CAN YOU RETIRE WHEN INTEREST RATES ARE THIS LOW?
People are still asking when will interest rates go up an the answer is the same in 2011 as it was in 2010: NOT SOON! You can see the chart below showing interest rates for certificate of deposits being at their lowest point in the last 10 years. Basically you get nothing for loaning your money to the government or banks.
This is huge problem for all the baby boomers who are retiring now and for the next 15 years as they will be relying on Social Security as well as interest income. You can read this Fox news article that Social Security will run out of money in 2037 and to combat this they will probably raise the retirement age once again. It also says the average a person takes in from Social Security is only $1,076 per month and who can live on that in today’s world of rising prices?
So this is what our future looks like: we have millions of baby boomers retiring every year now and they all need to pay their bills and live a comfortable retired life. They will be drawing on Social Security which hardly pays enough for anyone to retire on and at best it will only pay part of what they need. It will not be enough to even keep up with inflation and what are they going to do when we have $5.00 gas and rising food costs which are already starting to take place?
Many of these folks will have to work 5 to 10 years longer just to be able to survive and those will be the lucky ones that are actually able to keep or find jobs.
Obviously, interest income is an important part of the equation for many retirees who have planned ahead and have some savings. They need interest rates to go back up to reasonable levels so that it can provide them with a real source of income and not just the pennies on the dollar like it provides now. The sad part is that for the many that have been responsible and saved throughout their lives, with low interest rates not providing any cash flow, their nest egg may not be enough.
This problem is not going to go away until the economy turns around and the money market interest rates and all other rates go back up to normal levels. But with the amount of debt this country is in and the dire financial forecast resulting from that debt, can that really happen any time soon? Our government officials in Washington seem to be in perpetual denial that that borrowing money is a problem as they keep piling on the debt like it is free money. That is the problem as they are not willing to cut spending because it will make them look bad.
But soon people are going to realize just how much trouble we all are in and hopefully in the coming years we can elect Presidents and other representatives who are willing to vote for the real spending cuts (not freezes) that are needed.
HOW DO WE TEACH OUR CHILDREN TO SAVE WITH INTEREST RATES SO LOW?
There is a savings problem in the United States: we don’t do enough of it. This has been made very clear by the recession and all the millions of folks who live paycheck to paycheck and worry about losing their jobs. They don’t have any savings and are going to ultimately hope that Social Security is enough to get them to the end.
There have been reports on television, in the newspaper, and in magazines about how we as a nation don’t know how to save. The Japanese on the other hand, have always done a much better job of saving a higher percentage of their income than we as Americans do. It’s a real problem for this country as more and more people fall into debt along with our government that has never been able to spend money wisely.
When I grew up, parents put money away for their kids in savings accounts or some other type of investment that earned interest. The interest rate then was somewhere around 5% which was enough to show kids that the money they saved in this kind of account actually earned something. Sometimes the interest rates would be a little higher than 5% and sometimes a little lower but it was always in the ballpark of 5%.
But times have changed and now about the best interest rates you can get are 1% or lower. If you have a lot of money and are willing to invest it for a longer period of time you can get a little more but the difference is hardly worth it. It doesn’t matter whether you look for the best money market rates, best savings account rates, best Treasury Bill rates, or anything else because they are all very low right now and have been for years.
So how do parents today teach young children the importance and value of saving their money for a rainy day? How do they make children excited about NOT spending their money because if they invest it safely it will grow? How can a parent convince their children that saving their money is the best option when all they will make with these low interest rates is a few pennies?
As mentioned, this country already has a big problem with the saving rates of adults. It is unlikely with rates this low any of our kids are going to be able to break out of the mold and understand the value of putting money away when it is earning so little. One of the ways children learn is by seeing and in years past they could keep track of their investments and watch them grow. But now, watching them “grow” with 1% or lower rates is hardly anything that is going to get them excited.
Not much is ever said on the news about how low interest rates are HURTING this country. All you ever seem to hear is how now is the time to finance a house or a car. But interest rates this low are hurting us in ways you might not think of and this is one of them. We need to show our children how to become financially responsible and this has become a little harder since rates have gone down.
