STAFF NEWS & ANALYSIS
What Kentucky’s Retirement Rush Says About The Future of State Pensions
By The Daily Bell Staff - October 31, 2017

Just because a Ponzi scheme is run by a government doesn’t mean it won’t collapse.

The situation in Kentucky serves as a dire warning about larger pension systems including Social Security.

What Kentucky is currently facing in like a bank run. When people hear that a bank is failing, they all scramble to get their money out before it goes bust. This snowballs and the bank runs out of cash that much quicker.

Kentuckians are retiring in droves, hoping to get a piece of the pension funds they were promised. Worried that the money might not be there in a few years, they are opting to start collecting now, lest they get nothing. But this is causing a run-on-the-bank effect. The pension system is collapsing that much quicker.

Politicians have long kicked the can down the road. The idea is that there will always be a future generation, unborn children to pay for the promises they make today. There will always be new suckers to pay for their unfunded liabilities.

But the bubble bursts. Unless a population grows exponentially, this cannot work. That is why it is a Ponzi scheme. There’s always a bottom layer that holds up the rest of the pyramid.

Of course, the government of Kentucky has assured potential retirees that they don’t need to panic. The state claims that even if the legislation passes to fix the problem, government employees will have time to retire on the old plans if they choose.

But that hasn’t seemed to ease the high retirement numbers. In past months, between 24-64% more people have retired (depending on the sector) compared to 2016. And with officials floating the idea of raising the retirement age, many have a better safe than sorry attitude.

This also shows that people don’t trust the government assurances. And of course, they shouldn’t. After all, the government also told them not to worry, the pensions they promised were funded. After a history of governments at all levels reneging on their promises, it is better to take the money and run.

And it’s the same old story for how they got into the mess. Spend now, worry about funding it later. There’s never enough money for the government, have you ever noticed that? Companies balance their sheets or go bust. Governments keep chugging along despite breaking promises, overspending, and failing to plan.

PFM mostly blames the approach used to fund the systems, one used by most public pension plans across the country, which based the government’s contributions to the plans on a percentage of a growing payroll. It says that’s like a homeowner basing mortgage payments on a percentage of future income he expects, or hopes, will grow.

Translation: it was a Ponzi scheme. And that same scheme is used by most government retirement plans. The money in these accounts is reinvested. But you don’t control where they are putting the money. Turns out Kentucky made some bad decisions on placing retirement money in certain hedge funds that didn’t do so hot after the 2008 recession.

Also, in the 1990s when the pension plans were fully funded, the General Assembly approved benefit increases without funding them — including an expensive cost of living benefit increase for Kentucky Retirement System members in place between 1996 and 2012.

The bottom line is that you never want to be dependent on the government, or even a private company for your pension. The only way to truly safeguard your retirement is to take it into your own hands.

Maybe some of your retirement goes into a hedge fund, but certainly not all of it. But a better plan is to do the research for what kinds of stocks and investments make sense. Spread the risk across different sectors, and maybe even different country’s stock markets. If you can’t do the research for proper investments, at least do the research to find out who the best person or organization is to inform you.

Your plan may be in part a company pension or retirement plan. But it should not stop there. It is always better to diversify savings (foreign accounts, cash, precious metals) and diversify investments (property, foreign and domestic stocks). Then you can also spend what you can afford to lose on riskier, but potentially high yielding, speculations (cryptocurrency, startups).

But you know the old saying about doing the same thing over and over and expecting different results. With their track record, it’s time to stop putting trust in government to take care of your finances.

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Posted in STAFF NEWS & ANALYSIS
  • Rosicrucian32

    What do we have to do to get all the politicians to retire early and start collecting their pensions so they collapse like their constituents are faced with?
    Then put into place those that want to serve the public and contribute to a 401K like everyone else. One they can transfer after they leave for a higher paying job in the public sector when they realize their free lunch is gone, and cat food is expensive.

    • SnakePlissken

      We can retire them. Vote against all career politicians.

  • NoMeansNo

    How will rushing to retirement help them to get what probably won’t be there, anyway? What can’t be paid won’t be paid, no matter when one applies for it.

    • True, but the idea seems to be might as well collect for a couple years until it goes bust.

  • davidnrobyn

    At least Kentucky has a fund. With Social (In)Security, there’s no “there”, there.

    • SnakePlissken

      “We’re borrowing it from ourselves”

      • Paul_Morphy

        I wish they would “borrow it” without resorting to garnishing my paycheck for 7.65% every week.

        • MountainMan

          That gives “borrowing” a whole new meaning, doesn’t it?

  • MetaCynic

    Demographics will always doom state sponsored pension and healthcare schemes. At one time people had lots of children not only to help on the family farm, but to take care of elderly parents. Today, the high taxes necessary to sustain the welfare state leaves less money to raise children. So people have fewer children. Also, the reasoning goes, “why have children to take care of me in old age when the state will do this for free?” What is not grasped is that someone must have children who will pay the taxes to support and take care of the elderly, otherwise the ponzi scheme will collapse.

    This is where immigration comes in. Young foreigners are allowed to pour into America and Europe to work to pay the taxes propping up the West’s welfare states. Unfortunately many of these immigrants are culturally unassimilable, lacking in work skills and are themselves looking for handouts. So, on top of a now even heavier welfare burden, the West’s open-borders-to-save-the-welfare-state policy will fuel culture wars accompanied by a police state to keep order.

    • Kernel01

      Solution to the problem: Amnistia!

    • Maximiliano Plus Adrienne

      bang on,mate

    • MountainMan

      Yes, well said. Plus the foreign hordes are not only unassimilable, but they will virtually tear your civilization to pieces!

  • Paul_Morphy

    If you like your pension, you can keep your pension.

    • Right, we’ve heard that before.

    • MountainMan

      Was that in quotation marks? :–)

  • Maximiliano Plus Adrienne

    the simple harsh truth, well written!

  • gabeh73

    trade your government backed currencies for decentralized currencies. The banks and government have not yet figured out how to rig that game. So put the pressure on while you still can.

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