Sunday morning here in the Midwest sees the local iHop busy with folks just getting out of church. Many of those customers are senior citizens – retirees. If I’m right, this will change over the next few years. Why and it what way are topics I plan to address in the coming months.
People underestimate the probability of things going terribly wrong for the economy or for their own finances. Maybe they don’t have the capacity to work through what they would do if their finances blew up. Perhaps they think that their pensions, 401k and IRA funds, and Social Security are secure. Perhaps they have no point of reference when it comes to mass failure of institutions on which they had placed their financial hopes. Whatever the reason, the hope and confidence that millions have placed in financial intermediaries and governments for a secure retirement are going to turn to disappointment and despair.
Thing are already getting frayed at the edges. For example, how many members of the Teamsters Central States Fund expected to get a cut in retirement benefits by at least 60%? Can other pension funds blow up? Of course. And they will. We just don’t know who’ll be next and when.
Pension funds are massively underfunded, just like Medicare and Social Security. Benefit cuts are assured. Retirees need to have at least a Plan B if not a Plan C to implement in case they are determined to be “too wealthy” to continue to receive full Medicare or SS benefits. Means testing is likely.
There is no agency that can backstop even a very small percentage of private pension funds if they go insolvent. Well, the government could just print the billions or trillions needed and put the money into people’s bank accounts. But we know what that would cause.
I’m not the first one to say it, “The most endangered species in the US is the retiree.”
Surviving this pension fund pile-up is more a matter of getting the underlying causes of market moves and disruptions right so the right strategy is employed at the right time. Such information will likely not be provided to the retail investor by the brokerages. I mean, did they issue the warning in 2000 or 2006-08? Okay, so why would one think they would do so now?
So we all have to ask ourselves what we’d do if the value of the income we receive in our retirements were to drop by 50% or more. What if the components of one’s IRA or 401k cratered and the government stepped in to “bail you out” by replacing the securities in your retirement fund with 30-year Treasuries earning 3% that cannot be sold or redeemed until maturity?
Maybe it won’t happen. Maybe it will be worse. Even if I were a world-class expert at analyzing macroeconomic data and government statistics, what good is that if the data is manipulated?
Those of us who are not yet retired need to get to work on this at once. One possibility is creating a micro business that one can carry into retirement. After all, there are only so many stores that need greeters.
I the pension disaster materializes as I expect, Grandma and Grandpa will be off to iHop one Sunday morning, but this time as employees rather than as customers.