Study: Us Public Pension Funds Seeing Little Improvement Since Recession

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Since the 2008 U.S. financial crisis, the state of the country’s public pension funds has barely improved. This is according to recent report by FitchRatings, a financial information services company based in London and New York.

According to the international ratings agency, the median funded ratio for state retirement systems was 71.5 percent in 2014, which is “nearly unchanged” from 2013. In 2012, the medium funded ratio of the U.S. fell to a low of 68.9 percent compared to 84.7 percent in 2007.

Based on FitchRatings analysis, the ratio fell as severe market declines cut into the funds’ asset valuations. The company noted: “Several years of strong market gains through 2014 offset remaining market declines and steadily rising liabilities, thus lifting reported funded ratios slightly, but they remain well below prerecession highs.”

But despite the steady decline, Fitch also added that the falling ratio of active employees to retirees and their beneficiaries, and changing discount rate calculations are helping drive states’ liabilities upward—which means that state regulations and contribution practices are improving and effective in some areas of the country.

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Among the listed states, Illinois ranked the worst with roughly $119 billion in unfunded pension liabilities, which amounts to 19.4 percent of personal income compared to a median 3.7 percent for all states. Other states with the most unfunded liabilities are Kentucky with $27 billion, followed by Connecticut with $33 billion in unfunded liabilities.

James A. Foster of Washington works at Foster Financial Services, a company that specializes in assisting federal employees in meeting their financial and retirement goals. Visit this
LinkedIn page to learn about his professional experience.

Of Estimates, Taxes, and Living Expenses: Talking Costs in Retirement Planning

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A common misconception that most would-be retirees have is that, because they no longer have as many deductions, they can live on a significantly lower retirement income. In truth, the matter is much more complicated, especially for federal government employees. Taxes, inflation, and even everyday expenses can all eat into the retirement fund.

There are many ways that federal employees can overestimate their funds and projected living expenses. Therefore, settling for lower income is no longer an option. Ensuring that the retirement fund remains more than adequate requires rigorous planning and a firm understanding of the expenses to expect.

Continued expenses

People will continue to incur expenses (and along with these, some taxes) for basic necessities such as food, shelter, and transportation. While it is true that some expenses, such as those associated with childcare, will be reduced or eliminated, others are constant.

Estimating the cash flow will determine whether retirees can continue their desired lifestyle and make certain crucial decisions later in life. Planning ahead can often leave a lot of money to spare should the situation warrant it. For instance, a retiree with enough funds can continue to pay property taxes and contribute to a grandchild’s college education.

One of two certainties

Federal employees approaching retirement can often be taken aback by the amount of taxes they may still owe to local and federal government. Withdrawals, too, are often taxable, with Roth and Thrift Savings Plan withdrawals being exceptions.

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This tax burden can be reduced or eliminated entirely, depending largely on local and state laws. Some states, for instance, provide elders with considerable tax breaks, whereas others could opt to avoid taxes altogether if social security is their sole source of post-retirement income. Another way to combat taxes is to put some of the retirement savings in a non-taxable investment such as a U.S. brokerage account.

James A. Foster is part of the team behind Foster Financial Services, a company that helps federal employees navigate through their benefits and make the most of their retirement plans. Visit this blog for more on the federal benefits surrounding retirement.