Pensions Buying Junk Debt Hoping To Make Ends Meet
As all of our loyal Annuity Think Tank readers know, our current retirement system is in dire straits. From mismanaged Social Security, underfunded pensions, and 401(k)’s with no ability to guarantee any sort of lifetime income, things don’t look good for our retirees. And we might as well slap the current boomers and retirees in the face who are actually trying to save in a time that interest rates hit an all time low. With no ability to make any returns in safe money vehicles such as CD’s and Bonds, retirees are faced with finding alternative ways to make money. And don’t think that they are any different than pension funds. It seems we are all in this mess together…
We read an article this week about US pension fund managers pouring a ton of money into speculative junk bonds in order to try and make better returns. In fact, even with these low interest rates, they are needing to make 8% returns in order to keep paying on their promises long term. Some other notable underfunded state pensions funds such as the California San Bernardino County Employee’s Retirement Association and the New York State Common Retirement Fund have also been reported to moving some assets to junk bonds in order to keep up. And although much of this junk debt usually doesn’t default, it still has plenty of risk. But at a time where these pensions have no other alternative to make ends meet, they have to take some risks.
So just another example of how these artificial low interest rates are damaging our retirement system. All to monetize our enormous debt that our government has amassed at the expense of its tax paying citizens.