THE GREAT RECESSION’S NEXT WAVE

Alarmingly, money a growing number of older Americans are counting on to finance retirement won’t be there. According to the Pew Center for States, public pension and health insurance funds were under-funded by more than $1 TRILLION in 2008. That’s before the Wall Street and Real Estate collapse – and the problem continues to get worse.

84% of state and local government workers are covered by defined-benefit pension plans with premium benefits being placed in a trust in advance of retirement.  One recent report indicated that 47 states are saving less than they should for their employees. For example, from 1997 – 2003, the state of New Jersey made NO contributions to their two giant pension funds for state and local government employees. Not a good thing when the funds cover 215,000 retirees and pay out more than $5 Billion each year. When New Jersey issued state bonds on the deficit, the Securities and Exchange Commission (SEC) found that New Jersey committed fraud by failing to disclose liabilities associated with the under-funding. U. S. Census estimates show $1 Trillion in assets were held in 2008 by 2500 public plans and over 14.7 million active members and 7.7 million retirees. States have already acknowledged $500 Billion in shortfalls with California leading the pack with $60 Billion under-funded and Illinois in second place at $54 Billion. The public fund survey found that through a combination of poor investment returns and benefit enhancements the funding ratio had fallen in 2008 to 85% of requirements. And once again, this is before the economic downturn.

With twice as many people in private retirement programs, they are also having difficulty with the value of their funds having shrunk 10% in the past two years due to economic conditions. Boston College’s National Retirement Risk index forecasts that 51% of American households will be unable to sustain their standard of living – a 7% increase in the past two years.

It’s obvious we can add under-funded pension programs to the growing list of critical issues including Social Security- Medicare and deficit spending and the national debt.

Barbara Corcoran recently suggested on the Today Show it may be advisable for sellers to wait for 5 years before selling.  Sellers and prospective sellers must consider how all of these issues will impact economic recovery and Real Estate values in those 5 years. OUCH!!!