More Daunting Numbers

| May 19, 2018
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Sorry to put a damper on your Saturday – actually more of a damper if you live in the northeast with the amout of rain we have had this week. However, after my updates on the need for saving more and the looming retirement crisis, the historical relic called a pension fund is writing checks its body can’t cash.

Pension funds are still making promises they probably can’t keep. How so? They are still using very high rates of return in their pension assumptions. Most are between 7-8% and when you include fixed income this will be hard to achieve unless the stock market continues to do the heavy lifting or you use leverage. The yield on the 10-Year US Treasury bond is 3.11%. This means that in order to get close to your bogey and depending on how much you have in bonds your equity returns consistently need to be above 10% in order to be able to successfully fund future pension liabilities.

To add another wet kleenex to your morning, life expectancy at birth in the USA was 51.7 years in 1916. Life expectancy at birth was 78.6 years in 2016. Thus, life expectancy has increased by 10 years every 37 years. This means those pension benefits are going to have to last even longer than originally thought.

In a bit of good news, 71% of American workers have access to an employee-funded defined contribution retirement plan (e.g., 401(k) plan) through their employer.

Also, the state of Oregon set-up an auto-enrollment IRA last July for workers who don’t receive retirement benefits. So far, over 80% of participants have stuck with the auto enrollment.

Now we need some sunshine!


Stay Tuned, Disciplined & Patient! {TJM}

The Investor & Character Equation (ICE) | S + R = O


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