Retirement for Many Americans Could Be on the Line
There’s a major problem in the U.S. economy, and no one wants to talk about it: underfunded liabilities at pension funds. I can’t stress this enough: underfunded liabilities could create a massive retirement crisis.
The mainstream media won’t tell you this, but a lot of public pension funds don’t have enough money to cover their obligations.
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You really have to ask what will happen to those who have paid into pension programs their entire lives, thinking they will earn a decent income during retirement, only to have their pension funds tell them: “We don’t have enough money.”
The situation is really dire.
Consider a recent report by the American Legislative Exchange Council (ALEC) called: Unaccountable and Unaffordable 2018.
This report says that state-administered pension plans in the U.S. have underfunded liabilities of about $6.0 trillion. This amounts to $18,300 in unfunded pension liabilities for every person in the United States. (Source: “Unfunded Liabilities in State Pension Plans Significantly Threaten Taxpayers in Nearly Every State,” American Legislative Exchange Council, March 20, 2019.)
Mind you, ALEC just looked at about 300 state-administered pension funds. These underfunded liability figures could be much higher if you start paying attention to municipal funds too.
ALEC Chief Economist and Vice President Jonathan Williams provided an overview of what’s happening, saying:
Absent fundamental pension reform, these unfunded liabilities threaten core government employees like teachers, firefighters and police officers. The liabilities could also lead to massive tax increases in many states. Fortunately, states like Michigan, Oklahoma and Utah have all enacted comprehensive pension reforms in recent years that will protect workers, retirees and taxpayers alike.
(Source: Ibid.)
Solutions to This Problem Could Create a Lot of Issues
Dear reader, there’s truly a retirement crisis brewing in the U.S. economy. It’s not really a newsworthy issue, so you don’t hear much about it. But it doesn’t mean it should be ignored.
In its report, ALEC pointed out one consequence of high underfunded liabilities: higher taxes.
However, you must understand, you can only raise taxes so much until it starts hurting consumers. As mentioned earlier, ALEC quoted $18,300 of underfunded liabilities per person in the country. This is a massive amount. With higher taxes, you could end up with a massive reduction in consumption. Don’t forget, the U.S. economy is highly reliant on consumption.
But I believe there could be other consequences as well. I question whether the U.S. government will jump in and bail out the pension funds that are in trouble.
It’s possible.
Back in 2013, the U.S. government jumped in to support Detroit. Back then, about $300.0 million was given to the struggling city to get things in order.
That wasn’t a big amount in the context of the federal budget, but the nationwide underfunded liabilities of about $6.0 trillion isn’t any small figure.
This could cause the U.S. national debt to skyrocket very quickly. The U.S. government doesn’t have this much money to bail out pension funds.
If a federal bailout of pensions is the solution, it could hurt the value of the U.S. dollar. Remember, higher national debt hurts the value of the country’s currency. This could make things expensive for Americans and could hurt the U.S. economy.
I see underfunded pension liabilities as an issue that could cause a lot of woes for the American people and the U.S. economy. It could really cause an economic crisis.
