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Thread: A REAL problem - unfunded pension and health liabilities

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    Senior Member razz's Avatar
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    A REAL problem - unfunded pension and health liabilities

    With all the distractions from the real issues that genuinely impact citizens in North America and other developed nations, it is way past time to examine how we will respond to a real problem - unfunded pension and health liabilities. Talk about a need for simple living! It is not a warm fuzzy and we do need to make plans.

    Taxpayers are in this together. How are you going to fund your future with a reduced pension and higher taxes? I have included Canadian info on these international issues but also sharing the US at this time.



    Pension Liabilities
    Check out http://pensiontsunami.com for updated info.

    From John Mauldin http://www.mauldineconomics.com/fron...-storm-warning - "this issue is going to set neighbor against neighbor and retirees against taxpayers."

    "The graph we showed earlier stated that unfunded pension liabilities for state and local governments was $2 trillion. But that assumes an average 7% compound return. What if we assume 4% compound returns? Now the admitted unfunded pension liability is $4 trillion. But what if we have a recession and the stock market goes down by the past average of more than 40%? Now you have an unfunded liability in the range of $7–8 trillion."

    From the Canadian Federation of Independent Business:
    CD Howe Institute’s yardstick https://www.cfib-fcei.ca/cfib-documents/rr3262.pdf on modifying assumed rates of return, it is not unreasonable to suggest that combined federal and provincial net unfunded liabilities in Canada nears the $300 billion mark. If one attempts to include the broader public sector plans, we may be dealing with true unfunded liabilities well above that. The amounts are not trivial—a $300 billion unfunded liability scenario is equivalent to about $9,000 per capita or $100,000 per government employee plan member.

    Healthcare Liabilities
    In the US alone (Source Patrick Watson of Mauldin Economics) - Starting in 2018, the Governmental Accounting Standards Board—the source of generally accepted accounting principles (GAAP) for state and local governments—will force officials to record healthcare liabilities on their balance sheets. Pew Charitable Trusts estimates the national shortfall will add up to $645 billion...

    Fraser Institute - " [In Canadian provinces,] health care spending is expected to consume a slightly larger portion of total program spending—growing from 40.1 percent in 2016 to 42.6 percent in 2031. The range of results for specific provinces is a low of 34.2 percent in Quebec to a high of 47.2 percent in British Columbia in 2031. As well, health spending in total is expected to grow from 7.3 percent of the economy in 2016 to 9.3 percent in 2031. Health care spending in four provinces (British Columbia, Prince Edward Island, Ontario and Nova Scotia) is projected to consume over 45 percent of total program spending—suggesting increases in spending along these lines may be unsustainable and carry some risk of crowding out other programs or requiring fiscal adjustments."

    Opioid drug abuse
    A recent Reuters investigation found costs soaring for everything from ambulances to autopsies. Cities and counties are racking up huge bills for courts, prosecutors and public defenders, jails, and treatment programs.

    The small towns and counties dealing with this opioid plague are often the same ones whose pension plans and healthcare expenses are already underfunded.

    That’s bad news for current retirees, workers who hope to retire, and taxpayers who will ultimately foot the bill. In a word, everyone.
    Gandhi: Happiness is when what you think, what you say and what you do are in harmony .

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    I see public pension liabilities as a big and painful problem for the near future. How to balance the interests of public retirees who were promised (however unrealistically) a certain benefit, against taxpayers with no pension coverage being asked to bail them out. Several years ago, the Wisconsin legislature was debating a bill that would (among other things) require public employees to pay for half the annual contribution to the Wisconsin Retirement System (typically 6-7% of salary impact for most categories). Many public servants assumed the public in general would find this to be outrageous. The public in general turned out to be less interested in paying more for a pension for somebody else than predicted. Especially when they had no similar retirement plan available to them.

    State and local governments all around the US have some painful choices ahead of them. I feel extremely fortunate to be participating in one of the few fully funded plans in the country.

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    Senior Member gimmethesimplelife's Avatar
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    Honestly? I see an exodus coming of Americans, and perhaps other nationalities, applying for retirement visas in the safer inexpensive third world countries. It's such a practical way around so many issues - affordable health care and deeply reduced living costs.....things are getting to the point where soon something is going to have to give and this is a way around the system. Just my seventeen cents worth. Rob

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    Senior Member Williamsmith's Avatar
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    My plan is fully funded as it is a unique individually regulated pension plan but it resides under the umbrella of a much larger state pension plan which is decidedly grossly underfunded. It is not grossly underfunded because of unrealistic promises. It is grossly underfunded because the governor back before the crash of 2008 was so impressed with the high yields of the market that he diverted the agreed upon payments to the fund in order to spend money on other government programs. He basically stole it from retirees. Then of course when the investments didn't meet expectations the shortfalls could never be made up.

