One of the main reasons why people stick to one career throughout their life is retirement. They want a secure paycheck after they retire. A payment they can rely on being delivered to their bank account every month.

In return for that retirement pay, people are willing to take a smaller salary, to work in conditions that are less than optimal and to sacrifice a lifestyle they don’t like – all with the thought that it “will be worth it” once they retire.

But, what if that money that is promised in retirement isn’t there?

That’s exactly what may happen for today’s work force.

The warning signs are there. Like this Federal report that warns of a looming pension insolvency or this article on the Pension Bubble.The reasons for underfunded pensions are numerous, but here are the two main culprits:

1. There are more people receiving benefits from less people contributing to the system. It’s like an upside down pyramid scheme, which cannot last. (This is due to less full-time workers, as I discussed last week.)

2. Retirement systems, like California’s $300 billion fund CALPERs, are calculated with the expectation of an average return of 9%. 2015 saw a return of 2.4%. And interest rates are so low that even the biggest hedge funds out there are struggling to stay alive. How is a government fund going to beat even the best managers out there? The answer is they won’t.

So… what do we do with this information?

Act accordingly.

If it’s no surprise that these retirement systems are basically going to collapse, then plan for it! Assume that there will be no money there, so when it’s your time to retire you’ll have your own plan that you created. If there is any money from your pension, it’ll just be an extra surprise.

MACRO TRENDS

Transportation Revolution

Check out this driverless bus that is due to hit the streets of DC. You can request a ride through an app, much like Uber/Lyft, and expect a pickup from wherever you are. These services will be mainstream before most of the public ever expects.

Cannabis Amendment

“The U.S. Drug Enforcement Administration will reclassify marijuana as a “Schedule Two” drug on August 1, 2016, essentially legalizing medicinal cannabis in all 50 states with a doctor’s prescription, said a DEA lawyer with knowledge of the matter.”

What will ultimately happen on August 1st is unknown. But this continued push to make cannabis legal is just another step in the inevitable process of legalizing the ‘drug.’