Posted by on Oct 31, 2011 in
Interest Rates,
Social Security
A new August 2011 report from the Social Security Administration says that the biggest source of income for people who are 65 and older is Social Security.
Duh!
Seriously, with interest rates just about as low as they can go, where else would people that age be getting income? Folks who are over 65 are much less likely to be working and bringing in a monthly check from a job (although sadly that is changing now with the pathetic economy) which leaves SS as their only (or major) source of income.
Lets do the math: most people on Social Security will be paid somewhere between $1,000 to $1,500 per month. Taking the low number, that would equal a yearly intake of $12,000 from SS.
Now in years past when interest rates averaged 4% to 6%, someone who had a million dollars in the bank would be making between $40,000 and $60,000 a year from the interest on that money. That was significantly more than what they would get from Social Security and the two together would be enough for most retirees to live on.
But what do they make now?
That same “millionaire” in 2011 to 2013 (now that Bernanke has guaranteed low interest rates through 2013) will be making less than 1% interest on that money if they want to put it in anything that is super safe like Treasury Bills. That means someone with a cool million in the bank will be making LESS than $10,000 a year and they will undoubtedly be making MORE from their Social Security checks!
That means more people rely on Social Security and the government for money than ever before. It is incredible that someone with a million dollars saved up throughout their lives (which is MUCH more than most will have saved) will still be dependent on the government for the majority of their income after they retire. They shouldn’t have to risk that money in stocks to get more income as that can turn out very badly and as long as the best money market interest rates, CD rates, and Treasury bill rates are close to 0%, they will have to put their money at risk to make anything substantial.
While many people believe low interest rates are good, that just isn’t the case for retirees or anyone who has been responsible and saved money during their lives. In fact, low interest rates are a bad thing for our society as a whole for many reasons, one of them being the aforementioned increased reliance on our government for money to live.
The problem even gets bigger when you factor in that Social Security is supposed to run out of money sometime in the 2030′s or even sooner if the politicians don’t get things under control. No one knows what is going to happen because no matter what party is elected in 2012, they just don’t have a solution.
Tags: Interest Rates, social security
Posted by on Aug 9, 2011 in
Interest Rates
Breaking news on 8/9/11 – Today the Fed’s chairman Ben Bernanke came out with a highly unusual pledge to not raise interest rates for “at least” 2 years. That means that in all probability interest rates will not go up at least through 2013.
In response to this news, the stock market shot up over 4% for the day and reversed much of the 600 point drop it had yesterday. Stock investors view low interest rates as being good for companies because it allows them to borrow money inexpensively and use it to grow.
While low rates may be good for those who want to borrow money, they are terrible for anyone who has money they want to safely invest This is a tremendous blow to retirees and other people that rely on interest income to make ends meet. The government has just guaranteed that people like my father will make little to no money on their safe investments and this is devastating for some of them. Interest rates should be decided by supply and demand and NOT by the government.
The United States is in more debt trouble than most people can comprehend and clearly President Obama doesn’t have any idea what to do about it. All he ever does is go on TV and try to tell people things are really better than they seem. Plans or ideas never seem to part of his speeches he delivers and there is absolutely no leadership coming from him.
Apparently the Fed felt it had to do something to calm investors and give businesses some idea of what the future holds so they can make better plans. By now knowing that interest rates are NOT going up for the next two years, business owners can make concrete plans involving expansion and other aspects of their business.
Low interest rates that approach 0% are always signs of a faltering economy as countries lower rates to try to encourage borrowing that will hopefully turn into spending. Japan now has interest rates set at 0% and they have had more than 15 years of extreme financial hardships. While the rates in the United States are not quite 0%, they are so close that they might as well be.
Tags: Interest Rates, Japan zero interest
