There's been a ton of news lately about pension funds. Specifically not just their relative lack of solvency, but also what rates of return are used to calculate their ability to meet future obligations. An expert I trust covers this subject often and shared some information this week.
Why is this important? I'll get to that momentarily but first what was measured and how ILLINOIS fared. (Incidentally, this week the Chicago Tribune reported that Illinois lost the most amount of people out of any state for the third year in a row.)
A ranking of the 50 states and Puerto Rico based on their fiscal solvency in five separate categories:
Cash solvency. Does a state have enough cash on hand to cover its short-term bills?
Budget solvency. Can a state cover its fiscal year spending with current revenues, or does it have a budget shortfall?
Long-run solvency. Can a state meet its long-term spending commitments? Will there be enough money to cushion it from economic shocks or other long-term fiscal risks?
Service-level solvency. How much "fiscal slack" does a state have to increase spending if citizens demand more services?
Trust fund solvency. How much debt does a state have? How large are its unfunded pension and healthcare liabilities?
As you can see from the map above, Illinois is 47th overall.
More specifically in terms of unfunded pension obligations, the states with the biggest funding gaps include Illinois and Kentucky, the two worst-funded systems, with just 41 percent of what's needed to pay the benefits promised to public employees. New Jersey has set aside just 42 percent.
Now to why this is important: In Illinois we have a serious problem and nobody wants to fix it. Things are so polarized right now. Almost nauseating. (Check that, I AM nauseated.) Forgot how we got here. Nobody has the flexibility or willingness to compromise for the benefit of those who decide to stick around in what once was one of the most vibrant states in the land.
For your retirement planning, it will pay to be conservative in your projections. Any number of things could happen. Taxes could rise. They could eliminate the perk whereby income from retirement plans isn't taxable. Or higher property taxes. If you expect to collect a pension, all bets could be off. It's sad, actually.
So whatever you do; whatever methods you use to save - keep all this in mind. If you are in retirement and analyzing what you might consider a safe withdrawal rate of between 3 - 5%, err on the side of caution.
Sorry to keep reminding my dear readers but someone has to!
We live in Illinois.
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Information provided is not intended as tax or legal advice, and should not be relied on as such. You are encouraged to seek tax or legal advice from an independent professional.