We all know that the FDIC is broke, right? When Obama bailed out banks with TARP (Troubled Asset Relief Program) money six years ago, the reason was because the FDIC did not have any money. Banks are supposed to pay insurance money into a fund so when a bank goes broke, this reserve pays depositors who would otherwise lose their savings. But you may also remember Obama increased FDIC insurance from $100,000 per each account to $250,000 just to calm fears of total bank failures. It’s a nice thought, but since the FDIC is broke, it doesn’t matter too much.
Now turn your attention to the Pensions Benefits Guarantee Corporation or PBGC insurance plan. Have you ever heard of this? Through this program, in a like manner to the FDIC, all pension plan administrators are to pay insurance into a reserve for when pension plans go broke. If you have a pension, this should be a comforting guarantee.
But here’s the problem: Director Thomas Reeder said that 10,000,000 workers with pensions are expected to run out of money in the next 10 to 20 years. He said they have $2.2 billion available against a required pay out of $61 billion. If a pension plan goes broke, plan participants will get something, but certainly not what they are supposed to get. Here is how some numbers would work if you have a pension plan and the program goes broke. Say your employer has a formula of 60 percent of your highest three years of earnings to be paid for your lifetime. Your income level averaged $80,000, so therefore you should receive $48,000 per year for life. But if the pension plan fails, then the guarantee is reduced to just $8,580 a year as per Director Reeder’s numbers.
Social Security benefits are also in trouble and even the Social Security Administration says the fund will be out of money in 10 to 15 years.
Workers that participate in a 401(k) are also going to get much less than they bargained for since the average amount of money squirreled away by all workers is less than $3,000. Plus, think of all the risks 401(k) savers take with the market… If it takes a serious dive and you’ve actually accumulated a descent retirement fund of say $350,000 or more, there is no way you are going to recoup your loses in the time you have to do so.
And what about savings? Average savings per worker is less than 1 percent of their income. The 2010 U.S. Census shows that all people reaching age 65 have less than $60,000 in total assets, including equity in their home.
Finally, let’s review the grim number associated with our nation’s debt at $20 trillion!!!!
Are all these problems going to come together at the same time and swamp us in a huge financial tsunami? The odds don’t look good for us as a general population. But what can you do personally to protect yourself?
First, know the facts and learn the rules about the programs you put your money in. I have reviewed some of the grim facts here in this post.
Second, quickly change your spending, borrowing, and savings habits. And that means now. If you are still over-spending each month and have consumer debt hanging over your head, you are more likely to be a victim of a terrible financial storm. For help in creating a spending plan that will get you in immediate control of your spending, go here. For help creating a debt elimination plan that can have you out of ALL debt, including your mortgage in under 10 years, go here. If you want to talk about all the other, better options for creating a predictable retirement that do not rely on the FDIC, PBGC, Social Security, 401(k), or any other paltry savings programs, contact me for a no-cost conversation. I will be happy to outline some great ways you can get in complete control of your finances and create a future that will not be affected by the national debt tsunami that is about to sweep over us: peter@moneymastery.com.
