Best of the Week
Most Popular
1. 2019 From A Fourth Turning Perspective - James_Quinn
2.Beware the Young Stocks Bear Market! - Zeal_LLC
3.Safe Havens are Surging. What this Means for Stocks 2019 - Troy_Bombardia
4.Most Popular Financial Markets Analysis of 2018 - Trump and BrExit Chaos Dominate - Nadeem_Walayat
5.January 2019 Financial Markets Analysis and Forecasts - Nadeem_Walayat
6.Silver Price Trend Analysis 2019 - Nadeem_Walayat
7.Why 90% of Traders Lose - Nadeem_Walayat
8.What to do With Your Money in a Stocks Bear Market - Stephen_McBride
9.Stock Market What to Expect in the First 3~5 Months of 2019 - Chris_Vermeulen
10.China, Global Economy has Tipped over: The Surging Dollar and the Rallying Yen - FXCOT
Last 7 days
Gold Surges on Stock Selloff - 18th Jan 19
Crude Oil Price Will Find Strong Resistance Between $52~55 - 18th Jan 19
Stock Market’s Medium Term is No Longer Bullish. It is Now Mixed - 18th Jan 19
SPX and Gold; Pivotal Points at Hand - 18th Jan 19
Fable Media Launches New GoWin Online Casino Affiliate Site in UK - 18th Jan 19
The End of Apple! - 18th Jan 19
Debt, Division, Dysfunction, and the March to National Bankruptcy - 18th Jan 19
Creating the Best Office Space - 18th Jan 19
S&P 500 at Resistance Level, Downward Correction Ahead? - 17th Jan 19
Mauldin: My 2019 Economic Outlook - 17th Jan 19
Macro Could Weaken After US Government Shutdown. What This Means for Stocks - 17th Jan 19
US Stock Market Indexes Reaches Fibonacci Target Zone – Where to Next? - 17th Jan 19
How 2018 Was For The UK Casino Industry - 17th Jan 19
Gold Price – US$700 Or US$7000? - 16th Jan 19
Commodities Are the Right Story for 2019 - 16th Jan 19
Bitcoin Price Wavers - 15th Jan 19
History Shows That “Disruptor Stocks” Will Make You the Most Money in a Bear Market - 15th Jan 19
What Will the Stock Market Do Around Earnings Season - 15th Jan 19
2018-2019 Pop Goes The Debt Bubble - 15th Jan 19
Are Global Stock Markets About To Rally 10 Percent? - 15th Jan 19
Here's something to make you money in 2019 - 15th Jan 19
Theresa May to Lose by Over 200 Votes as Remain MP's Plot Subverting Brexit - 15th Jan 19
Europe is Burning - 14th Jan 19
S&P 500 Bounces Off 2,600, Downward Reversal? - 14th Jan 19
Gold A Rally or a Bull Market? - 14th Jan 19
Gold Stocks, Dollar and Oil Cycle Moves to Profit from in 2019 - 14th Jan 19
How To Profit From The Death Of Las Vegas - 14th Jan 19
Real Reason for Land Rover Crisis is Poor Quality of Build - 14th Jan 19
Stock Market Looking Toppy! - 13th Jan 19
Liquidity, Money Supply, and Insolvency - 13th Jan 19
Top Ten Trends Lead to Gold Price - 13th Jan 19
Silver: A Long Term Perspective - 13th Jan 19
Trump's Impeachment? Watch the Stock Market - 12th Jan 19
Big Silver Move Foreshadowed as Industrial Panic Looms - 12th Jan 19
Gold GDXJ Upside Bests GDX - 12th Jan 19
Devastating Investment Losses Are Coming: What Is Your Advisor Doing About It? - 12th Jan 19
Things to do Before Choosing the Right Credit Card - 12th Jan 19
Japanese Yen Outlook In 2019 - 11th Jan 19
Yield curve suggests that US Recession is near: Trading Setups - 11th Jan 19
How Unrealistic Return Assumptions Are Ruining Your Stocks Portfolio - 10th Jan 19
What’s Next for the US Dollar, Gold, Stocks & Bonds? - 10th Jan 19
America's New Africa Strategy - 10th Jan 19
Gold Mine Production by Country - 10th Jan 19
Gold, Stocks and the Flattening Yield Curve - 10th Jan 19
Silver Price Trend Forecast Target for 2019 - 10th Jan 19

Market Oracle FREE Newsletter

Bitcoin Analysis and Trend Forecast 2019

Pay Your Fair Share (to the Teachers’ Union)

Stock-Markets / Pensions & Retirement Sep 11, 2015 - 05:35 PM GMT

By: Casey_Research

Stock-Markets

By Justin Spittler

Taxpayers take note…you could get a much bigger tax bill than you expect.

