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Why Most US Pension Plans Will Shaft Their Participants

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Having a quality income in retirement is about to become a global challenge. Retirees everywhere, particularly in the United States, will find it extremely difficult to achieve quality retirement incomes and in many cases, even sufficient incomes.

How do I know? Here are two important sources of information that will provide advisors with the evidence necessary to inspire prospects and clients to take action. Each is sufficient on its own, but used together they provide prospects and clients with powerful inspiration to action.

(Related: Gross Says Invest in Developing World as U.S. Population Ages)

These two sources of information also will help to develop powerful questions that prospects and clients will feel they must have the answers to. These questions will help our prospects and clients to use their own common sense to reason for themselves that what they are currently doing will probably not keep them safe and therefore they must develop new strategies to achieve a successful retirement.

The first source of information is provided by the World Economic Forum. This year it provided a paper titled “We’ll Live To 100—How Can We Afford It?” If you Google that title, rather than simply clicking on the link to see it, you will not only obtain the white paper, but you also will access articles written about the information in the paper. The information is amazing and astonishing and eye opening.

Please read the entire paper, but I would pay particular attention to pages four, six and seven.

On page four, the paper shows how longevity has increased from age 85 in 1947 to age 103 for babies born in 2007. Another paragraph explains that—in one generation—the world will go from eight workers paying for retirees currently to only four workers by 2050.

Also on page four, it shares that 50% of the babies born in the United States in 2007 will still be alive at age 104. How will they build retirement income if they are using all of their earnings to support current retirees?

Coming storm (Photo: Thinkstock)

(Photo: Thinkstock)

On page six, the report explains several reasons why it will be so difficult to achieve retirement success. Here are the issues discussed:

  1. Lower birth rates and higher life expectancies.

  2. Lack of easy access to pension plans.

  3. Lower interest rates and forecasts for lower growth in the markets.

  4. Lower financial literacy.

  5. Inadequate savings.

  6. An increase in moves to make individuals responsible for managing their own pensions.

Finally, the study estimates that the pension shortfall already exceeds $427 trillion! The United States, China and India represent approximately $341 trillion of that shortfall. Please ask your clients this question: Where will that money come from?

The second source of information is available from the website and it pertains to the under-funding of pensions in our country at all levels. The site provides information about and grades the financial status of all fifty states (spoiler alert: not many have passing grades). Additionally, it provides similar information about the 50 biggest cities in our country (spoiler alert: still worse).

The information shows why most of the pension funds in the United States will not be able to keep the promises that they have made to recipients. And the remedies available are few: raise taxes, lower benefits, borrow money, or some combination thereof.

This site provides an enormous amount of information. It also provides free daily blogs from the leadership of this organization that will keep you apprised of the challenges retirees are facing. It also uncovers the tricks being used to disguise the unfunded balances of these pensions.

Together, these two sources will provide the information you need to inspire prospects and clients to take action. Please use them!

— Read World Bank Urges China Health Care Reform to Save 3% of GDPon ThinkAdvisor.


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