Wednesday, April 25, 2018

Simon & Garfunkel, “Mrs. Robinson”

Simon & Garfunkel, “Mrs. Robinson”

“Sitting on a sofa on a Sunday afternoon,
Going to the candidate’s debate.
Laugh about it, shout about it,
When you've got to choose,
Every way you look at it you lose...”

"A Look to the Heavens"

“A now famous picture from the Hubble Space Telescope featured Pillars of Creation, star forming columns of cold gas and dust light-years long inside M16, the Eagle Nebula. This false-color composite image views the nearby stellar nursery using data from the Herschel Space Observatory's panoramic exploration of interstellar clouds along the plane of our Milky Way galaxy. Herschel's far infrared detectors record the emission from the region's cold dust directly. 
Click image for larger size.
The famous pillars are included near the center of the scene. While the central group of hot young stars is not apparent at these infrared wavelengths, the stars' radiation and winds carve the shapes within the interstellar clouds. Scattered white spots are denser knots of gas and dust, clumps of material collapsing to form new stars. The Eagle Nebula is some 6,500 light-years distant, an easy target for binoculars or small telescopes in a nebula rich part of the sky toward the split constellation Serpens Cauda (the tail of the snake).”

"A Complete Substitute For Life..."

"The Internet is so big, so powerful and pointless that 
for some people it is a complete substitute for life."
 ~ Andrew Brown

Chet Raymo, “The Wild Silence And The Wild Dark”

“The Wild Silence And The Wild Dark”
by Chet Raymo

"It is probably obvious by now that I have been reading Yeats. So let me share one more poem, "He Wishes for the Cloths of Heaven":

“Had I the heavens' embroidered cloths,
Enwrought with golden and silver light,
The blue and the dim and the dark cloths
Of night and light and the half-light,
I would spread the cloths under your feet:
But I, being poor, have only my dreams;
I have spread my dreams under your feet;
Tread softly because you tread on my dreams.”

There is a wonderfully sexy scene in “Frankie Starlight” where Anne Parillaud reads this poem to Matt Dillion while sprawled on a bed, with that lovely French accent. Although the poetry of Yeats figures in “The Dork of Cork”, the novel on which the film is based, this poem is not there. Once, when I was passing through an airport with the film's producer Noel Pearson, talking about the script, he suddenly darted into a book stall and came back with a tiny souvenir volume of Yeats which held the poem. His instinct was unerring; it went into the script. A beautiful little poem, sentimental, yes, but perfect for my Bernadette. 

The poem is from Yeats' collection “The Wind among the Reeds”, which recalls the biblical reed shaken by the wind and anticipates Kenneth Grahame's “The Wind in the Willows”. And asks the question I posed on the penultimate page of “The Soul of the Night”: “There is a tendency for us to flee from the wild silence and the wild dark, to pack up our gods and hunker down behind city walls, to turn the gods into idols, to kowtow before them and approach their precincts only in the official robes of office. And when we are in the temples, then who will hear the voice crying in the wilderness? Who will hear the reed shaken by the wind? Who will watch the Galaxy rise above the eastern hedge and see a river infinitely deep and crystal clear, a river flowing from the spring that is Creation to the ocean that is Time?”

So read, Anne Parillaud, those soft, sweet syllables, spread your dark cloths, show us that the world unfiltered by rite and ritual, priests and shamans, is wild, and dark, and sexy. Listen. Listen! In the dark and the dim and the half-light for the sound of the wind in the reeds, the wild, wild wind of creation that is the only revelation.”

"Sooner Or Later..."

“Sooner or later everyone sits down to a banquet of consequences.”
– Robert Louis Stevenson

X22 Report, “They Feel Threatened, Deep State Changes Tactics, Next Move Could Be Huge”

X22 Report, “They Feel Threatened, 
Deep State Changes Tactics, Next Move Could Be Huge”
Related followup report:
X22 Report, ”The Central Bank Experiment Failed, 
Germany Moves Closer To The Silk Road”

The Daily "Near You?"

Valley City, N. Dakota, USA. Thanks for stopping by!

"How It Really Is"

"Life Lesson #72"

"The major difference between a thing that might go wrong and a thing that cannot possibly go wrong is that when a thing that cannot possibly go wrong goes wrong it usually turns out to be impossible to get at or repair."
- Douglas Adams

So you may need this...

