Back in the day, when I was on the job, my goal was to put in my 25 years in the fire service and retire as a Firefighter/ Engineer and collect a pension. Just like many Americans were looking forward to retirement. It would be a time to reflect on their hard work and a life well-lived, while they relaxed and sailed off into the sunset.
Maybe you had retirement dreams years ago to explore tropical paradise (psst…Belize is always a good idea), spend more time with your future grandchildren or buy that beautiful piece of real estate you always wanted.
For many people, those dreams may seem impossible now. According to Newsweek, most people retire today without enough savings to maintain their quality of life, and one in four Americans has nothing saved for retirement at all. The U.S. is spiraling into a retirement crisis and has been for decades.
Many retirees use their pension as their main source of income. A pension is a retirement fund for an employee paid into by the employer, employee, or both. The employer usually covers the largest percentage of contributions. When the employee retires, he or she is paid in an annuity that’s calculated by the terms of the pension.
In corporate America, pensions are less common now because many businesses switched to 401K and IRA plans. These payouts are determined by actual assets, instead of political promises that never come to fruition. The costs of pension plans were hard to predict, and some businesses were really struggling to survive because of the expenses.
Now, labor unions and public employees make up the majority of pension holders. This includes police officers, fire fighters, EMS, teachers and more. Government pension systems are defined benefit plans with guaranteed benefits that are calculated by formulas based on salary and years served. These formulas are often absurdly generous…
Pension plans don’t offer a reliable retirement income stream because nearly every state is facing a pension shortfall, according to USA Today. States have a combined $4.2 trillion in pension liabilities, but less than $3 trillion in assets set aside to pay for those pensions. With such a large funding shortfall – and an estimated 10,000 people hitting the retirement age of 65 each day – states are headed for a pension crisis
This is scary.
A few bad years within financial markets can set things backwards with government funded plans…which means more taxes for you. Although it was a great year for government pension funds, there have been decades of poor plan performance, underfunding and mismanagement of money. They’re still in trouble, and the American people will have to bail them out.
The greatest-selling financial author in history, Robert Kiyosaki, thinks pensions are the biggest threat facing the financial world today. He isn’t wrong. In fact, The Real Estate Guys are my mentors, and they’ve also talked about the pension crisis for many years.
All of this seems pretty gloomy, right? Well…it gets a bit worse before it gets better.
Pension problems pose a threat to real estate investors. For example, there are politicians that have proposed property taxes and benefit cuts for pension holders to help fund economic problems within the government. Another example is General Electric and how it cut pension benefits, leaving employees worried about their financial futures.
Some of these pension holders could be your tenants!
But guess what? There’s actually still good news in this pension crisis.
I have a love for public servants, and I don’t want to see my fellow brothers and sisters struggling during their retirement because the pension system will go bankrupt. There are other options available for you and some of them have changed my life, including:
Allow me to be your trusted advisor for investing. If you want to learn more, schedule a call. I look forward to helping you expand your horizons and think outside of a pension.