How the Crisis Caused a Pension Train Wreck


Naked Capitalism has the article How the Crisis Caused a Pension Train Wreck.

Pension funds have taken on many of the risks that were once held by banks. Low bond yields, which make it more expensive to guarantee an income, have forced them to take extra risks. They now hold assets, such as hedge fund and private equity investments, with much concealed leverage. And many companies have transferred the risk of bad investment performance from their shareholders to savers – and savers are not usually well-equipped to deal with them.

The result: the risk of a sudden banking collapse, which almost happened 10 years ago, has reduced. But the risk of social crisis, as people enter retirement without enough money, is rising.

Just to drive the point home, further down in the article was this.

Abandoning DB [defined benefit] plans reduces the risk that companies will face bills that they cannot pay. But it opens the greater risk that individual savers, far less sophisticated than the actuaries who run company pension plans, will fail to save enough for retirement – particularly as many suffer stagnating wages and have difficulty meeting their current commitments.

The evidence from the US is alarming…. Most Americans with DC [defined contribution] plans do not have anything like enough money saved to support them in retirement…

I retired about 12 years ago, so the crash hit me just after I retired. The financial literature says this is the worst kind of timing one can suffer.

I have managed retirement fairly well, but I’d hardly say I feel safe and secure. I try to buy high quality stocks that are currently at low historical prices for each stock. With the current stock market bubble, these companies are harder and harder to find.

Another strategy I have used to is lower our standard of living to match the returns I can get out of the stock market. We recently had our wills redone. The lawyer suggested that we should be spending more and enjoying our retirement more. That’s advice we are not going to take. Sharon and I are perfectly happy with what we are spending, and I am trying to guard ourselves against worse possibilities than the lawyer seems to be able to imagine.

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