"America’s 'Silent' $6 Trillion Crisis"

"America’s 'Silent' $6 Trillion Crisis"
by Brian Maher

"America’s silent crisis is no longer… silent. MarketWatch columnist Jeff Reeves has warned that “collapsing pensions will fuel America’s next financial crisis.” “This is not a distant concern,” he adds, “but a system already in crisis.”

By some estimates, America’s public pensions alone are sunk in a $6 trillion abyss. According to the Federal Reserve, pensions - public and private combined - were roughly 27% underfunded as of last year. Meantime, vast hordes of pensioners are entering or approaching retirement. Come at the dilemma from any angle... and you come upon a labyrinth.

How has the American pension come to such a sad pass? As far as public pensions run, the answer is close by. Daily Reckoning contributor Charles Hugh Smith: "Corrupt politicos promised the moon to public employees, and now the fiscal chickens of insolvency are coming home to roost. “But I don’t have a pension,” comes your response. “This doesn’t concern me.” Ah, but have another guess - at least if you swear off your taxes in these United States. As the late Canadian Prime Minister Mackenzie King styled it: “The politician's promises of yesterday are the taxes of today.”

Zero Hedge’s pseudonymous Tyler Durden: "Funds collected from taxpaying Americans will be spent to satisfy the ridiculous retirement promises and obligations made over the past few decades, and while the immediate recipients of the funds, i.e., those looking at near-term retirement, will be made whole, everyone else, i.e., taxpayers, will lose."

Just so. It is an iron law of nature, second only perhaps to gravity: Politicians promise… taxpayers pay. And let us add our own corollary: The better the politician… the bigger the promises… and the larger the bill.

Most public pension systems were built upon this rosy-dawn assumption: Their investments would yield a handsome 7.5% annual return. Once upon a time, that may have been realistic. But that was before the 2008 financial crisis… before the Federal Reserve opened its war on savers… and bonds still paid a handsome yield.

Consider… The average public pension plan worked an average gain of 2–4% by 2015. It returned just 0.6% in 2016, according to Bloomberg. 2017 saw an upswing. But according to the Center for Retirement Research: "Even if these plans attain their Pollyannaish 7.5% returns over the next few years... they’ll still be only 73% funded by 2021."

Howard Marks, co-founder and co-chairman of Oaktree Capital Group: "If you walked into a pension fund today which had no investments, and you were given a pile of cash and you invested today intelligently, prudently, but not shrinking from risk, I think you could expect to make something in the vicinity of 5% in the coming years from today."

A highly technical term describes the business… and we apologize if it sends you scurrying for the dictionary: Insolvency.

Briefly turn your attention to the Golden State, for example… California pins its hopes on that pie-in-sky 7.5% annual return. But the state’s pension planners put returns over the next decade at barely 6% a year. 6%, 7% - what’s the difference? From one year to the next, possibly little. But repeat it every year... and the meaning of compounding negative returns eventually becomes clear enough. And these calculations - as far as we understand - do not account for a market downturn.

California’s pension fund lost some $100 billion in the Great Recession. It never fully recovered. What if it happens again?

Smith: "The 2008–09 global financial meltdown was a taste of the reality facing public pension programs: Once annual returns slip from 7% annually to minus 7% annually, the pension plans are soon insolvent."

California is by no means alone. The great state of Illinois, for example, risks sinking into a $130 billion “death spiral,” as Ted Dabrowski of the Illinois Policy Institute describes it.

Meantime, jilted pensioners can generate a good deal of hullabaloo. And jilted pensioners vote. Do you think Uncle Samuel will let the politically strategic states of California and Illinois — with their combined 75 electoral votes - go scratching? And who will he hand the bill to? Consult the nearest mirror… and there you will find your sorrowful answer.

The problems are not limited to California or Illinois, of course. From Portland to Portland, Lake Superior to the Mexican gulf… American pensions are wrecked upon the rocks of actuarial fact.

Illinois Gov. Bruce Rauner has warned that the state’s pension crisis is driving his beloved Land of Lincoln into “banana republic” territory. Of course, the good governor’s mouth ran away with him here. After all... Who would compare the venerable, eminently worthy banana republic… to Illinois?

