"Almost A Given It Will End Badly": Vanguard Founder Jack Bogle Says U.S. Pensions Are Doomed

Tyler Durden's picture

Legendary investor Jack Bogle is apparently not all that optimistic that public pension funds in the U.S. are going to be able to meet their future funding obligations.  Speaking with Bloomberg earlier today, Bogle predicted that bond returns will be a paltry 3% over the next decade, with stock returns not that much better, making it almost impossible for pensions to meet their arbitrary 7.5%-8.0% return hurdles.

The founder of Vanguard Group thinks a conservative portfolio of bonds will only return about 3 percent a year over the next decade, and stocks won’t do much better, with a 4 percent annual gain over a similar period. This is “totally defeating” for pensions, which “are not going to be able to meet their 7.5 percent or 8 percent obligations,” Bogle said in a Bloomberg Radio interview that aired Thursday.


“The only return you get on a bond is from the interest coupon,” with fluctuations in prices eventually evening out and becoming relatively negligible over the longer term, he said. Given a portfolio of about half corporate bonds and half U.S. Treasuries, the blended yield is about 3 percent today.


“So that’s what you get over the next decade,” he said.


“It is almost a given that it will end badly,” he said.


Of course, Bogle's sentiments on the imminent demise of public pension funds should come as no surprise for our readers as we've frequently warned that the arbitrary nature of pension accounting rules, primarily the ability to randomly pick discount rates out of thin air, has allowed managers to consistently understate liabilities for decades. Moreoever, as we pointed out in a post entitled "An Unsolvable Math Problem: Public Pensions Are Underfunded By As Much As $8 Trillion," the reason that the public pension ponzi has been allowed to persist by regulators for so long is quite clear...the truth is simply too scary.

We decided to take a look at what would happen if all federal, state and local pension plans decided to heed the advice of Mr. Gross. As one might suspect, the results are not pleasant.  We conservatively assume that public pensions are currently $2.0 trillion underfunded ($4.5 trillion of assets for $6.5 trillion of liabilities) even though we've seen estimates that suggest $3.5 trillion or more might be more appropriate.  We then adjusted the return on asset assumption down from the 7.5% used by most pensions to the 4.0% suggested by Mr. Gross and found that true public pension underfunding could be closer to $5.5 trillion, or over 2.5x more than current estimates.  Others have suggested that returns should be closer to risk-free rates which would imply an even more draconian $8.4 trillion underfunding.   

Pension Underfudning

And while the sentiments expressed by Bogle should be a substantial overhang for the economy, no one seems to care for now.  Certainly legislators have no incentive to address the issue... the country's 15 million union employees may not be so happy about supporting their political candidates if they knew their retirement plans were insolvent... much better to let the system break in 20 years then fix it with a massive taxpayer bailout after convincing the electorate that the problem was somehow created by top earners not paying "their fair share."  After all, it's only $23,000 per man, woman and child.

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Bes's picture
Almost a Given It Will End Badly: Vanguard Founder Jock Bogle Says US Pensions are Doomed In Order To Make Oligarchs Extremely Rich


there, fixed it for you

totenkopf88's picture

The only pensioners I have any sympathy for are the guys that put in 35 years at CAT or GM and are getting $3K a month- these govt union retirees knocking down $80K+ a year can eat a bag of dicks 

MonetaryApostate's picture

Raping serfs, it's all about lies, enslavement, & control.

How many times you gotta get raped by the blank check bankers to wake the hell up?

Fake money, fake debt, fake value, fake news, fake investments, fake markets, fake history, fake leaders, fake events, fake elections, fake foods, fake medicines, yes fake everything!  https://plus.google.com/collection/QorNbB

NotApplicable's picture

Surely central banking can save the day?!

Five Star's picture

Every state's pension underfunding given real market values in terms of tax revenues:



bobcatz's picture

It's not JUST the pensions. The entire US is DOOMED. http://wp.me/p4OZ4v-3z

Normalcy Bias's picture

People ought to go to jail simply for the 7.5 - 8% YOY Return Assumptions, just for starters.

greenspanator's picture

The old man looks just like Soros, are they fucking clones of each other?

MonetaryApostate's picture

Ask Nicolas Maduro how that works out.

JohnGaltUk's picture

Ask the whole west.....LOL; next crisis.

Mr Hankey's picture

& last butt not least... fake butts ,fake tits ,fake lips,um, FAKE WOMEN

NoDebt's picture

I'm glad Jack has once again gotten paid probably a heap of money to tell you the same thing I've been saying on here for years.

Of course, he left out the part where this is ALREADY HAPPENING and the part about it CONTINUING TO HAPPEN FOR THE NEXT 20 YEARS.


junction's picture

Yet at the same time you cheer on the cops who retire on 75% tax free disability pensions after 20 years of service with pensions over $100,000 for handing out traffic tickets.  How many government employees do you know who get $80,000 a year pensions?  That is the problem here, guys who make up stuff as they go along.  What about the $150 trillion dollars worth of derivatives at CitiGroup, Bank of America and JPMorganChase that the FDIC now insures?  No problem there, of course, according to geriatric case Bogle.

