A pension crisis you better to know about

Over 400,000 US worker across 37 states recently were shocked by the news that their pension benefit will be cut by a third. This is what is just happening for those participating in the Central States Pension Fund that manages $18 billion for over 400,000 people. It virtually fails and on the road to bankruptcy as it has to pay out over $3 dollars for each dollar contribution. In this kind of situation, I’m not sure even a 30% haircut for the pension benefit will save it. See more details here. Of course, CSPF is not the only fund that is failing. According to the Pension Rights Center, 58 multi-employer plans are in “critical and declining” status, meaning they might have to cut benefits to survive. Seven of these funds have warned that they could go broke within eight years. I think virtually all the pension funds managed by the state government as well as the federal social security system are facing similar crisis one way or the other. If you happen to be the ones that you are wishing to rely on the pension benefits from such sources for your retirement, you better think twice and start to do something. Think about this, U.S. pension funds are the single largest pool of money in the world… If they collapse, the global financial system will collapse. There are few things you need to consider to do to secure your retirement life:

• Buy some gold and silver as insurance. It is almost a certainty that precious metals will shoot up to the moon when a large scale crisis is unveiling. With what all the central governments around the world are doing to push interest rates to zero or negative, a global financial crisis greater than the 2008 disaster is likely brewing. Be prepared for it!
• Buy quality dividend stocks when they are on sale. In theory all the stocks may go down to zero during a crisis, you can safely bet that those companies that have reliable sources of income with a long track record of paying increasing dividends have gone through all kinds of crises over time and will be able to manage the coming challenges much better than others. If you can create a portfolio with many such great dividend stocks cross different business sectors, I’m pretty sure you will be doing much better than most of the mutual funds over time. Your retirement can be much better secured. I have been talking about such good stocks from time to time such as MSFT, APPL, TGT etc. Take the advantage when they get crashed due to some temporary problems and buy as much as you can.
• Buy municipal bonds that can save you a lot of tax down the road. Keep in mind that the local governments can always raise your tax to fund such bonds if they are short of money. Historically, the default rate for muni’s is less than 0.1%. The best way to buy muni’s is to buy closed end funds when they are at big discounts. I was pounding the table a couple of times to buy such funds like IIM when they were at a discount around -5 to -10% (see here and here). Sure enough, IIM has gone up all the way to close the gap from their NAV and now is trading hands at premium. It is not a good time to buy at the moment as it is too expensive. But those who bought it back then have enjoyed not only a big tax-free dividend yield (5-7%) but also a big capital gain (15-20%). Don’t miss it when I’m shouting again!!