Below, Nilus Mattive - author of "The Income Bible" - shows you why he believes the pension crisis is “the biggest risk to the U.S. financial system right now.” But he also reveals his three-part “pension crisis shield” to protect you. Read on."
"The Coming Pension Crisis"
By Nilus Mattive

"If you asked me what I consider to be the biggest risk to the U.S. financial system right now, I wouldn’t say misguided monetary policy, the worsening state of Social Security and Medicare, mounting deficits in Washington, or even the student loan bubble. Make no mistake: I am concerned about all of those things. But do you know what scares me the most? The state of pension systems in this country. And even if you aren’t part of a pension plan, you are still likely to be affected. Maybe a lot. You’ll see why shortly.

In a nutshell, even despite the massive stock market rally we’ve had for the past several years, many defined benefit pension plans remain woefully underfunded. I’m talking about millions and millions of retirement promises about to collapse under the weight of cold logic and uncaring math.

Just as a start, Bloomberg says 43 states saw their funding levels WORSEN in 2016 (the latest year for which comprehensive data is currently available).

Here’s more from that report: "New Jersey, Kentucky and Illinois continue to lose ground and now have only about one third of the money they need to pay retirement benefits. And three states had double-digit declines in their pension funding ratios in the past year: Colorado, Oregon and Minnesota - though some of this can be attributed to actuarial changes in the way pension liabilities are calculated. Some of the other most problematic state plans include Connecticut (44.1% of promised benefits) and Pennsylvania (52.6%), where my dad currently collects a pension.

Meanwhile, what about private pension plans, especially those being run by publicly-traded companies? Many are also underfunded. Problems are especially bad at so-called multiemployer pension plans.

As a recent article from The New York Times explains it: "According to Boston College’s Center for Retirement Research, the nation’s 1,400 multiemployer plans are facing a $553 billion ‘hole’ of unfunded liabilities, meaning they don’t have sufficient assets to cover what they owe workers. About a fourth of these plans are in the so-called ‘red zone,’ where insolvency is more imminent, potentially within the next 10 to 20 years. Even some large individual corporate plans remain deeply troubled. General Electric, for example, has a shortfall of roughly $30 billion."

Stock market volatility is now a risk to many pension plans than it was in the past because more funds have allocated larger portions of their money to equities as a way to make up for lost time.

What if the market crashes? So the choices are pretty simple… In the case of public plans, promised benefits will either have to get cut or taxpayers will have to bear the burden. In the case of private plans, it’s the same basic idea. Some companies - including public ones - will take big hits and many corporate plans will ultimately fail. Millions of additional workers will get shafted in one way or another.

Do you have one of these types of pensions? Whether you answer “yes” or “no,” the problem will likely affect you. The ripple effects of this whole situation are a potential national crisis that cannot be brushed aside. At the end of the day, at least some of this is going to hit taxpayers.

Do you live in a state or municipality with a struggling pension plan? Odds are good you’ll end up paying for the promises made by your local politicians over the last several decades. It also fairly likely that the federal government will end up involved in many of these blowups down the line. That will essentially make all U.S. taxpayers somewhat responsible for those same irresponsible decisions.

We may even end up footing the bill for some of the failing PRIVATE pension plans. In fact, according to The New York Times, this is already being discussed in Congress. A committee is exploring possible taxpayer-funded bailouts of 200 different private pension plans despite very reasonable arguments that there are many dangers in doing so.

But I’m not the only one concerned about the looming pension crisis... Buried far down on page 21 of the 2014 Berkshire Hathaway annual shareholder letter was an important warning from Warren Buffett: "Local and state financial problems are accelerating, in large part because public entities promised pensions they couldn’t afford.

Citizens and public officials typically under-appreciated the gigantic financial tapeworm that was born when promises were made that conflicted with a willingness to fund them. Unfortunately, pension mathematics today remain a mystery to most Americans. During the next decade, you will read a lot of news - bad news - about public pension plans."

