75.4 million Baby Boomers in America—about 26% of the US population—have reached or will reach retirement age between 2011 and 2030. And many of them are public-sector employees.

In a 2015 study of public-sector organizations, nearly half of the responding organizations stated that they could lose 20% or more of their employees to retirement within the next five years.

Local governments are particularly vulnerable: a full 37% of local-government employees were at least 50 years of age in 2015.

Seeing those numbers, it is no surprise that public pension funds are completely overwhelmed.

They’re facing two major problems: a severe rise in the old-age dependency ratio and dwindling investment returns.

According to a 2015 study from the National Association of State Retirement Administrators (NASRA), public pension funds are around $1 trillion in the red.

A shocking number, but now we know that it was way too optimistic.

The reason is that NASRA’s estimates were based on pension funds earning an average annual return of 7.6%. However, the actual 2015 return came in at only 3.2%—58% less than projected.

The largest US pension fund, the California Public Employees Retirement System, did even worse: it earned a measly 0.6%.

If public pension funds used the same projection method as their private counterparts, their deficit would be around $3.4 trillion—that’s a whopping 19% of US GDP.

Hard to imagine that at the turn of the millennium, just 17 years ago, these funds actually ran a surplus.

Shrinking Yields and Growing Lifespans

By design, pension funds are conservative, low-risk funds, which historically hold around one-third of their capital in high-grade sovereign debt, like US Treasuries.

Up until recently, Treasuries ticked all the boxes. However, the 35-year bull market in high-grade sovereign debt is causing severe problems for pension funds. If we take the bellwether 10-year Treasury note, its yield has fallen from 16% in 1981, to 2.5% today.

The other major problem is the “gray tsunami” that is sweeping across the entire developed world—to wit, an increase in life expectancy and a decline in birth rates among first-world populations.

The US is no exception: America’s age-65-and-over population has grown by 35% in the last 50 years.

And there are not just more retirees, they also live a lot longer. On average, Americans born in 2010 will live nine years longer than those born in 1960, and retirees are now collecting their pensions for almost 20 years.

Many must fall back on Social Security, which itself is in dire straits. If there’s no meaningful reform, the money well is estimated to run dry by 2037.

Add to this the quagmire that public pension funds as well as the Social Security system find themselves in, and we’re looking at a scenario of near-catastrophic proportions.

It’s Time to Start Stashing Some Gold

It may be too late for cash-strapped Baby Boomers to acquire a sizable nest egg to retire on, but Gen-Xers and Millennials working in the public sector should take heed. Public pension funds are clearly insolvent, so taking care of your own retirement needs is important.

The best portfolio is a balanced mix of solid funds and stocks, as well as physical gold. Most financial advisors recommend that gold bullion should comprise between 5% and 15% of your investable assets. Some companies are now even offering gold IRAs.

Why gold?

Because unlike paper money, equities, or pension funds, gold bullion is the only asset that isn’t simultaneously someone else’s liability—so there’s no counterparty risk.

That means while stock-issuing companies can go bankrupt and governments can default on their pension liabilities or dilute the purchasing power of the currency by cranking up the printing press—the value of gold bullion does not depend on anyone’s goodwill.

That’s why humans have viewed physical gold as a “safety net” and crisis hedge for centuries… and will likely do so for centuries more to come.

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