[quote=ucodegen][quote=FlyerInHi]Doomdayers tend to be self sufficient people. They believe in hardwork. What I don’t get is why they believe that money should safely earn new money in safe investments (as when interest rates are higher than inflation).
Should it not take hard work and enterprise to invest money and earn a return?[/quote]
Actually it does. There is something known as the “risk free rate of return”, which is generally around the rate of return of a 3 month Treasury Bill. For anything more, you need to take a risk, work a bit more, dig a bit harder etc. “Risk free rate of return” is not necessarily higher than inflation – depends on behavior of fed, gov, markets.[/quote]
FYI…
[quote=New York Times] …Public Pensions: Two Sets of Books
…Calpers,… keeps two sets of books: the officially stated numbers, and another set that reflects the “market value” of the pensions that people have earned. The second number is not publicly disclosed.
…governments nationwide do not know the true condition of the pension funds they are responsible for. That exposes millions of people, including retired public workers, local taxpayers and municipal bond buyers — who are often retirees themselves — to risks they have no way of knowing about.
…The market value of a pension reflects the full cost today of providing a steady, guaranteed income for life — and it’s large. Alarmingly large, in fact. This is one reason most states and cities don’t let the market numbers see the light of day.
…the routine practice of translating future pension payments into today’s dollars,… is called discounting.
…With everybody either retired, or about to be… there is no guesswork in determining everybody’s pensions. The actuaries at Calpers project each of the future monthly payments due… assuming they will live to age 90…. Then, they translate all those future payments into today’s dollars with a rate — often called a discount rate. This is exactly how a lender would calculate a home mortgage.
The problem is, which rate should be used? An economist would say the right rate for Calpers is the one for a risk-free bond, like a Treasury bond, because public pensions in California are guaranteed by the state and therefore risk-free. And that’s what Calpers does when it calculates market values. It used 2.56 percent when it calculated the bill…
But the rest of the time, Calpers and virtually all other public pension funds use their assumed annual rate of return on assets, now generally around 7.5 percent. Presto: This makes a pension appear to have a much smaller liability — or even a surplus…
