Why save when you can borrow from Uncle Sam.
Posted on 04/04/2011 10:41:23 AM PDT by Palter
Forrest Yeager, a 91-year-old resident of this seaside community, had been counting on his retirement savings to last until he died. The odds are moving against him.
With short-term bank CDs paying less than 1%, the World War II veteran expects his remaining $45,000 stash to yield just a few hundred dollars this year. So, he's digging deeper into his principal to supplement his $1,500 monthly income from Social Security and a small pension.
"It hurts," says Mr. Yeager, who estimates his bank savings will be depleted in about six years at his current rate of withdrawal. "I don't even want to think about it."
Mr. Yeager is among the legion of retirees who find themselves on the wrong end of the Federal Reserve's epic attempt to rescue the economy with cheap money.
A long spell of low interest rates has created a windfall worth billions to banks, mortgage borrowers and others it was designed to benefit. But for many people who were counting on their nest eggs, those same low rates can spell trouble.
Mr. Yeager's struggle highlights a nagging dilemma facing Fed Chairman Ben Bernanke. The longer the central bank keeps interest rates low to stimulate the economy, the more money it pulls out of the pockets of millions of savers. Among the most vulnerable are retirees, who have few options to restore lost income on investments built up over entire lifetimes.
In 2009, according to the most recent data available from the Labor Department, average annual investment income for the 24.6 million American households headed by people 65 and older amounted to $2,564. That figure is down 34% from 2007, and is the lowest since 2003.
(Excerpt) Read more at online.wsj.com ...
Why save when you can borrow from Uncle Sam.
Mr. Yeager, bless him, has gotten lousy investment advice.
CDs only do one thing, and it’s happening to him now: CDs make you poor in slow motion.
Sorry to hear it, Mr. Yeager.
I was earning 5% on a money market back in 2008. I watched that rate turn into about 1% as the fed tried to force people like me back into the stock market. After the hit I took during he crash, I had no intention of going back into that jungle so I bought gold and silver instead. Should have bought more but people that I thought were wise told me I was being foolish so I held back. I learned a lesson or two I did.
but people that I thought were wise told me I was being foolish so I held back
I know the feeling.
FED policy is a key reason we have not had real wage growth in the USA in 30+ years, why wealth in the USA is increasingly concentrated in the hands of the very rich (you have cash, they have real assets) and why the US Gov't can operate ponzi-schemes and social engineering schemes like Soc. Sec. and Obamacare all while running $1.5 Trillion deficits years on end.
Hes 91. He has money for six more years. Hes fine.
Sorry to see that both Mr Yeager and the author of this article have no sense of even basic economics. Mr Yeager I can excuse but Mr Whitehouse needs to go back to school or start writing for the National Enquirer.
Blaming low interest rates for your economic woes is like blaming the banks for you taking out a mortgage that you can’t afford. They make good touchy-feely stories but just don’t make any sense.
You have to understand what you are doing in the stock market.
Except for financial companies, just about no one cut dividends during the grant decline. At the bottom, you could have bought reliable utilities, telecoms, and tobaccos paying dividends of 7-9%. These bargains are gone now, but in many cases the dividends have gone up. I have several stocks that are paying 15-20% on my original investment.
If Mr Yeager thinks it’s bad now, he needs to just wait a few months until serious inflation starts hitting... getting poor is gonna start happening faster...
If Mr Yeager thinks it’s bad now, he needs to just wait a few months until serious inflation starts hitting... getting poor is gonna start happening faster...
Watch for steeper inflation at around the end of the first quarter of next year, and summer of 2012 for the realization to arrive in areas depending on tourism.
With inflation won’t his CD rate rise?
With CD’s he’s losing money safely.
Interest rates are going to rise as the cost of borrowing money goes up because of competition with the fedgov,
but not because of inflation.
Inflation will just cause a negative return on his savings,
as it is intended to steal the wealth of all who are frugal.
RE: “With inflation won’t his CD rate rise?”
************
In years gone by, yes. I won’t ever forget the early eighties — earned 13% on fairly small CDs and had I not been working I could’ve lived on THAT.
Now everything is different — price of goods goes up but banks don’t raise rates on CDs — really bad timing for the millions of baby boomers retiring or set to retire any time now and still keeping savings in CDs. Many of us took huge hits in the stock market turndowns over the years and are not anxious to repeat.
The whole situation is a mess............
Rewarding people who provide capital has been replaced by rewarding people who are willing to leverage themselves into debt as far as they can go. This is just another reason why our form of capitalism is severely broken.
In the old days, I would have said ‘yes’. But who knows what bank regulations will be written - what hand greased? What fed member goes nuts...
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