Retirement System Unreliability
Where is the Sufficiency?
Where the Longevity?
The Pension Promise is about being there. Not being more.
For individuals saving for our own retirement, we want our savings account balance to grow as big as possible, big enough so that we won’t have to worry about spending it all before we die. Mostly this growth comes from additions we make to our savings over time, from the money that we earn. If speculating on share price growth in the share price trading markets can turbo-charge that growth, and take some of the burden off our savings program, that’s good. But not if we lose more than we make “playing the market”. So most savers for retirement are cautious about the shares they buy, and hold until we need to sell, to spend that money to live on, rather than to extract profits and swap out into “a better bet”.
Another word for caution is prudence. Individuals buying and selling shares in the share price trading markets mostly try to be prudent. We don’t generally maximize. Mostly we worry about minimizing our risk of losing the money we worked so hard to set aside in the first place.
A very sensible way to run an economy.
For individuals providing for their retirement through participation in a defined benefit pension plan, we never have to worry about running out of money in our retirement. The pension will be there. Every month. Forever.
As long as the pension fiduciaries are prudent, and loyal, and generate sufficient cash flows flows from financing to meet the assumptions made by the actuaries in their design of the plan.
When pension fiduciaries become imprudent, and disloyal – foolish and faithless – by speculating on growth, instead of financing cash flows, they put The Pension Promise at risk.
This is not good. For any of us.