U.S. Retirement Crisis Could Lead to an Economic Crisis

There is an immense retirement crisis brewing in the United States. It won’t end well for anyone; it could even lead to an outright economic crisis.

Here’s the sad part: it may already be too late to do anything about it now. The damage is done.

You won’t hear about it much in the mainstream media, but pension funds across the U.S. don’t have enough money to cover their future payments. The term for this is “unfunded liabilities.”

How much do retirement funds need in order to cover their future payments? The pension funds administrated by state governments alone have unfunded liabilities of about $6.0 trillion. (Source: “State Pension Unfunded Liabilities Nearly $6 Trillion,” Chief Investment Officer, March 29, 2019.)

This is not a small figure. For some perspective, consider this: the amount required by the state-sponsored funds is bigger than Japan’s gross domestic product (GDP).

Where Will $6.0 Trillion Come From?

Now, if you add pension funds administered by municipal governments, this figure gets much bigger. If you want to get even more concise, add pensions that are administered by private-sector companies.

But let’s just work with the $6.0 trillion figure for now. Where will this money come from?

You see, managers of pension funds hope to make investments that will generate a decent return on the money they have, in order to make future payments to retirees. Their strategy is pretty straightforward: take in money from participants, make investments, and make payments to those who have reached retirement age.

This leads to another question: where will retirement funds invest their money to recover the $6.0-trillion gap in funding?

Will they buy stocks? At the moment, stock valuations are extremely expensive. If retirement funds dabble more in the stock market, they could risk losing a lot of money if there’s a massive sell-off in the next few years.



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