Pension Underfunding is really bad...
I have been talking about pensions and my position is that people are not getting the pensions they think they are getting. Most will feel hard done by and ripped off and they think they paid for them, but they really haven't.
I figure that pensions can only pay about half of what they have promised. Well, financial armageddon has a post talking about the underfunding and the one plan need to have funding increase 7-fold.
It seems years of underfunding will hit hard. Lots of people have already been collecting so the plans have been paying out in excess and collecting way low.
The article says there will be a show down between taxpayers and public service workers. No kidding, and I can see taxpayers going the way of tax revolt.
Here's one that is cutting pensions:
The pain is about to start in Wisconsin. The state has an unusual policy of adjusting the amount of benefits paid based on the pension fund's performance. Now, for the first time in 25 years, the majority of retirees will receive a benefit reduction.
This month, Wisconsin officials said that beginning in May nearly 150,000 retirees will face at least a 2.1% decrease in benefits, after the pension fund had a 26% negative return in 2008.
They are lucky it is only 2.1%.
Ok, next is where I don't have a lot of sympathy.
Jim George, a 64-year-old retired elementary-school teacher in Milwaukee, estimates that his $3,700-a-month benefit check will be slashed by about $600. He is talking with his wife about where they will have to cut back: their annual January vacation to Florida, eating dinner out, maybe their high-speed Internet connection. "It's going to make things tight," he said.
Even a $600 per month cut means a pension of $37k per year. Go back to my simple math model that bascially, work 40 years and pay 20 years, well you have to fund half that in a year, or $18.5k, $18 for simplicity is $1.5k per month needed to be paid into the pension fund. Make it $1800 of funding required per month for what he was expection...
I look back on the difference in how I planned for my future compared to those around me who had/have pensions coming. Some are almost at retirement age now and they still aren't debt-free. I had this goal of being debt-free in my 40s, where I am now, and having a home paid for so larger amounts of money could be put aside for retirement.
Most people don't have a back up plan. Most people are oblivious that they need a backup plan.