The California State Teachers’ Retirement System (CalSTRS) recently announced that it may move 12% of its assets, or $20 billion, out of stocks and bonds.

CalSTRS is the second-largest public pension fund in the U.S. It manages roughly $191 billion for 868,000 teachers in California.


CalSTRS made this announcement immediately after the U.S. stock market’s sharp selloff last month. Casey readers know the S&P 500 plunged 11% in six days, its worst selloff in more than four years.

While we can’t know for sure, CalSTRS likely lost billions in the selloff. The fund’s officers said they want to put more money in assets that “will perform well if the markets tumble.” They’re considering U.S. Treasuries, hedge funds, and other alternative investments.

CalSTRS isn’t the only pension fund scrambling to reduce risk. The Wall Street Journal reports:

Pension funds across the U.S. are wrestling with how much risk to take as they look to fulfill mounting obligations to retirees, and the fortunes of most are still heavily linked with the ebbs and flows of the global markets. State pension plans have nearly three-quarters, or 72%, of their holdings in stocks and bonds, according to Wilshire Consulting.

• Public pension funds are nervous about losing money…

Because they’ve made promises they can’t possibly keep.

Public pensions manage retirement money for government workers. Many teachers, firemen, and police have public pensions. If you’re a taxpayer living in a state that has public pensions, part of your tax bill goes toward these pensions.

According to think tank State Budget Solutions, state pensions are currently underfunded by $4.7 trillion. “Underfunded” is the difference between what they promise to pay and the amount of money they have on hand to actually pay it.

Public pensions can’t possibly make up that huge gap. It would require taxing $15,000 from every man, woman, and child in America. And the gap grows every year (it was $4.1 trillion last year).

Some states are already on the brink. Illinois only has enough money to cover 22% of its promised payments. Illinois will have a pension crisis. The only question is “when?”

Public pensions are a slow motion train wreck that can’t be stopped. Millions of workers who expect a steady stream of income when they retire will get nothing. The U.S. public pension system is mathematically guaranteed to crash.

•  How’d this happen?

Some states simply promise ridiculously huge pensions to public workers. According to Forbes, the average annual pension promised to a CalSTRS teacher who worked from age 23 to 65 is over $110,000 per year. That’s more than double the average income for an entire family of four in the U.S.

Another reason is that state pensions use pie-in-the-sky estimates for how much their investments will earn. According to the National Association of State Retirement Administrators (NASRA), U.S. public pensions expect to earn 8% per year on average.

That’s a wildly optimistic number. They’re extremely unlikely to earn anything close to 8% per year.

Earning 8% per year in normal times is difficult enough. And as Casey readers know, we’re not in normal times.

Returns on both bonds and stocks will likely be low or negative for the next many years. With interest rates at historic lows, bonds barely pay anything. And U.S. stocks have very little upside because they’re so expensive today.

Expecting returns to average 8% per year going forward is foolish. And we’re not the only ones who think so. BlackRock (BLK), the world’s largest asset manager, says state and local pensions should expect to earn 4% per year or less going forward.

The average public pension earned just 3.4% last year. And Bloomberg Business reports that the California Public Employees’ Retirement System (CalPERS), the largest pension fund in the U.S., earned just 2.4% last year.

CalPERS, at $300 billion the largest public pension in the U.S., reported in July that it earned 2.4 percent in its last fiscal year, less than one-third its 7.5 percent target. The fund’s board may consider slowly cutting its rate to 6.5 percent as part of a plan to reduce risk, according to fund documents.

•  Why should you care?

Because you might be on the hook.

Most governments won’t have the money to pay what they’ve promised. BlackRock projects that a stunning 85% of US public pensions will fail over the next three decades.

However…what most people don’t know is many state constitutions require states to honor their pension promises. In many states, it’s illegal for the government not to pay teachers, firemen, or police what they’ve promised. Even if those promises are ridiculous.

As a taxpayer, you’re the backstop for these promises. Governments don’t produce any money. They can only extract money from their citizens as taxes.

So if you live in a state where a pension goes bust…don’t be surprised if your government picks your pocket to make up the difference.

Here’s our advice: learn how to legally move some of your money out of your government’s reach. We published a new book that shows you simple strategies for doing this. And until we run out of copies, we’ll send you one for virtually nothing. We just ask that you pay $4.95 to cover our processing costs. Click here to claim your copy.

The article Pay Your Fair Share (to the Teachers’ Union) was originally published at caseyresearch.com.
Casey Research Archive

© 2005-2018 http://www.MarketOracle.co.uk - The Market Oracle is a FREE Daily Financial Markets Analysis & Forecasting online publication.


Post Comment

Only logged in users are allowed to post comments. Register/ Log in

6 Critical Money Making Rules