I’ve been holding back with this subject for months, but it’s time to address this looming crisis, since it’s a train wreck, waiting to happen.
There are two major problems for pension funds:
- The Numbers Don’t Work: managers over-promised and under-delivered. Now, this is not any ordinary liquidation problem – this is huge.
These pension funds hold the majority of the Baby Boomers’ retirement equities, and they have banked on this money for nearly 45 years, since they joined the workforce.
The issue is that these funds are designed to earn 8% a year, mostly by investing in fixed-income instruments, yet their mandates bar them from venturing into junk-grade bonds or riskier notes.
In other words, they must perform financial miracles, by achieving stock market returns, using low-yield bonds, which caused most of them to only return a modest 3%-4% for many years, resulting in trillions of missing funds.
Now, when massive cash withdrawals begin occurring, and word gets out that these funds are under-capitalized, clients will be knocking on their doors.
- Boomers Are Retiring Now: Some crises are decades away, so we can prepare for them and build secondary solutions and alternatives to face them, but this is happening now.
It’s a situation, which could lead to another government bailout, down the road.
Before this happens, though, I’d like you to start preparing for the following likely scenarios:
- Governments Change Retirement Laws – Europe and Japan have it even worse than the U.S., so look for politicians to postpone retirement age to 69, 73, or even further.
- Staying Employed – Governments will begin demanding recipients of subsidies programs to continue working in order to apply.
In the U.S. alone, 100 million people are either retired or not working.
If I decide to stop working, then my cash flowing assets would provide for a nice living for my family, but 93.2% of Americans do not have more than $10,000 of passive income coming in from assets on an annual basis.
In other words, if you’re retired in America today, there’s a 93% chance that the government is helping you.
This isn’t just the U.S., which is facing a retirement cliff. Europe and Japan have scary demographic age pyramids, and China’s One Child Policy will put them in a situation, which will be impossible to manage as well.
Thanks to technological advancements, we take for granted being cool in the summers and warm in the winters. We live longer lives than any other generation going back thousands of years, and we consume much more, enjoying the privileges of travelling the world in a matter of hours, comfortably sitting in mid-air, being served beverages and food, watching movies, and listening to music.
Refrigeration, a variety of medical procedures, and high sanitary standards allow us to prosper and stay healthy for long periods, if we choose to sleep, eat, and drink in a healthy manner.
This all comes at a great socio-economic cost, though.
Tax revenue needs to be split between the many demographic groups, who want it, as well as to sustain our existing institutions.
Pension is big business, and it’s a rigged one because it over-promises and under-delivers.
One radical approach is to retire in a more affordable region, outside of your primary residence, and it is becoming an attractive option.
Next year, I’ll be traveling to five of the best retirement regions on the planet, to gather information for my folks on where they can lead a productive life and enjoy higher standards of living in their final years.
Think creatively about your own retirement because western governments have a boot over their throats – a disproportionate amount of dependent retirees. Find your own path through this nightmare. Portfolio Wealth Global will also focus on high-yield investments (8%-12%) and outside of the box ideas for you, going forward.
Research Partner, PortfolioWealthGlobal.com