The Great American Pension Crisis

A few years ago, my father passed away…

He was a brilliant physician… but unlike most surgeons, he didn’t have a lucrative private practice to support him in retirement. He was a professor at the University of North Carolina-Chapel Hill… a state employee.

And his wife, my stepmother – whom I’ve known and loved for more than 30 years – depends on the survivorship benefits from his pension. That pension was hanging by a thread.

I’ve seen headlines for years about a “pension crisis” (as I’m sure you have too) and read occasional notes about small towns going bankrupt. I figured the pension problems were just fear-mongering… or something that a little bailout from the federal government could fix.

I was wrong.

Then I dug into the numbers, I discovered that, at the time, North Carolina’s state-sponsored pension funds were only 51.3% funded, right on the edge of the crisis point. It made me furious.

The more I dug, the more I realized how much danger facing my stepmother and millions of other retirees…

Nothing beats a government pension. If you (or a loved one) work for the government, you expect pension benefits to be there to support you for the rest of your life.

If you’re already retired, your check has shown up without fail, month after month. Your health care benefits are far better than most. And your money is practically inflation-proof, thanks to your cost-of-living adjustments.

Anyone would love to be promised those benefits in retirement. But what if that promise isn’t kept? What if you work for decades… and have a big part of your promised compensation taken away from you?

This isn’t a hypothetical. It’s happening. And it’s going to happen to more folks soon.

Public pensions nationwide are crumbling. Legal loopholes are widening. If you don’t take action to protect yourself and your loved ones, you could be left with nothing.

If you are currently retired, the coming American Pension Crisis could mean the elimination of cost-of-living adjustments, higher health care premiums, or even cuts to your base pension check. If things are bad enough, you may suffer a ravaging “clawback” – where the government repossesses a huge lump sum of your cash – and still cuts your monthly check.

Again, this is not a hypothetical.

In 2001, the vast majority of pensions were fully funded. Generally speaking, “well-funded” means above 80%. But 50% funding or less is considered the “crisis point.” It’s extremely difficult to come back from 50% or less.

According to a new report from The Pew Charitable Trusts – an independent research organization – pensions in Colorado, Connecticut, Illinois, Kentucky, and New Jersey are less than 50% funded. In fact, New Jersey sits at the bottom of the list… its pension is only 31% funded.

If you’re one of the tens of millions of affected Americans, you should know… you have zero control over what happens.

You can’t increase or decrease the amount that’s being invested. Also, companies hire managers who oversee where pension money is invested. And the fees they charge dilute returns.

Plus, if you die right after you retire, your dependents might get nothing.

But there is a solution…

You can move money from your pension into a self-directed individual retirement account (IRA).

This gives you total control of your money. You get to grow your money tax-free, just like a pension… but there’s no limit on how much you can make.

A self-directed IRA is exactly what it sounds like… It puts you in charge of your investments.

In addition to the conventional investments you can make in a typical IRA – like stocks, bonds, and covered-call options (something I regularly recommend to my Retirement Trader readers) – a fully self-directed IRA allows you to invest in many other assets, including real estate, private stocks, businesses, and even precious metals.

You can invest in just about anything, as long as it’s not employed for your personal benefit. This simply means you must avoid any conflicts of interest. You can’t, for example, invest in companies you have a 50% interest in. But you can buy the house next door through your IRA and then rent it to a neighbor. You can also invest in a local small business (again, as long as it’s not your own).

I use my self-directed IRA to generate income by selling stock options. When I use this account for options trading, I don’t have to follow any accounting or tax requirements.

In fact, if you do all your trading inside a retirement account, you don’t have to report any trades to the IRS. The goal is simply to maximize your total returns as quickly and as easily as you can… and get better returns than a pension could offer.

There are two ways to move your pension to an IRA…

One is to “roll over” the pension directly into an IRA. The broker or custodian you’re opening an IRA with should have all the necessary forms for you to fill out. I have mine with Fidelity and TD Ameritrade.

You can also take a lump-sum payment on your pension and then move the funds into an IRA. If you do this within 60 days of taking the lump sum, you’ll avoid being taxed on the money and the 10% early withdrawal penalty. (If you can, though, just roll over the pension directly – you don’t want to risk incurring taxes and penalties.)

And make sure that you check with your employer’s pension-plan rules for any fine print.

My team and I created a report where we show you:

  • Specifics on how the pension problem got so bad…
  • How to figure out if your pension is in danger of going bust…
  • If you can and should get your money out…
  • How to prepare for the true future of pension incomes…
  • The best way to improve your finances…
  • And a final, last-ditch campaign you can mount to get your money into your own hands.

Retirement Millionaire subscribers can read the full report here. If you don’t have Retirement Millionaire yet, click here to start your subscription now.

What We’re Reading…

Here’s to our health, wealth, and a great retirement,

Dr. David Eifrig and the Health & Wealth Bulletin Research Team
April 25, 2018