Most American workers received pensions in past decades. When pensions started becoming more scarce, it forced Americans who had no real knowledge of saving and investing to manage their own money they would need to secure their retirements. By most accounts, this shift of responsibility has not worked out well for a large percentage of American workers. There are many current retirees with corporate and government pensions paying for part of their retirement, and there are also still a few companies offering future pensions along with most state and federal departments. That’s the good news. However, not all is rosy with the state of current and future pensions. Approximately two-thirds of pensions are underfunded, which means their current balances appear inadequate to pay all their required future benefits. Additionally, most pensions are also assuming relatively high annual rates of growth on their investments, somewhere in the neighborhood of 7-7.5%. Even with those high assumed growth rates, most pensions appear to be under-funded. The remedy for that is those companies or government entities will either have to add more to their pension systems or they will have to reduce benefits. And that’s IF they get that 7-7.5% annual rate of growth.
But, what happens if the rate of growth is lower than that? Well, an even higher amount of pensions will be considered under-funded, and the more under-funded a pension is, the more drastic the measures are that the obligated company or government entity must take. What’s more likely: they add additional dollars to those pensions, or that they find ways to reduce the benefits to at least future, if not current recipients? How safe is your pension?
