Those who are counting on money stashed away to support them in their golden years are facing some grim news. In addition to the challenges of staying healthy and meeting the rising costs of today, it seems those who are approaching pension age have some displeasing statistics to acknowledge regarding the income they will be counting on in the future.
Daily Caller reports:
Over the past 15 years, public pensions had 2.45% cash holdings and private pensions had 2.07% on average, but those have dropped to 1.9% and 1.7% respectively, according to The Wall Street Journal. The figures were higher even in 2008 when some retirement funds had to sell at inopportune times to make payments; one economist told the Daily Caller News Foundation this could threaten Americans’ pensions in the event of a financial crisis, which could force funds to sell off assets at low prices in order to continue payments, resulting in a massive loss in value
“The insolvency of many pension funds, which was caused by making promises that could never be paid, will eventually rear its head in a financial crisis — it is just a question of when the music will stop and who will be left without a seat,” E.J. Antoni, a research fellow for regional economics at The Heritage Foundation, told the DCNF.
There seems to be a catch-22 in the cycle that regulates the funds and the view is not pleasing.
Daily Caller continues:
Keeping too much cash on hand can lower returns for pension funds, but keeping too little can end up forcing companies to sell assets at unfavorable prices just to keep cash on hand for payments, according to the WSJ. Low interest rates in recent years drove fund managers to exchange liquid cash for higher risk assets, failing to anticipate that rates would eventually rise, according to Antoni.
“This is part of the classic boom-bust cycle caused by the Federal Reserve’s manipulation of interest rates. The overleverage is not limited to pension funds, however, which is one reason why most businesses have slowed hiring or begun layoffs,” Antoni told the DCNF.
U.S. government pension funds currently have the lowest cash holdings since the 2008 financial crisis, and corporate pensions’ cash holdings are barely above the 13-year low they hit in 2021, which could spell disaster in the event of a financial crisis.
The $307 billion California State Teachers’ Retirement System had the equivalent of eight and a half years’ worth of benefits in liquid non-cash assets in November, down from ten and a half years in July, according to the WSJ.
Some funds are now pushing to build up their cash on hand in anticipation of a rocky 2023, which will likely include another rate hike from the Federal Reserve and may induce a recession, according to the WSJ.
With prices doubled at the grocery store and heating costs skyrocketing during the current arctic winter, some would say the United States is already in a recession. Families are struggling to pay for basic needs as costs continue to rise.
Not only private pensions, but Social Security needs shoring up as financial reports say the safety net for many Americans will need major renovation by 2035 or it will be depleted. The federal government has been borrowing from the stash of funds that working Americans pay into for some time, and the account needs some help.
The Biden administration announced that there will be “the largest cost-of-living adjustment in 40 years arriving in January 2023,” NBC News reports. NBC stated that the average retiree benefit is going up by $146 per month, to $1,827; while the average disability benefit is increasing by $119 per month to $1,483. Medicare is somewhat affected for those who have opted for Part B. Recipients will also benefit from a 3% decrease in how much they’ll owe each month on standard Medicare Part B premiums. Medicare Part B covers outpatient medical care, like regular visits to the doctor.
NBC continues that “the 8.7% COLA increase is in response to the decades’ high inflation that began to plague the U.S. economy in 2022,” putting at rest any debate as to whether U.S. citizens are in dire financial straits. NBC continued, “Social Security benefits remain taxable and tax brackets are also changing as a result of inflation. Some recipients may have to pay income tax on up to 50% of their Social Security benefits.
Improvements are great news, but one trip to the grocery store for one person will eat up that increase rather quickly, and heating bills make those numbers look tiny. Rocket HQ reported a year ago that “A typical household in the United States spends more than 44,400 a year on utility bills, according to data from Move.org. That’s more than $366 a month.” The current arctic winter sweeping the country, not including repairs to be made to infrastructure in homes and communities that were not prepared for the intense cold, will surely cause an increase in those bills from a year ago.
