Mish’s Global Economic Trend Analysis had this post on Friday about a report that concludes that 85% of pension funds will fail over the next three decades. From the post:
Bridgewater Associates did an analysis of pension funds recently and concluded 85% of them will fail if returns average 4%.
Bridgewater notes that public pensions have just $3 trillion in assets to invest to cover future retirement payments of $10 trillion over the next many decades. It would take an investment return of roughly 9% a year to meet those obligations.
With the 30-Year long bond yielding a mere 3.5% and with stock valuation through the roof, I expect negative returns for 7-10 years.
Stretched out over 30 years, 4% seems about right. 9% is out of the question….
Bridgewater came to these conclusions by stress testing the nation’s public pension plans, much the way banks need to be evaluated on what could happen given a wide range out outcomes.
Many pension observers make the claim pensions will achieve 7% to 8% returns. But even if that assumption is correct, which is unlikely, public pensions are looking at a 20% shortfall, Bridgewater says. A 4% return is much more likely, the firm says.
The time bomb continues to tick here in Mississippi. The chances of the Mississippi political leadership addressing this issue before the bomb explodes are close to zero. We can’t even pass a bill banning texting and driving.
Reforming PERS will be unpopular. So politicians will not touch the issue. That’s not really being a leader, but it is political reality.