Brace yourself because the water has now receded in the land of retirement.
Here’s the problems and this is what happens.
SDNote: Gold is up 10.38% and silver is up 4.68% so far in 2017
from Zero Hedge
We’ve frequently argued that public pension funds in the U.S. are nothing more than thinly-veiled ponzi schemes with their ridiculously high return assumptions specifically intended to artificially minimize the present value of future retiree payment obligations and thus also minimize required annual contributions from taxpayers…all while actual, if immediately intangible, underfunded liabilities continue to surge.
As evidence of that assertion, we present to you the latest public pension analysis from the Center for Retirement Research at Boston College. As part of their study, Boston College reviewed 170 public pension plans in the U.S. and found that their average 2016 return was an abysmal 0.6% compared to an average assumed return of 7.6%.
Meanwhile, per the chart below, the average return for the past 15 years has also been well below discount rate assumptions, at just 5.95%.
All of which, as we stated above, continues to result in surging liabilities and collapsing funding ratios.
But, perhaps the most telling sign of the massive ponzi scheme being perpetrated on American retirees is the following chart which shows that net cash flows have become increasingly negative, as a percentage of assets, as annual cash benefit payments continue to exceed cash contributions.
Conclusion, pensions can hide behind high discount rates and a “kick the can down the road” strategy in the short-term. but in the long run actual cash flows matter.
A return of 0.6% is a negative return because that doesn’t even keep up with inflation and rising prices (which the Fed wants at 2%, and just last week with Q2 GDP, the government says is currently was 2.3% in Q1 and 1.3% in Q2, excluding food and energy, because those obviously have no effect to an individual’s bottom line). While emphasis is on the record breaking Dow 22,000 and the new AAPL iPhone, most likely sooner than later, a massive flight from pensions and into gold and silver will be the result. Once the ponzi can no longer be kept functioning, along with a steady, weakening decline in the dollar, we now see that the water has receded. We know how this ends.