    Now, nobody cares so much about the history of it all as much as how in tar nation are we going to pay for it? Well, there are now two ways. Raise taxes in a Commonwealth whose tax base in dwindling every day or borrow it. For now they are satisfied with borrowing. Mathematics say some day the lenders will insist on such a high interest rate that will no longer be feasible, neither will taxation nor government Belt tightening. When they come after pensioners, that will be the fight or flight moment. It will not be pretty but I hope to be long gone before then. If not, I believe I can live a subsistence level existence however bitter that may be.

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    Quote Originally Posted by gimmethesimplelife View Post
    Honestly? I see an exodus coming of Americans, and perhaps other nationalities, applying for retirement visas in the safer inexpensive third world countries. It's such a practical way around so many issues - affordable health care and deeply reduced living costs.....things are getting to the point where soon something is going to have to give and this is a way around the system. Just my seventeen cents worth. Rob
    It will probably take more than $0.17 to get one of those magical visas. I understand Mexico wants evidence you have income of a couple of thousand bucks per month. I would also think a large influx of superfluous Americans might generate a certain amount of resentment in the host countries.

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    Senior Member gimmethesimplelife's Avatar
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    Quote Originally Posted by LDAHL View Post
    It will probably take more than $0.17 to get one of those magical visas. I understand Mexico wants evidence you have income of a couple of thousand bucks per month. I would also think a large influx of superfluous Americans might generate a certain amount of resentment in the host countries.
    There are countries much easier to get the visa for than Mexico. Columbia for example, which is much safer than it once was and where Medellin is actually starting to become a bit of an affordable retirement destination for those who do their research and have an open mind and loyalty to their quality of life. Columbia is only one such example - there are many others. In SE Asia, Thailand would be an example - though the requirements financially are not all that high, they are getting weird about things in other ways such as wanting to know your social media information. Rob

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    The best answer is probably just increase social security for everyone and maybe pensions won't matter so much, I mean I don't have a solution to make the pensions all solvent, so better just to focus on keeping old people from starving on the streets which actually is possible (fixing bad pension investments not so much so ..).

    Having a pension is such a baby boomer issue to worry about, but really none of us wants old people on the streets etc. so making sure social security pays enough to live on takes care of people with and without (insolvent) pensions.
    If you want something to get done, ask a busy person. If you want them to have a nervous breakdown that is.

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    Is Social Security in such great fiscal shape that we should rely on it to replace other retirement systems? I don't suppose you need to worry about funded status when all you need to do is write yourself another IOU.

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    Senior Member razz's Avatar
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    Gimme, you are deluding yourself if you really believe that resources that are no longer available in the developed countries will be there in the more undeveloped countries. The undeveloped's revenue is coming from the purchases by the developed countries buying their goods or employing their workers to produce them. Lower demand means lower need for a supply and less need for the workers who are relying on those jobs. There is nowhere to go that will survive this economic crisis. Europe is going to face it with all their pension commitments.
    Unlike WS, I expect to be here as it comes into effect. Already, local steelworkers have had their pensions severely reduced as part of the debt restructuring.
    A company can go bankrupt, have its assets reassigned at so many cents on the dollar and everyone gets a bit. Governments cannot be sold for their assets to be disposed to cover their liabilities. It is either the taxpayer or the pensioner or the taxpaying pensioner who gets the biggest hit.
    I have been watching the US discussions about tax reform and have heard nothing beyond how to reduce the highest tax rate. Nothing about the impending pension and health benefits liabilities. Have you?
    Gandhi: Happiness is when what you think, what you say and what you do are in harmony .

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    Senior Member Williamsmith's Avatar
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    Quote Originally Posted by ApatheticNoMore View Post
    The best answer is probably just increase social security for everyone and maybe pensions won't matter so much, I mean I don't have a solution to make the pensions all solvent, so better just to focus on keeping old people from starving on the streets which actually is possible (fixing bad pension investments not so much so ..).

    Having a pension is such a baby boomer issue to worry about, but really none of us wants old people on the streets etc. so making sure social security pays enough to live on takes care of people with and without (insolvent) pensions.
    Except that my career choice caused me to have a 25 year gap in social security deductions. As well, my pension plan makes me ineligible for 60% of any social security benefit I could even qualify for. After meeting my minimum requirement of 40 quarters, I can expect to collect $50 per month in social security.

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