Earnings 58% of pension funding
I was just having a look at calpension and couldn't help but notice the chart showing that 58% of the funding for pensions is expected to come from earnings.
On the macro level I think earnings have a lot to do with supply and demand and with an aging population, there is more "wealth" available and looking for investments which pushes the return down and inflates the price. Baby boomers have started to retire, so their rate of investment is declining.
A friend of mine that retired 4 years ago said that with her pension she had not found it necessary to dip into any of her savings. This is quite probably true of many people who had good jobs with pensions for most of their working lives. So, the rate of payout of pensions is in a cycle of increased payouts, which I suspect means the money available for investments is declining overall.
But it is also being offset by demands for higher premiums from workers, companies and governments, which appears to be happening. So even though we are in a period of increased payouts from pensions, we are also more then likely in a period where pensions are still investing more, which I think is increased supply of investment monies faster then the pension payouts and increasing the market prices.
But, at some point through this aging population, along with the declining wages and buying power of younger generations, I think there is going to be a tipping point that the decline in investment monies through pensions is going to have the opposite supply and demand effect. And if prices go up faster then pensions, then the private drawing of investments also starts to increase.
I do not see how the younger generation, that is starting their adult lives with massive education debt, and were hit by buying in a housing bubble, and have not seen wages keep up with costs, ever manages to even make a dent in the investment ability and opportunity the retired boomers have had. Sure, lots of them did not manage to save and had financial difficultities, but way more of them had the opportunity to start their work life young, with good wages, little debt and affordable housing. Ok, they also supported more children, of which the younger generation isn't doing because of economic uncertainty.
I guess we are in year 3 of baby boomer retirements. At some point this changing demographic has to show up in the market, and I think that 58% is in serious trouble.