Guaranteed Lifetime Income

This might be nearly everyone’s single most important financial objective.  But the historical sources or retirement security are under pressure, leaving you with more of the responsibility for your own long term financial security.

The recently completed pension deal associated with the resolution of Detroit’s bankruptcy has shed a new light on the problem and further exacerbates the risk of your money running out.

Historically, public sector pension funds, while generally, woefully underfunded, have been able to make current pension payments.  Most observers were well aware of the longer term problems associated with material underfunding, but the Detroit bankruptcy has left current and future retirees with diminished benefits and the possibility that further cuts may be necessary.

Private sector pension funds are generally in better shape.  However, there has been an accelerating trend to move away from defined benefit plans to defined contribution plans.  While this shift provides some benefits to employees, such as portability, the ultimate value of the retirement package depends to a significantly greater degree on financial markets and the investment acumen of the employee.

Social Security is also likely to require some adjustments since it is plausible that current funding will result in a shortfall.  While there is little chance that Social Security will disappear, some reduction in the value of the benefits is likely.

On top of the funding problems of public and private sector pension funds, and the potential for benefit adjustments at Social Security, individual savings can only be described as abysmal.

The bottom line is clear.  Everyone is going to have to take considerably more responsibility for their own long term financial health.

The problems enumerated above are going to have the greatest impact on the youngest workers, but they have the most time to do something about it.

All comments and suggestions are welcome.

Walter J. Kirchberger, CFA®