In the case of public pension plans, Buffett is absolutely right about both the cause - inept lawmakers making promises in a vacuum - and the future effects - financial pain for millions. Plus, once you add in the additional problems at many private pension plans, the overall impact grows exponentially. So I think it’s absolutely crucial that you understand a few things about this smoldering fire as soon as possible…

First, if you are collecting a pension - or you expect to in the future - this situation could dramatically affect your comfort in retirement. My father spent his entire adult life as a state worker. And I have other friends and family members who are also counting on retirement promises made by various politicians. I also know plenty of people who collect checks from private pension plans. My message to all of them is the same: Hope for the best, but plan for the worst."

Gregory Mannarino, "4/25/18 Post Market Wrap Up: Schizo Market? Get Used To It”

"Where Have All the Dip Buyers Gone?"
by Brian Maher

"Where have all the dip buyers gone? The Dow Jones plunged another 423 points yesterday… its fifth consecutive losing day. The S&P slipped 35 points, the Nasdaq a hellacious 121. Stocks have endured more daily losses of at least 1% this year… than the past two years combined. And it is only April.

Stocks opened lower again today. They closed the day mixed. What are we to make of it all? We introduced our “bond market versus earnings” theme Monday. The winner, we hazard, could establish the overall market tone - in the short run, anyway.

In one corner we have the bond market... Yields on the 10-year Treasury bond have crept toward the 3% threshold many analysts consider bearish for stocks. In the other corner we find positive corporate earnings… Over 80% of the companies reporting earnings this season have exceeded estimates - a bullish sign. But in our battle between the bond market and earnings… the bond market appears to be winning.

Art Cashin, UBS director of floor operations at the New York Stock Exchange: "We're maybe one-third of the way through earning season and 83% of companies that have reported have easily beaten the estimates. And yet the averages are below where they were when earnings season started. So it's something other than earnings that has the market very upset here."

Again, that something “that has the market very upset” may just be the rising 10-year yield. It busted clear through the 3% mark this morning - and held firm throughout the day.

Rising yields raise the costs of servicing debt. They also may suggest higher inflation ahead.

That means the Federal Reserve may raise interest rates more aggressively to head it off. And additional rate hikes are considered bearish for stocks.

So here we stand on this 25th day of April 2018. The bond market is slightly ahead on points. We don’t pretend to have the answers, of course. We are certain of two things only. One is our own uncertainty. The other is the fallibility of crowds.

In 2013, researchers Robin Greenwood and Andrei Shleifer conducted a study. They examined six sources of investor expectations for future market returns, covering the years 1963–2011. The results, clear as gin: Following periods of strong performance, investors expect further strong performance. And they invest accordingly - even when models indicate stocks may be dangerously expensive. But when the crowd is loaded up on one side of the boat... it is often time to reach for the life vest.

An American Association of Individual Investors (AAII) survey revealed 60% of respondents were bullish heading into this year. That was the highest figure in seven years. Only 15% were bearish. Economist after economist forecast higher markets entering this year. And who can blame them? Stocks only went up in 2017. Volatility had been licked. The Trump tax cuts would soon take effect.

Were stocks expensive? Maybe they were. But they’d been expensive for years. Only the perma-bears were roaring their usual alarms - as they’d been every year for the past eight years. But what has transpired since the new year?

Stocks “corrected” in February. The Dow Jones now seems to fall hundreds of points every other day. Fears of a trade war have frightened the horses. Bond yields are rising. Bring it all together and stocks now trade lower than the beginning of the year.

It is only April, we remind you. Stocks may still end the year higher… and the earlier survey may yet prove correct. But if that same investor sentiment survey was taken today… would it be nearly so bullish? Let us return to the aforesaid AAII survey… Bearish sentiment was only 15% at year’s onset, as stated.

And now? AAII investor sentiment data released April 12 reveal pessimism is back over 40%. Bullish sentiment - 60% to start the year - has fallen to 26%. If you seek a lesson in crowd psychology… you may wish to begin here.

If we were a betting man - and of course we are not - we might be half-tempted to turn bullish at this point. After all, we are constantly told that markets crash when least expected, when the guard is down. The guard is now up. If you fancy yourself a contrarian, now might be your chance to buy cheap - if you have the nerve. Do you?"
Gregory Mannarino, ”4/25/18 Post Market Wrap Up: Schizo Market? Get Used To It”

Musical Interlude: Ludovico Einaudi, “Indaco”

Ludovico Einaudi, “Indaco”

"When Tomorrow Comes..."

