retirementI posted a recent video about pensions debts which Roger Lowenstein sees as a huge risk to our aging economy. The truth is I have been thinking about the topic more and more over the past few months. Some things about pension plans are ridiculous.

I usually do not get too personal in my blog but I will tell a personal story because it is relevant to the discussion. My wife was deciding whether to take a job in the private sector which offered a matching 401k plan, or in the the school system in Bergen County, New Jersey.

The public school system in Bergen County, New Jersey allows you to retire with a pension after 20 years. I believe the pension is based on half your last years salary. Of course everyone works crazy overtime the last year so sometimes the pension ends up being more than your last year’s salary. This insanse system has been around for decades but politicians do not have the political will to change it.

The negative side of working in the public sector is that pensions are completely underfunded and although there is a gurantee on pensions, the future is always uncertain. I would much rather have my money in a 401k than a promise by a Government that is in huge debt promising my future lavish returns.

This leads me to my chart. Below I found an interesting chart of pension debts by state. You might want to take a look at it. Between pension debt, Government debt, municipality and state debt, and all the other unfunded liabilities we are in serious trouble. I doubt any amount of taxes can cover these debts. According to some estimates state pension funds are underfunded by over $3 trillion!

I am going on a tangent but some solutions I believe: seriously cut entitlement programs, raise taxes, encourage large amounts of legal immigration as this would increase the workforce to support the aging workforce. I doubt the Government has the political courage to take any of these steps with the exception of raising taxes on banks or oil companies.

I am playing for self retirement, I am not sure there will be social security or any other safety nets when I retire in 40 or so years from now. I estimated that based on an average inflation rate of 3% I will need $3 million in assets by the time I retire.

On another side note I am sorry I have been posting mostly videos and scribds lately but I have been super busy. However, I only post if I think the readers will be interested and I find this chart informative, fascinating(and scary).