Pension plans have been in bad shape for a long time. Even as many private companies froze or eliminated pension plans, public pensions represent a big threat to the workers and retirees who depend on them, and one recent study from Bridgewater Associates found that 85% of public pensions could fail within the next 30 years.
In the following video, Dan Caplinger, The Motley Fool's director of investment planning, runs through Bridgewater's analysis, noting its estimate that public pensions have $3 trillion in assets to cover $10 trillion in eventual liability. The study notes the huge gap between the returns you'd have to earn to bridge that gap and realistic assumptions about future returns, and Dan points out that while some think Bridgewater's estimates are too low, most pension plans themselves don't expect to earn high enough returns to cover future liabilities. Dan concludes that some combination of better investments and possible benefit reductions could be necessary to ensure the health of public pensions in the long run.
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Have general questions about pensions or Social Security? Email them to SocialSecurity@fool.com, and they might be the subject of a future video!
Dan Caplinger and The Motley Fool have no position in any of the stocks mentioned. Try any of our Foolish newsletter services free for 30 days. We Fools don't all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.