“It’s a crisis.”
Susan Lenczewski is the executive director of the Minnesota’s Legislative Commission on Pension and Retirement.
Last month, she told the media that her state’s pension program was going bankrupt.
Minnesota had gone from one of the best-funded pension plans in the country… to the seventh worst.
What happened? Minnesota got honest.
The state expects its teachers’ fund to go broke in 2052. That forced officials to change the way they calculate pension liabilities.
Their honesty caused pension liabilities to double… From $16.7 billion to $33.4 billion.
That’s almost $6,000 per man, woman, and child in the state.
Minnesota is the first state to realize that the way pension plans are calculated just won’t work anymore.
Many more will follow…
Moody’s is a widely respected credit rating agency. It estimates that underfunded pensions could blow a $7 trillion hole in America’s retirement savings.
That’s 10 times larger than the 2008 bank bailout.
Even if you don’t have money in a public pension, you’ll have to pitch in to bail them out… Just like Minnesotans will have to bail out their system.
Below, I’ll share a few ideas you can use today to start adding income to your retirement.
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Look at Your Plan
If you have a pension plan, the first thing you should do is look for the “discount rate.”
This is essentially the rate the plan’s managers believe they will make in the future. The higher the discount rate, the less you need to put aside today.
Minnesota had set aside almost enough to cover its liabilities. But that was based on an expected 8% return on its investments. The state realized that was an unrealistic assumption. So it lowered its expected returns to 4.75%.
That means current plan members must pay more to fund future payments. It also caused liabilities to skyrocket to $33 billion.
If you think your pension is fully funded, check its discount rate. If the rate is 8%, that’s not nearly enough to pay out promised benefits.
In addition to checking your pension plan, everyone will need a retirement backup plan.
Three Other Steps You Can Take
I’m not counting on any pension (including Social Security) to get me through retirement…
Right now, I have a 401(k) and an Individual Retirement Account (IRA) to help save for retirement.
Both plans allow you to save for retirement with tax-free growth or on a tax-deferred basis.
If you’re still able to add to these types of plans, you should.
But what if retirement is right around the corner… and you haven’t saved much?
Here are three simple suggestions…
- Work part time
Just because you’ve passed the official “retirement” age of 65 doesn’t mean you should stop working. A part-time job can provide you a second stream of income.
And I’m not just talking about becoming a Walmart greeter. (Although, that’s a perfectly fine option.)
You can also work for yourself… from home.
E-lancing is one idea. It simply means selling some skill you have to people looking for that skill on the internet.
These skills can include anything—photography, graphic design, translation, dictation, research, analysis, and writing, just to name a few.
As an e-lancer, you’ll deliver work electronically, which means you can work your own hours, anywhere you want. If you have a skill, the market for you to sell it is huge.
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- Use your hobbies to create additional income
Did you know it’s possible for even amateur photographers to earn $50 to $500 for a single photo you can take on a weekend hike? You just need a camera and a computer to start your own business.
A blog is another great way to turn your passions or expertise into a reliable income stream. Done right, you can easily earn $5,000 per month or more with zero risk.
The internet has made it possible for ordinary people to sell thousands of copies of their books online. It takes some knowledge and skill to write and publish a book… but anybody can learn while writing part time in the mornings, evenings, and weekends.
- Join the peer-to-peer (P2P) economy
The peer-to-peer economy is another opportunity for extra income. P2P is where people buy or sell goods and services directly online with each other.
One example is Airbnb. It’s an online platform that allows people to rent extra rooms in their homes to other people. You can start bringing in income almost right away.
I just looked at available rentals near the office in Delray Beach. The average price of renting out a room is about $50 per night.
If you did that for 200 nights per year, you’d have an extra $10,000 in annual income.
(To continue bringing you the Daily during Hurricane Irma, I left our Delray Beach, Florida, offices for Georgia. As I type this, I’m sitting in an Airbnb suite that belongs to someone’s mother-in-law.)
And what about all the extra stuff in your attic? You could auction it off to the highest bidder through an online platform like eBay.
The moral is that you can’t trust the government to fund your retirement. You are on your own.
Take control of your own destiny. Either make sure you have enough money set aside to fund your retirement or consider earning some extra, part-time income.
Regards,
Nick Rokke, CFA
Analyst, The Palm Beach Daily
P.S. The pension system is falling apart… Social Security is on its way to insolvency… and the average 401(k) and IRA has less than $100,000. For most retirees, these sources simply aren’t going to be enough to fund their golden years. What is your retirement backup plan? Share it with us right here…
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BIG T’S 3-MINUTE MARKET MINDER
Russia Makes About-Face, Plans to Regulate Cryptocurrencies
Nick’s Note: In yesterday’s 3-Minute Market Minder, Palm Beach Letter editor Teeka Tiwari told you that China’s crackdown on token sales is likely temporary. In today’s must-see video (transcript included), Teeka shows you why that is the case.
In 2014, Russia banned bitcoin as well. But the country made an about-face and now says it will legalize and regulate cryptocurrencies by the end of the year. Teeka says other countries (including China) will eventually embrace cryptocurrencies, and that’s wildly bullish for bitcoin…
MAILBAG
From Cal P.: We hope that you and your families are safe… and not underwater. Hurricane Irma looks like a monster. We appreciate what you do.
From Luigi N.: Just wishing you all well and hoping Hurricane Irma didn’t cause too much damage in your area.
Nick’s Reply: Thank you for your thoughts. Although Irma was a terribly destructive storm and caused a lot of power outages and plenty of damage, the whole team is safe. We’re looking forward to getting back to the office and providing you with valuable insights.
IN CASE YOU MISSED IT…
Our friends over at Casey Research say we’re in the midst of a historic series of bubbles… a stock market bubble, a bond market bubble, and a student loan bubble.
Legendary crisis investor Doug Casey refers to this as the “Everything Bubble.”
And when it pops, he believes it will create perhaps one of the greatest speculative opportunities of all time for investors who take action right now. For the full details, click here.
