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Video Length: 00:19:48

Pensions have an interesting history. Dating back to the Revolutionary War, defined lifetime payments granted by congress fulfilled the role of payment for service in the war. The system was implemented again during the Civil War, when the term “pension” was coined.

Slowly but surely, the pension system expanded to various branches of government and even became prevalent at the state and local levels. For a time, even the private sector hopped aboard the trend, with American Express becoming the first company to offer a pension plan in 1875.

Given the inherent uncertainty of markets, many private companies ended up defaulting on their obligations, and the practice has largely been phased out today. The public sector is a different story. 

Ultimately, ever-increasing tax receipts and/or debt are required to honor these payment commitments. This hasn’t been an issue in the past as the US population burgeoned from 80 to 330 million over the last 100 years, steadily providing an inflow of laborers and taxpayers to offset the shared burden of pensioned retirees. 

Today, with life expectancy being longer than anytime in history and the behemoth Baby Boomer generation in the midst of retiring, solvency for these programs is at risk. The Social Security Trust Fund is predicted to become insolvent by the year 2030 and even sooner for the Medicare Trust Fund by 2028. This could mean fewer benefits paid out to future retirees.

The implications are both depressing and scary. On the individual level, many will be thrust back into the workforce or the home of a relative (if they’re lucky enough to have one) out of necessity. On the societal level, unsettling questions emerge like the effect this will have on our collective faith in the US financial systems. How will the masses respond?

Adam Taggart, founder of the financial education platform Wealthion, breaks down these troubling trends in a manner that’s palatable to the average person. He also provides some pointers for retirees who might be planning for this reality.