Americans looking for retirement income from their state and local governments could be disappointed to learn that U.S. public pensions are facing a shortfall of $2.5 trillion, according to the former chairman of New Jersey’s pension fund. He and other experts believe the main cause of the shortfall appears to be the damage caused by the U.S. economic recession along with years of fiscal mismanagement.
Chronic Underfunding of Retirement Promises a Problem
A recent study from Pew Center of the States, a research group, revealed that there is a major funding gap in the area of retirement for most states. Some of the funds that are falling behind include:
- Pension
- Healthcare
- Life assurance
The estimated gap for these funds was in the ballpark of $1 trillion at the end of fiscal 2008, and that number is expected to grow even more. In New Jersey alone, the unfunded liability of the state’s pension system is expected to rise from $54 billion to $183 billion within 30 years, says Chris Christie, the Republican governor of New Jersey.
Government Planning to Sell Assets
The shortfall that states are facing is forcing governments to make tough decisions. One solution for governments is to sell assets and make deep cuts to services to raise money for the funds. Some estimate that cities and towns may sell off as much as $3 trillion in municipal bonds in order to raise money.
Unfortunately, this is not a route they want to take because various safety nets that have been in place for years will fall away and citizens who are most vulnerable will have nothing to fall back on.
The only refuge some retirees have is that many banks are getting back on their feet and plan to begin paying dividends after a 3-year break. Hopefully, this will give retirees some much-needed income to boost their portfolios.
