressional District, visited the Tuscaloosa News on Tuesday morning for an editorial board meeting. Bachus answered questions from associate editor Tommy Stevenson and executive editor Doug Ray
Buy photo
Robert Sutton / Tuscaloosa News
“The situation is much worse than people realize, especially because of the problems brought on by the recession, near depression,” said Bachus, R-Vestavia Hills, in an interview with the Tuscaloosa News editorial board.
Bachus, the ranking member of the House Committee on Financial Services, said most people seem unaware of the impending crisis. He initially said Social Security could face "default" within two years, but his staff responded later saying the Congresssman intended to say "deficit."
“What this recession has done to Social Security is pretty alarming,” he said. “We’ve known for 15 years that we were going to have to make adjustments to Social Security, but we still thought that was seven or eight years down the road. But if things don’t improve very quickly, we’re going to be dealing with that problem before we know it.”
The solvency of Social Security, which provides pensions for people older than 65, has not played a major role in the current debate about health care in Congress.
For the full article click here:
http://www.tuscaloosanews.com/article/20090818/NEWS/908189977/1007?Title=Bachus-discusses-Social-Security-health-care
Comments: My question is, if you knew there would be a problem 15 years ago, why did you do nothing as a congress and continued to pour untold billions into military spending overseas?
If the general public understood what is going to happen unless there are massive changes, they would be rioting in the streets! The depths to which we have sunk as western nations astounds me. What kind of irresponsible democratic governments have we elected?
I am convinced now, more than ever, that governments will try to inflate their way out of this mess rather than take responsible actions. This process may take a while as we work through deflation for some time as deleveraging occurs and credit shrinks, but eventually there is a serious inflation risk in the longer term in my view. My strategies should be most effective against this onslaught of irresponsibility and waste. It is pretty difficult for even governments to debase gold.
For those who are interested Strategy #1 and Strategy #2 are here:
http://whatisthatwhistlingsound.blogspot.com/2009/04/strategies-part-2.html
http://whatisthatwhistlingsound.blogspot.com/2009/03/strategies-part-1.html
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