According to a recent report from The Economist, many public-sector organizations are reeling from a growing pension crisis. This is a problem that used to impact the private sector. However, many corporations wised up earlier, eschewing retirement payouts for the now-ubiquitous 401K plan.
While many alternative investment advocates criticize 401Ks – in part, to their linkage to “the system” – these largely self-funded retirement plans are in many ways superior to corporate or government-owned pensions. Yes, you have to pay for your own retirement, requiring a self-disciplined approach. However, the choice of how you grow your nest egg is up to you.
On the other hand, you can let the local and state government bodies handle your retirement for you. Obviously, the appeal here is that you fulfill your end of the bargain – working – and the government will fulfill theirs. Theoretically, this is a fair system. In reality, it’s the road to hell paved with good intentions, as we’re witnessing now with the pension crisis.
Long story short, most public-sector employees are rightfully, contractually due a pension. And with younger baby boomers entering retirement age, several of these folks are looking to cash out. Unfortunately, the agencies responsible for the pension upkeep haven’t been diligent. As a result, they don’t have enough to cover promises of a bright retirement for their loyal employees.
Honestly, I think this is just the tip of the spear.
Pension Crisis Set to Explode Everywhere
One of the factors that led to this pension crisis is a lack of financial education. Truly, I believe that many employees (and some managers) have pie-in-the-sky ideas that pensions come from magical fiscal allotments.
I wish it were true. Sadly, retirement funds almost always are tied to the investment markets. That means upcoming pensioners will enjoy retirement only if they can get their hands on the money first. After all, a broken promise for a million dollars is worth exactly zero.
Although the business media focuses on the immediate problems at hand, they should instead cover the rapidly proliferating pension crisis. Unfortunately, the risks are not limited to local and state pensions. The big daddy of them all, federal pensions, are also threatened.
Why? With these retirement funds linked to market performance, a downturn can have a severe impact. We only need to look back at recent history with the 2008 financial collapse to realize that we’re all playing with fire.
Ultimately, this issue serves as a vital lesson, particularly to young professionals: never trust the government for anything. The only person that can adequately look out for your best interest is you.