Local view: A silent thief is draining retirees’ pensionsLike a thief in the night, a stealth predator silently takes from many retirees’ pension savings. Ever so slowly, never taking a great amount, but always and relentlessly it works until the amount left takes a toll on those who worked hard all their lives and felt they had provided for their golden years.
By: Clyde Nelson, Duluth News Tribune
Like a thief in the night, a stealth predator silently takes from many retirees’ pension savings. Ever so slowly, never taking a great amount, but always and relentlessly it works until the amount left takes a toll on those who worked hard all their lives and felt they had provided for their golden years.
Inflation is that thief. It eats away the value of retirees’ fixed pensions, annuities and fixed-rate investments, including reverse mortgages. Every day as we seniors shop for our daily necessities, we see a slight rise in the cost of food, electricity, health insurance, taxes and more. Or if the price does not change, we notice containers getting smaller.
Meanwhile, our leaders consider a 3 percent inflation rate manageable and within reason, and perhaps working taxpayers feel they can live with it as they look forward to promotions, pay bumps or cost-of-living adjustments.
Consider that a monthly $1,000 fixed annuity or pension awarded 20 years ago now will buy only about $550 of goods and services because of inflation.
Additionally, most pensions do not equal the wages or salaries that were being earned at the time of retirement. Private pension plans are required by law to maintain a reserve equal to 70 percent of the actuarial liability for all retirees, and cost-of-living adjustments add a level of financial risk many retirees are unwilling to take.
Governmental units have no such requirement, and current news stories tell us most governmental units expect to pay benefits out of current cash flow and will be unable to provide future benefits because little effort was made to maintain any sort to actuarial reserve.
Additionally, public pension plans provide for cost-of-living adjustments to compensate for the rate of inflation. I doubt the public will be eager to pitch in to cover the shortfall in light of the many stories of public employees earning more in retirement than during their working days.
Many local- and state-level units of government are now looking to change the landscape of benefits by requiring future retirees to pay for more of their retirement benefits and by eliminating cost-of-living adjustments. Fixed pensions may just become the norm for all public retirees provided their governmental unit remains solvent. That will add another group of retirees who will be affected by creeping inflation.
We don’t know what will happen to the governmental units that go bankrupt and what will happen to the employees who expect pension benefits. The federal government, already facing a massive debt, could not possibly bail out every city, school district, county or state in the country.
Teachers recently had to come before the Minnesota Legislature for funds in order to remain solvent. Those with private pensions have no such safety net and must rely on the reserve requirements maintained by their employers.
Elected officials keep dancing around the issues of how to pay for promises made to Americans that now are coming due, and the ability to pay for these promises is becoming more difficult every year. Someday soon we will run out of years. Who then will step up and rescue retirees? Taxpayers?
Clyde Nelson of Duluth is former president of a grass-roots group called the Citizens Research Council, which has been researching and discussing issues, including economics, for 20 years. Before retiring for the first time in 1988 he worked as a construction auditor and controller and in budgeting and accounting for the mining industry. He then was president of Virginia Plastics in Mountain Iron before retiring again in 1991. More recently he worked as a financial consultant and agent in commercial real estate in Duluth.