Are Pension Forecasts Too Optimistic?

Pensions- in generations gone by- were a staple of the workplace.  Work for the company for your careeer, and get rewarded with a retirement pension.

As you paid in with time and money, the company matched and paid in with money and hired people to manage those funds and dole it out.  We know the theory… but what about the people behind the scenes running the money?

This distressing WS Journal article indicates some overly optimistic managers at the helm.

If you were a better stock picker than Warren Buffett, would you be punching the clock every day as the faceless manager of a corporate pension plan?

Judging by many companies’ recent financial statements, they must believe their pension plans are run by such unheralded baby Buffetts.

These expectations for future stock returns at major companies remain stubbornly high—often between 12% and 16%, or nearly twice what Mr. Buffett himself seems to believe the pension plan he oversees can earn on stocks. Such rosy hopes may not survive the collision with reality.

While the article concerns itself with future profits, if I  was a retiree depending on a pension, I’d be more concerned with liquidity and solvency than profits.  Making up for decades of over optimistic assumptions, compounded, can be impossible.

Of course, it’s just another good reason to put your own private pension in place to safeguard.

The article concludes:

With the S&P 500’s dividend yield at 2% and the long-term growth rate of dividends and earnings at 4.5% (including inflation), a sensible expectation for long-term annual stock returns is roughly 6.5%, says William Bernstein, an investment manager at Efficient Frontier Advisors in Eastford, Conn.

You should leave the fantasies of higher returns to the professionals—who probably won’t achieve them anyway.

Now with professionals, and Warren Buffet himself, braced for a long term yield from equities in the 6.5% range, and with all the volatility and risk that brings, why wouldn’t you seriously consider a stable annuity paying a similar yield?  Of course I’m referring to Secondary Market Annuities in this case, which routinely have yields in the 6.5% range, but the same logic can also apply to Index Annuities as well, with attractive yet no risk market participation.  

Give up a lot of volatility for a little yield, and gain a lot of safety and peace of mind…  That’s the premise of an annuity driven retirement.  Contact Us to get stated building your guaranteed income stream.


Written By

Bryan Anderson

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