Another Canary in a Coal Mine

"Many states have this ticking time bomb, and no clue on how to fix it."

I was wondering how long this would take. Other states have seen this coming years ago. Some states are in so deep, they truthfully are on the verge of needing a bailout of some type. What is it? Underfunded pensions. And now Minnesota has some. And this ticking time bomb was not addressed this legislative session. The Governor wants to wait until next session. Why? That damn LRT from Eden Prairie, that is why.

Last year Forbes penned an article about how severe this problem is. Nation wide it is huge. Many states have this issue and are in so deep, they have no clue on how to fix it. Pew Research thinks the problem might be as high as a trillion dollars. Forbes disagrees. The problem could be as high as $3.2 trillion dollars. 

So what gives? How could this have gotten so hosed up in so many states? My view? Folks using Common Core type of math. I can remember going to a pre-retirement meeting with my wife. They were talking about the ROI (return on investment) for the retirement fund. It was slightly north of 8% per year. I remember thinking to myself I wished I had a financial wizard that could get me that type of return. Well it turns out there really was no magician behind the curtain after all.

So the retirement funds have two forces working against them. Unrealistic returns and ever increasing life spans. In fact, Minnesota has the highest life expectancy in the contiguous United States - 81.1 years. And (get this) - female retired teachers live for an average of 90 years (my wife was ecstatic about that one!) Putting all this math together yields a negative result. Like a negative $1.4 billion dollars in the coming years.

Waiting until later is the playbook most states are using. Some states are even throttling back their ROI projections. Like instead of 8% or 8.5%, assuming 7%. Me? In this year of negative interest rates in some countries, I would assume an ROI of no more than 2%. I would also assume the average life expectancy would go up one year annually. Even if it does not, I would make that assumption just to hedge my bets.

Oh well. We can just put this ticking time bomb on the same heap as the other ticking time bombs. Like our national debt. Like our unfunded entitlement mandates. Like our student loan bubble. And the list goes on and on and on. 

We are living on borrowed time. Sooner rather than later, the bubble is going to burst on at least one of them. Because we continue to ignore the canary in the coal mine, when the explosion comes, our lives will suddenly become very, very different. And not different in a good way.