Will you need to get a job at McDonald’s when you retire?
If your retirement depends on a pension, you might not have a choice.
In September, we called the U.S. public pension system a “slow-moving train wreck.” Public pension funds manage retirement money for government workers like teachers and police officers. Part of your tax dollars likely go into public pensions.
These funds have promised to pay a steady income stream to millions of Americans when they retire. However, many will break this promise...
In short, public pension funds are going broke. Certain state pensions are laughably short the money needed to pay retirees. For example, Illinois only has enough money to cover 22% of its promised payments. Connecticut can only cover 23%…Kentucky can only cover 24%.
According to think tank Budget Solutions, public pension plans have promised to pay out $4.7 trillion more than they have on hand. Every U.S. citizen would have to pitch in $15,000 to pay everyone’s promised pension.
BlackRock (BLK), the world’s largest money manager, expects 85% of U.S. public pensions to fail over the next three decades.
• Private pensions also face a crisis…
A private pension fund manages retirement money for a group of non-government workers. Workers pay into the pensions over their careers. When they retire, the fund sends them a monthly check drawn from the common pool of money.
According to the Pension Rights Center, 52 multi-employer plans have told the federal government they are in “critical and declining” status, meaning they might have to cut benefits to survive. Seven of these funds warn they may go broke within the next eight years.
Private pension funds are failing for the same reasons as public pensions: they’re not taking in enough money, and they promised retirees too much.
• A major private pension just made a drastic cut…
The Central States Pension Fund is a giant private pension fund. It manages almost $18 billion for 400,000 workers in 37 states.
The fund recently decided to cut benefit payments by as much as 61%. Retirees currently getting monthly checks for $3,000 will only get $1,180 now.
Last week, The Kansas City Star reported:
Central States has told its retirees that the cuts are needed because without them the fund will run out of money in 2026 and be unable to pay any benefits.
“We simply can’t stay afloat if we continue to pay out $3.46 in pension benefits for every $1 paid in from contributing employers,” said letters the fund sent to retirees facing the cuts.
• The cuts will affect hundreds of thousands of people…
One retiree said the cuts are “going to cripple [his] family.” Other pensioners are asking themselves difficult questions, The Kansas City Star reported.
“You know anybody hiring a 73-year-old mechanic?” Rod Heelan asked… “I’m available.”
Tom Lemmons of Sweet Springs, Mo., and Gary Meyer of Concordia, Mo., grew up together and have spent recent months talking about how they’d get by if the pension cuts go through.
“I’ll have to go find a job. I don’t know. I’m 68,” Meyer said. “It would probably be a minimum-wage job.”
“I guess food stamps. Hopefully not. It would be a last resort,” he said.
Millions of Americans who count on their pension will likely end up with nothing when they retire. Our advice is this: don’t rely on pension income alone for your retirement. Save and invest a significant amount of your income. If you invest wisely and build your nest egg, you’ll have enough money no matter what happens to your pension.
• Moving along, a U.S. industrial giant just reported terrible results…
On Friday, farm machinery maker Deere & Co. (DE) reported that its sales fell 13% last quarter. It was the company’s eighth straight quarter of declining sales. Its profits plunged 34%.
The company, widely known as John Deere, sells more machinery and equipment to farmers than any other company in the world. It also sells bulldozers, dump trucks, and excavators to construction companies. Many investors consider the company a bellwether for the global economy…
Deere’s CEO warned of a global economic slowdown on last week’s earning call.
John Deere’s first-quarter [company fiscal year] results reflected the continuing impact of the downturn in the global farm economy as well as weakness in construction equipment market.
Weak crop prices have hurt Deere’s business. Over the past year, the price of corn has dropped 13%. Wheat has dropped 12%. Soybeans have fallen 10%.
• Deere’s CEO expects 2016 to be “another challenging year”…
The company expects its sales to decline 10% this year. It also warned that agricultural sales in North America could fall as much as 20%.
Deere’s stock fell 4% on the bad news. It’s down 15% over the last 12 months.
If you’ve been following the Dispatch, you know Deere is not the only major industrial company to report bad results recently. Last year, machinery maker Caterpillar (CAT), industrial conglomerate 3M Co. (MMM), and diesel engine maker Cummins (CMI) all warned investors that sales would likely decline in 2016.
Earlier this month, the CEO of A.P. Møller-Maersk (MAERSK-B.CO), which moves 15% of all manufactured goods shipped worldwide, said the global economy is in worse shape today than it was during the 2008 financial crisis.
• The Baltic Dry Index (BDI) hit an all-time low this month…
The BDI measures the cost to ship steel, copper, and other raw materials. Many folks see the BDI as an indicator of the health of the global economy. It’s plummeted 97% since 2008.
Right now, global shipping demand is incredibly weak. The industry also has too many ships. From 2003 to 2007, the BDI surged 426%. Shipping companies ordered new ships thinking the boom times would last. When the financial crisis hit in 2008, shipping rates tanked and never recovered.
• The industry is parking hundreds of ships all around the world…
The Wall Street Journal reported yesterday:
Idled ships are crowding coastlines worldwide as increasingly desperate companies that ship iron ore, coal and other bulk commodities try to weather the industry’s worst downturn in decades.
The parked vessels are a stark sign of how crumbling Chinese demand for commodities is pummeling the global shipping industry. The freight rates shipping lines can charge to transport raw materials are at record lows, and several operators have filed for bankruptcy protection or folded outright, brokers say.
An estimated 690 ships, or 7% of the world’s dry-bulk fleet, are sitting idle.
Shipping stocks have collapsed…
Today’s chart shows the performance of the Guggenheim Shipping ETF (SEA). This fund tracks 29 shipping companies, including Maersk.
SEA has plunged 50% over the past two years. Like the Baltic Dry Index, it hit an all-time low earlier this month. At some point, beaten-down shipping stocks could deliver huge returns to investors…but not until demand picks up and the industry works off its glut of ships.
Courtesy: Justin Spittler
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