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Volatile Market Threatens Retirement Real Estate

The California Public Employees’ Retirement System—the largest ... funds diminish in the wake of this month’s market downturn. What does this mean for real estate? Future retirees, for one, may not have as many options when it comes to housing ...

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The stock market has been on a volatile patch after plunging nearly 1,600 points at the beginning of February—and, while stable now, consumers and investors are watching closelyWith many public pension plans tied to stocks, the incoming retirement community is hoping for a full recovery to recoup losses. Many public pensions have already reported a lossThe California Public Employees’ Retirement System—the largest public pension fund in the nation—lost $18.5 billion in value over 10 trading days at the beginning of the month, according to the Wall Street JournalWhile diversifying from traditional stocks and bonds decreases the risk of massive losses during a market drop, investing in alternative assets can introduce complex selling regulations and added fees. Millions of government workers are relying on these plans, and with various states in a pension shortfall, employees are at risk of losing much-needed fundsThe Wall Street Journal reports that most pension funds need to earn between 7-8 percent each year in order to pay for future benefitsAccording to Kiplinger, a few states are struggling to meet this goal: Illinois, Connecticut and Kentucky need to recover half of their estimated liabilitiesIn order to meet these objectives, hired firms are setting aggressive investment targets, which can potentially fund these accounts at a quicker pace, or may cause a steep fall-off, depending on stock market activity Content Square 1. While most pension plans do not provide enough funds to financially carry an individual through their retirement, for many, they are the primary benefit they will rely onFor 30 percent of public-sector workers in 12 states, Social Security is not an option, according to CNN MoneyThe inability to control which assets their employer’s hired firm decides to invest in can be frightening for soon-to-be retirees who are watching funds diminish in the wake of this month’s market downturn. What does this mean for real estate? Future retirees, for one, may not have as many options when it comes to housing and paying off existing mortgagesRetirement-aged consumers who owe on their mortgage and do not receive the necessary funds to pay their debt, in addition to living expenses, may find themselves in a difficult situationIndividuals that were initially planning on downsizing and/or investing in a vacation property may find they need to refinance or risk losing their home to foreclosure or bankruptcyThese public pension plans in relation to stock market activity may also prompt homeowners to stay in their homes and at their jobs longer to secure more funds and ensure a financially safe futureWith less downsizing, market inventory may be affected, creating shortages for move-up buyers Content Square 2. With pension funds dwindling, the Public Pension Project—created by the Urban Institute’s Program on Retirement Policy and State and Local Finance Initiative—is working toward reform by examining current public pension trends and activity throughout the U.SA State of Retirement map compiles this data to present detailed state-by-state information on plan rules. Firms are adapting to the volatile market, selling off stocks and diversifying where needed, but only time will tell if these are sound investment decisions that will provide enough funds for the millions of Americans that need this income for their retirement and future real estate needs. Liz Dominguez is RISMedia’s associate content editorEmail her your real estate news ideas at ldominguez@rismedia.comFor the latest real estate news and trends, bookmark Content Square 3. 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