The Deliberate Impoverishment of Successful Seniors

By reducing interest rates to almost zero, the Obama Administration is reducing many older Americans to poverty. To make matters worse, those who are suffering the most are those who worked and saved and planned for their retirement. We had hoped to see the end of Quantitative Easing, but a new third round has just been announced that promises to inject $40 Billion per month into our economy, thus forcing up even more the prices of many items, like gasoline, and continuing the low rates on certificates of deposits and on government bonds. This action also forces seniors, who should be reducing their exposure to the stock market, into doing just the opposite in order to achieve a decent rate of return.

This is an example of what Obama means by "fairness" - dogfood for those who worked all their lives; food stamps and welfare for those who won't work.

Middle class: Low interest rates throw wrench into retirement

JENNIFER BJORHUS August 27, 2012 Star Tribune (Excerpt)

"John Folsom holds a solid job in medical device sales and has put two children through college. He has lived his life, as he sees it, "trying to play by the rules."

He and his wife invested for retirement by socking money into safe mutual funds to build a nest egg that could support their dream of one day having a house on a lake. But at 53, Folsom looks at his retirement portfolio and sees that "the rules" aren't working.

The market crash and housing collapse hammered his net worth. Now the Apple Valley man's life savings are earning about half what he had expected, dragged down by record-low interest rates.

"All of our calculations have been thrown asunder, and everyone has to rethink the whole deal," said Folsom said, who is planning to push back his retirement five years, possibly until he's 67.

The Federal Reserve's near zero interest-rate policy, aimed at stimulating the economy, has created bargains for borrowers refinancing a mortgage or buying a car. But the low rates are penalizing "savers" such as seniors and others on fixed incomes, forcing millions of middle-class Americans to reconsider how they will live when they retire, if they can retire at all.

"We're not really seeing the positive benefit of low rates, but we're seeing a huge negative hit," said Tim Gillaspy, who recently retired as Minnesota's demographer. "And that needs to be discussed as a national policy issue."

The low-interest rates are the latest financial challenge for a wave of baby boomers on the cusp of retirement. Already, an estimated 44 percent of boomers between the ages of 48 and 64 will run short of money in retirement for their basic needs and uninsured health care costs, according to Employee Benefit Research Institute (EBRI), a nonpartisan research group in Washington.

As traditional pensions fade away, people approaching retirement typically shift their money into safer fixed-income investments, such as bonds, to generate income to carry them through their golden years. That leaves them more vulnerable when interest rates are low.

Combined with a volatile stock market, the rock bottom rates make you feel like "there's nowhere to go" with your savings, said Nancy Nonini, whose Apple Valley company Retirement Education PLUS counsels companies on aging issues.

Meanwhile, there's concern that declining interest returns will diminish the purchasing power of savers, which would offset the boost from making borrowing cheaper.

"It's going to have repercussions not for one or two years, but basically for the rest of our lives," Gillaspy said.

Just getting by

The interest-rate squeeze isn't the sort of "Dow Dives!" shock that happened in 2008. Gordon Foster, a 74-year-old retired CFO in Lakeville, mused that it's more of a "slow erosion you don't notice."

Some, however, are noticing.

At 91, retired mechanic Glenn Summers does all his own yard work at his Bloomington home. He has kept most of his money in safe havens such as money market accounts for income to supplement his Social Security and pension. The nest egg used to generate $10,000 to $15,000 more than it does now.

Like many seniors interviewed for this story, Summers is loathe to complain about the losses. He gets by, he said, "but I don't have any extra."

Altogether, personal interest income in the U.S. totaled $986 billion last year -- down about 25 percent from 2007, according to the U.S. Bureau of Economic Analysis. That's $332 billion forgone.

Retirees feel the undertow, but so do baby boomers eyeing retirement. Folsom, for instance, had planned on returns of 5-7 percent on his investments. He had to scratch that out and work with 2-5 percent.

Will it be enough? "That's a good question," he said.

Policy challenge

Fed Chairman Ben Bernanke has testified before Congress that he's well aware of the savers' plight. In February, he acknowledged that it was a tradeoff, but it was necessary to get the overall economy back to health.” Star Tribune