"This is the beginning of a new day.
You have been given this day to use as you will.
You can waste it or use it for good.
What you do today is important because you are exchanging a day of your life for it.
When tomorrow comes, this day will be gone forever;
in its place is something that you have left behind...let it be something good."
- Author Unknown

The Poet: Frances Dana Gage, “Dare To Stand Alone”

“Dare To Stand Alone”

“Be firm, be bold, be strong, be true, 
And "dare to stand alone;"
Strive for the right whate'er ye do,
Though helpers there be none.

Nay, bend not to the swelling surge
Of popular sneer and wrong;
'Twill bear thee on to ruin's verge,
With current wild and strong.

Stand for the Right! Humanity 
Implores, with groans and tears,
Thine aid to break the fest'ring links
That bind her toiling years.

Stand for the Right!- proclaim it loud-
Thou'lt find an answering tone
In honest hearts, and thou no more
Be downed to stand alone!” 

- Frances Dana Gage, 1869

"No Way To Be..."

"Never shy away from opportunity and wholehearted living. Never be fearful of putting yourself out there. The courageous may encounter many disappointments, experience profound disillusionment, gather many wounds; but cherish your scars for they are the proud emblems of a truly phenomenal life. The fearful, cautious, cynical and self-repressed do not live at all. And that is simply no way to be in this world."
Anthon St. Maarten

"Book Excerpt: How You Got Screwed"

"Book Excerpt: How You Got Screwed"
by Crimson Avenger

"Author’s note: Some of you may remember a booklet called “How You Got Screwed” that Jim shared here about a year and a half ago. After seeing it online, a publisher contacted me and asked if I would flesh it out so they could release it as a full book. It just came out a few days ago (you can find it here), and Jim suggested I share a few chapters through TBP. This is the first of three to be shared; I’ll release the next two over the next few weeks. Thanks to Jim for all his support!
Note also: Footnotes/sources not included here but are in the book itself.

Chapter 4: How you’re getting screwed by…Retirement Promises:
The Point: Most people have an expectation that they’ll be taken care of later in life thanks to government programs like Social Security and Medicare, private or public pensions, or through their own efforts to build up their net worth. In reality, it was never possible for governments and corporations to fulfill the promises they made to you, and those assets you saved may not be worth what you think they will be, when it’s time to cash them in.

There is a predictable pattern to life: We start out as dependent children; grow to be independent adults; and, inevitably, become dependent again as we move into old age. We know this is coming; not a single person in history has avoided it. So it’s important for us to plan for that while we’re in our prime. Unfortunately, the vast majority of Americans are completely unprepared for the 100 percent certainty of old age. There are many reasons for this:

Because we live in a debt- and credit-driven society, we have come to think only of our immediate needs and wants. There’s no need to save for the things we want to buy: We just borrow the money and promise to pay for it later. This mindset not only means that we’re hard-wired against saving, it also means we’re probably going to grow old with a pile of debt - all those things we said we’d pay back in the future. We have some assets - notably our home equity - but all that debt keeps our net worth low.

We’re about to deal with a huge demographic bubble - the aging of the huge Baby Boomer population - which will result in a selling frenzy of the assets they accumulated in better times. Asset prices will crash due to little demand and huge supply of those assets.

The government has promised to take care of us in our old age thanks to programs like Social Security and Medicare, while many big businesses, along with the government, have similarly promised to take care of their employees through pensions. These promises - which are actually false promises, in that they cannot be met - have allowed us to forgo our own efforts to prepare for the future.

In short, even though we know for a fact that we each need to prepare for our old age, we’ve been taught not to worry about it and robbed of the ability to do it. It’s guaranteed that this will not end well for the majority of people in this country.