Mr Hankey's picture

& coal miners& textile workers You know,the ones the .gov unions used to massacre. 

DavidC's picture

Here in the UK I read about certain public sector employees (not all of them obviously) having annual pensions well in excess of anything I've ever EARNED in the private sector.


MasterControl's picture

Fuck all unions and their pension holders.

Cloud9.5's picture

Walmart, Walgreens, CVS, McDonalds, Wendys, Olive Garden, Red Lobster, and the entire medical sector owe their existence to pensioners.  The pension payouts stop and you end up with economic collapse.  A bipartisan bill will pass congress creating a supper bond that will be bought by the Fed and pensions will be backed up.  Perpetual funding is but a mouse click away.    

The Alarmist's picture

No worries ... there's all that private company pension money sitting there (yeah, on average they're only 75% to 80% funded on an IFRS basis, but that's far better than the Public sector) and all those IRAs and 401(k)s with money that needs to be protected from the viscissitudes of Mr. Markets, so in the name of solidarity and security it will all be rolled up into one giant "super-safe" pension plan for all Americans, to supplement Social Security, of course.

Gatto's picture

Haha, he has no idea!  Real returns over the next five years will be negative, stocks will be double digit negative, it's a much bigger disaster then he claims!

totenkopf88's picture

Even at his advanced age Jack has a keen eye for the obvious

RafterManFMJ's picture

MORE POPCORN! Can’t wait. May you live in interesting times.

Txpl9421's picture

Only 8 Trillion?

And they say bitcoin is crazy.

affirmed_78's picture

Nobody is printing any BTC to cover those payouts, that's all I know and all I care.

affirmed_78's picture

May want to get into BTC before worldwide adoption.  

Ntoxic8ingWave's picture

This economy wont last past another year with the way its going...

totenkopf88's picture

That's what I have thought since 2009

FreeShitter's picture

It feels like 2007 with all the debt slaves in their new 50K trucks, but yeah how long can it go on? ...I wish I knew

Moe Howard's picture

Amazing isn't it? And most have never had a single thing loaded in the bed.

in4mayshun's picture

Don’t wanna scratch my paint brah!

D503's picture

But you can tell they vote Republican because an 'ai' told you so.

Mr Hankey's picture

& all the gun& flagwanking stickers larping as a redneck even though they are TDY w/ a Jew York tag w/a Long Island Chevrolet plate frame.

Mr Hankey's picture

Or been off pavement. Or pulled anything. Or carried more than 1 person.See those Jeeps w/ the snorkel,jack mounted on the hood ,polished& armoralled alloy 22"....

onewayticket2's picture

Just took the pension buyout from my old firm.   no more franchise risk.

Snout the First's picture

I did the same thing last year.

Rainman's picture

Funny ...if the pension funds went all in Bitcon two weeks ago, they be flush.

DoolieDoink's picture

Excellent news - May the Americunts go to hell !

D503's picture

You idiot. When my plate runs dry I'm taking your's. And your kid's. And your mother's. Pass those Nike's faggot, and eat a dick for dinner.

mvenalli's picture

calpers is totally fine tho

Fundies's picture

Whatever you do.....go out with a bang.

Dickweed Wang's picture

Whatever you do.....go out with a bang.


Who I see going out with a bang are some of the pension managers and politicians that caused the whole problem in the first place.  I guarantee that in the near future we're going to see headlines about some 65 year old guy that put in 40 years working for XXXXX and went postal because he was just told he got screwed out of his retirement.

The thing that really stinks about this whole issue is "they" had no problem at all coming up with trillions of dollars to give to the banks back in 2008/2009, or "they' had no problem spending trillions of dollars on all of the bullshit wars the US has been involved in over the last 20 years, but "they" can't seem to find 1/10th of that money to make sure retirees don't get screwed.  Those people worked under an agreement that they would get X dollars when they retired and it is not their fault that the people in charge totally mismanaged the whole process.  Also, if people feel the benefits for those kind of pensions are too rich then fine, change things for the future - don't go back on promises that were made decades ago.

in4mayshun's picture

Well, it’s partly the pensioners fault. I’m mean, c’mon...don’t any of them know how to use a calculator?
Gullible much?

Blazing in BC's picture

Not so sure that "unrealistic pension promises" qualify as mismanagement. All public pensions must be capped at 60% of last 5 yrs or employment base salary or $50k which ever is lower.

rockstone's picture

Exactly. Only a fool would buy the notion that he’ll get paid the same money he gets for working; with COLI, for not working.

For the rest of his years. The problem for the average pensioner is in the mirror.

Sizzurp's picture

Novogratz says large 40B pension funds have contacted him and they want into the BTC market.  What might that do to the price?