Politicians lie. A statement we all learn to be true before we reach voting age. Yet most Americans still believe politicians when they promise us our Pension Plans are safe. I don't believe them and neither does Warren Buffet. Here is an extract from a recent shareholders letter he sent out.
"Local and state financial problems are accelerating, in large part because public entities promised pensions they couldn't afford.
"Citizens and public officials typically under-appreciated the gigantic financial tapeworm that was born when promises were made that conflicted with a willingness to fund them.
"Unfortunately, pension mathematics today remain a mystery to most Americans.
"During the next decade, you will read a lot of news - bad news - about public pension plans."
In case you are still skeptical of what Mr. Buffet has said let me give my own example.
I have worked with educators for many years helping them plan for retirement. Many of them are part of the Teacher's Retirement System of Texas (NASDAQ:TRS). It is a basic pension plan administered by the State of Texas which of course means politicians are involved.
Texas is in better condition economically than almost any other state yet TRS currently only has 80% of the money it needs to cover current and future public school retirees. How is this possible? '
Simple, when governments set up pension plans many years ago the mortality rate was much lower.
Today as we all know the mortality rate is very high and getting higher (80 for men 87 for women).
Since pensioners are living longer governments like the State of Texas are running out of money.
They are being forced to either change the rules of when a government employee can receive their pension or like Uncle Sam has done with Social Security they are raising taxes.
Not only will government pension blow ups effect state employees they will also effect private sector citizens since the Federal Government will have to step in to help keep state pension plans solvent .
We all know taxes will have to rise to support political promises.
Here are three steps you can take to protect your retirement from pension plan melt downs and the taxes our politicians will need to raise support them.
#1. You should continue building your own private nest egg aggressively so that your family receives enough income to support the retirement lifestyle you deserve.
For the bulk of your money, I continue to recommend a good mix of dividend-paying stocks and select bonds. It's simply a matter of deciding what particular percentages make the most sense given your age and tolerance for risk and then sticking to your plan.
#2. You should continue reducing your current and future tax liability through every legal means available.
I've said it plenty of times before, but there is perhaps no better way to build your wealth than limiting the massive drag created by taxation.
And with the wide availability of 401(k) plans, IRAs, and other common shelters, you do not have to resort to exotic strategies to limit the amount of money you fork over to governmental agencies.
You just need to learn which types of shelters make the most sense for your retirement, and then using them religiously.
#3. Always view promises or financial forecasts made by politicians extremely skeptically.
There's nothing more frustrating than seeing lawmakers continue writing checks their butts can't cash. But unfortunately, that's simply the game being played in Washington and our country's state capitols.
Whether you're talking about unrealistic pension promises or the continued cover-up of our worsening Social Security system, most elected officials will continue doing and saying whatever is best for their careers regardless of the longer-term consequences.