11/21/2015 – Many unhappy returns (The Economist)

Nov 21, 2015 Comments Off by

“KEEP your eyes on the stars,” said Teddy Roosevelt, “and your feet on the ground.” America’s can-do spirit keeps its economy moving forward, but over-optimism can be harmful, especially if it leads people to make promises they cannot meet. If investment returns are lower in coming decades than they have been in recent ones, that is the position pension funds and college endowments will be in.

When final-salary pension schemes, which are still prevalent among America’s public-sector employees, decide how much to put aside to pay pensions, they have to make an assumption about what returns they will earn. The higher their estimate, the less employers have to contribute today. Similarly, endowments have to estimate their future returns to determine how much to spend each year: pay out too much and their funds will dwindle away.

Read the full article in The Economist. 

Financial Landing 2015

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