Are Americans Ready to Retire? Americans are awash in debt, with credit cards, mortgages, and auto loans among the primary contributors. According to NerdWallet, with additional color added by, 69 percent of U.S. households have one or more kinds of debt, and the average level of debt carried in those households was $130,922 at the end of 2015. Levels of household debt in the U.S., along with the numbers and percentages of households that carry that kind of debt, are as follows:
Click image for larger size.
“Surely,” you must think, “those numbers aren’t the same for people across age groups. Young people must take on a lot of debt, while people near retirement have paid theirs off.” While that’s true to an extent, a lot of people enter retirement age with a lot of debt. In fact, according to the U.S. Census, in the year 2011, 60.4 percent of people in the age 65–69 bracket carried debt, and the average amount of that debt was $109,973. And the debt levels of people nearing retirement age have grown over the past several years: According to data from the New York Fed, the average debt levels of people ages 55–64 have grown an average of 66 percent between 2003 and 2015.

And what about the other side of the coin - savings? Those debt levels wouldn’t be bad if savings were much higher. However, according to the U.S. Census, in 2011 only 21 percent of households entering retirement age (55–64) had a net worth (in other words, after debt is subtracted out) of $500,000 or more, while 43 percent have less than $100,000 in assets. And for most, more than half of their net worth comes from the equity in their homes, meaning they would need to sell their houses in order to live off those funds. In fact, as The Fool website reports, “According to the U.S. Census Bureau’s data, the typical American’s net worth at age 65 is $194,226. However, removing the benefit from home equity results in that figure plummeting to just $43,921.
The Demographic Bubble: From post-war 1946 to 1964, the United States produced an epic wave of children. This generation, known as the Baby Boomers, remains the single largest generational group in the country, and as they moved through their lives from birth to seniorhood, they have had a profound impact on American society.

But their greatest impact may still be to come: The first of those Baby Boomers began to hit retirement age in 2011, and as a result the number of retirees in this country is projected to go from 40.3 million in 2010 to 82.3 million in 2040. In terms of percentages, thanks to the Boomers, retirees will go from 13 percent of the population to 21.7 percent during that time.
This is a huge population shift in a very short amount of time, and it’s going to hit our country like an earthquake. That’s 42 million additional people drawing Social Security. Forty-two million receiving Medicare. Forty-two million needing all kinds of specialized products and services, such as elder care facilities and transportation services. And most important, 42 million who are no longer contributing to the tax base, but instead beginning to draw from it. We’ll explore some of the implications in the next few sections.

Personal Assets: Let’s consider the market theory of supply and demand: 

Suppose you go to a farmer’s market and see a handful of vendors selling bananas, and hundreds of people lining up to buy them. What do you think will happen to the price of bananas? 
Suppose you go to a farmer’s market and see hundreds of vendors selling bananas, and only a handful of people interested in buying them. What do you think will happen to the price of bananas?

Now substitute bananas for stocks, bonds, or homes, and think about what happens when the millions of Baby Boomers need to sell their assets into a market of people who are barely making ends meet. What’s going to happen to prices for stocks, bonds, or homes?

In truth, it’s not clear how much of an impact this will have on the stock market: While Boomers own 47 percent of equities, most of those are concentrated in the hands of the wealthiest 10 percent and will not be sold for living expenses. But it will certainly provide a headwind, particularly as Central Banks put so much effort on boosting the prices of assets in order to create a “wealth effect” and assure people that all is well.

The greatest danger lies in the housing market. If Boomers have not saved enough to survive in retirement, and their homes represent 77 percent of their net wealth, simple logic tells us that those homes will have to be sold in order to cover their expenses (at least for a few more years). And the generations coming up behind them, including Generation X and the Millennials, have less wealth, making it that much more difficult to absorb that housing surplus. The future is not bright for those who hope to sell assets at current price levels.

Social Security: Many people look at Social Security as their retirement plan, and as a guaranteed right. The government does not. In the landmark Flemming vs. Nestor case of 1960, the Supreme Court ruled that paying into the system does not mean you have the right to receive benefits. As the Social Security Administration itself admits, “In its ruling, the Court rejected this argument [that people who pay into the system are guaranteed to receive benefits] and established the principle that entitlement to Social Security benefits is not contractual right.”

The Act itself states that Congress has the authority to alter, amend, or repeal any element or rule that they want. They can raise the age for eligibility to eighty, they can limit the program to people living below the poverty line, and they can cut benefits in half if they so choose. As the Cato Institute notes, “Social Security is not an insurance program at all. It is simply a payroll tax on one side and a welfare program on the other. Your Social Security benefits are always subject to the whim of 535 politicians in Washington.”

