Pensions? are you sure you are getting one?

5개월 전

Its some thing that is becoming more and more relevant these days but most people have no idea what is going on. The average Joe just assumes that he will get what he is promised

Screenshot 2020-02-25 22.07.45

Now a Pension fund is quite an easy setup to understand

  • Money In
  • Money Management
  • Money out

Money in

these are the contributions you make during your whole career. Every month a little bit is added to the big pot by all employees registered in that pension fund. The big issue here is that the baby boomer generation is now retiring. They are globally the biggest bunch of people and you can kind of compare them to a pig being swallowed by a python and moving through the snake. There is not going to be enough money flowing in to pay this generation what they were promised.

Money Management

Pension funds should make roughly a 7% to 8% return to be able to keep up with the payments if there is enough inflow. They have to abide by certain rules and that means that

  • allocation in Bonds
  • BBB bonds or higher, no junk bonds allowed
  • no risky assets (like crypto)
  • only a certain portion in stocks
    But the trouble for a lot of the pension funds started when they got caught up in the Dot com bubble around 2000 and then another hit in 2007. That means that they had to try catching up and making up for what they had lost. And that means more risk. So the pensions started moving to hedge funds and high risk trades but even though they were paying huge fees the returns were not making up for that loss and the losses even got bigger. The gap between what they had to make and what they were making was not enough.

Screenshot 2020-02-25 21.44.54

Money out:

States are suffering to pay out their employees.
There are only a few options to improve:

  • Some have even cut part of the pensions but that can only be done so much before people revolt.
  • Raising contributions from the active workforce but that again you can only do so much.
  • For the state they have the third option of raising taxes to offset the loss that way but again that is just spreading the loss.

The system is basically quite sound if it was not for all the secrecy of the hidden fees who make the rich richer and for the mismanagement by the top management who run the things.

You can be sure that none of the people at the top will suffer and none of the politicians will lose their pensions.

So if you can, then be prepared, put money on the side

  • invest wisely and hedge some into crypto and gold

Are you preparing?

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