We Must Head Off the Looming Pension Tsunami
We have not saved enough for the retirements that we have promised people, public or private. Moreover, that problem is greatly understated by current reporting methods. This may seem an undramatic candidate for addressing one of our biggest problems, but that's part of my point. Unlike hurricanes or wars or debt ceilings, we don't have to deal with retirement funding today. However, this problem grows and eventually will metastasize. Until the looming pension crisis is dealt with, one way or another, no one's retirement is secure, no government fiscal projections are fully credible, and no one's property is safe against extreme and unpredictable taxation.
It is an open secret that many official assumptions about future returns on retirement savings are too high. As a result, amounts put away to fund these obligations are much too low. Furthermore, decisions are made on incomplete inaccurate information. For instance, answers to questions like "can I retire now?" or "can we afford this dividend?" might come out very differently with more honest acknowledgment. A proper accounting for likely portfolio returns and liabilities, and mandatory funding (corporate, state, municipal, everyone) would lend light and discipline to this murky and fractious area.
The system we have now of "you choose how much you forecast you will earn on your portfolio in the future and then back out how much you need to save" is a great moral hazard. Organizations make overaggressive assumptions and ensure that in the not-too-distant future it will be someone else's problem-only likely much bigger. When the inexorable math eventually become unavoidable, contributions will have to go up (leading to rising taxes for government obligations or falling earnings for corporate ones) or benefits cut. We face the same trade-offs now; waiting with eyes closed simply means that the remedies required will likely be far crueller after years of quiet progression and poor decisions based on bad information.