At its core, Social Security is a Ponzi scheme, designed so that a large group of people would pay into a system that provided benefits for a few. It worked at the time it was designed, but the variables have changed over the years to turn it into a disaster in the making. Dr. Ken Dychtwald provides the following analysis: The problem is that current government entitlements and pensions were masterfully designed in an era when there were dozens of workers supporting each recipient, people died relatively young, most workers were diligent savers, and the government and employers were widely trusted. We now live in an era, where there are very few workers to support each retiree, most people die very old, savings rates have plummeted, and the government as well as employers’ promises are not generally trusted. The ratio of 40 productive workers to each retiree that existed when Social Security was launched, has steadily shrunk, from 16 to 1 in 1950 to only 3.3 to 1 today. By 2040, it is projected that there will only be 2 workers, and perhaps as few as 1.6, to support each boomer retiree, who could be living as many as 20 to 40 years in retirement. And, between 2010 and 2030, the size of the 65+ population will grow by more than 75 percent, while the population paying payroll taxes will rise less than 5 percent.

Perhaps the most confusing and controversial element of the Social Security story is its “trust fund.” The Social Security Administration will tell you that they have a trust fund of $2.8 trillion, and that those reserves will cover the system through 2034. What they don’t like to tell you is that those reserves aren’t actually sitting around in a bank, in actual cash form: The government spent that money as soon as it came in and left an IOU in its place in the form of “special issue securities.” These securities are special in the sense that they cannot be sold on the open market: They can only be redeemed by the U.S. government, and since we’re already running a large deficit from year to year, they’ll have to raise new money to redeem those bonds, either by further increasing the deficit (i.e., even more Treasury bonds), raising taxes, or reducing spending elsewhere.

If you’re still comforted by the illusion of a $2.8 trillion trust fund, it may be worth considering what happened when the government bumped up against its debt limit in 2011. When asked what would happen to Social Security checks if the government failed to raise the debt limit, President Obama said, “I cannot guarantee that those checks [he included veterans and the disabled, in addition to Social Security] go out on August 3rd if we haven’t resolved this issue.  Because there may simply not be the money in the coffers to do it,” a statement later confirmed by Treasury Secretary Tim Geithner. With nearly $3 trillion in reserves, wouldn’t the Social Security Administration just redeem some of those securities to ensure that payments were made? Or does this make it clear that these reserves are a convenient fiction?

Considering that 36 percent of current workers expect Social Security to be a major source of income when they retire - 10 percentage points more than a decade ago - it’s critically important that people realize just how unreliable this program may be in the future, and what the implications of that would be both personally and to the country as a whole.

Medicare: Building on the foundation of social welfare established by Social Security in 1935, President Lyndon B. Johnson signed the bill that led to the establishment of Medicare (for those 65 and older, regardless of financial status) and Medicaid (for low-income citizens) in 1965. Now, just over fifty years later, Medicare serves around fifty-five million seniors and people with disabilities, and accounted for 15 percent of federal spending, $632 billion, in 2015. The program is currently funded through general funds (40 percent), payroll taxes (38 percent), and other sources.

Simply put, Medicare is a bomb with a fast-burning fuse. We have a rapidly-growing population of seniors (see the information on demographics above) about to enter a system that has seen regular increases in spending: According to the Kaiser Family Foundation, Medicare spending increased at an annual average rate of 9 percent from 2000 to 2010, and then at 4.4 percent from 2010–2015. Going forward, the Foundation expects average annual growth in total Medicare spending to be 7.1 percent between 2015 and 2025, resulting in a program costing well over $1 trillion per year. Beyond that, as healthcare costs continue to increase and the bulk of the Boomer generation moves into retirement territory, it’s anyone’s guess as to where those numbers could go, or how the program could continue to be fully funded. For an explanation of why prices keep going up, see chapter 12, “The Healthcare System.”

Pensions: For those of you with a pension from your corporate or government employer, there’s bad news: It is extremely unlikely that you’ll see all of the payments and benefits promised to you. In fact, depending on when you retire and the state of your employer, it’s very possible that you won’t see anything at all.

The problem with pensions - especially “defined benefit” pensions, which guarantee a certain payment regardless of the performance of the pension fund’s investments - is that they were popularized at a time when the world was very different. Like Social Security, they were introduced when people didn’t live much past retirement, and they were designed by corporate and government leaders who wanted the immediate benefits without having to stick around to see the end game, so it was easy to make promises that future generations would have to fulfill. As a wave of retirees hit the eligibility mark, and the expected returns on pension funds’ investments fail to materialize, we’re seeing the end game for these retirement promises.

Private Pensions: Private pensions are more than a century old - the first was offered in 1875 - and are an artifact from an era when people would hold a job with a single employer for an extended time, often for their entire careers. While they are in decline (only 18 percent of corporate workers have them today, compared with 35 percent in the early 1990s) because of the changing nature of the job market and because employers now have more retirement plan options available to them such as 401k programs, the fact remains that a large number of Americans receive, or expect to receive, support from these defined-benefit programs.

And they have some reason to expect that their pension plans will deliver on their promises: After some pension programs went bust in the 1960s due to a failure of employers to contribute as promised (the most notable case being the Studebaker auto plant), Congress passed a law in 1974 that set rules mandating that employers fund these programs, and established an insurance program through a new Pension Benefit Guaranty Corporation (PBGC) that takes over for failed pension programs.

However, rules or no rules, corporations have had a hard time staying in business with the burden of these plans, and can shed them through bankruptcy or other restructurings. That’s when the PBGC takes over. As of 2014, the organization has taken over 4,640 pensions covering more than 2.2 million retirees, with some of the biggest coming from the airline (Delta, Pan Am, United) and steel (Bethlehem, LTV, National) industries. As a result of its obligations, the PBGC was $61 billion in the red at the end of 2014.

So, while the organization is currently able (despite its running deficit) to make the majority of people whole, or close to it, the future is less certain. Based on reports from private pension funds to the PBGC, they have seen the levels of funding among still-operating pensions drop from 84 percent in 2008 to 75 percent in 2014, putting the PBGC at risk of covering an additional $550 billion in obligations in a worst case scenario. Private pensions are clearly struggling, and the PBGC may soon be making some hard decisions on how to leverage its limited resources.

Government Pensions: Pensions for civil servants became popular at the same time as private pensions, when it was seen as a way to compensate government workers who received average to low pay. And those pension plans are entering a crisis phase: Depending on who you ask, public pensions are underfunded by as little as $1.5 Trillion (according to the Pew Charitable Trusts) up to more than $5 Trillion (according to a Pension Task Force established by the Actuarial Standards Board). No matter which estimate you accept, the deficit in what pensions have versus what they have to pay out is staggering, and it’s happened for three reasons:

Outsized promises. Pension details vary widely by state, but as a rule pensions pay out much more than they take in from participants. Some are far more generous than others; California offers retirees a pension at 87 percent of what they were making as employees, with lifetime benefits approaching $1.3 million, while Mississippi offers retirees 54 percent of their former salaries, leading to average lifetime benefits of just $307,000. And this is typically after thirty years of employment, resulting in people retiring in their fifties and living for thirty years or more.

Underfunded systems. Politicians are typically very good at making promises, but very bad at following through. And as required payments to state pension systems become greater and greater, squeezing out other government priorities, many politicians have opted to delay or skip making those required payments, which will just compound funding problems in the future.

Unrealistic assumptions. In order to maintain the illusion that they’ll be able to meet future obligations, most pension funds assume that they’ll consistently make a fantastic return on their investments: Of 150 public pension funds surveyed, 97 percent assume that they’ll make annual returns of between 7 and 8 percent. Since low-risk investments don’t provide anything like that (the 10-year Treasury bond is close to 2.5 percent as of this writing), many funds pursue risky investments in order to attempt to clear this bar.

While problems for public pensions were always considered to be in the future, there have been some recent developments indicating that the future is becoming today. Some towns, such as Stockton and San Bernadino in California, have been forced into bankruptcy due to their pension obligations. And some pension funds, such as the Central States Pension Fund and the Dallas Police and Fire Pension System, have either started talking about reducing benefits and halting lump-sum buyouts.

Whether you’re relying on Social Security, pensions, or your own investments, the reality is that the stories you’ve been told about preparing for retirement have been just that: Stories. It’s time to think about other ways to protect yourself in the future."

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