By persisting with low interest rates, is the Federal Reserve crushing the retirement dreams of millions of elderly Americans? Low interest rates force a generational switch in the country’s purchasing power. Purchase volumes have moved from the elderly, who usually spend less, to the younger generation who generally spend more. The negative effects of a low interest rate upon seniors has become one of the major criticisms of the Fed’s monetary strategy.
Retired people are being paid almost no interest on their personal savings. The Federal Reserve has committed to maintaining interest rates near 0% through 2014. Should rates remain low beyond that, retirees spending less may just be “the tip of the iceberg” with regard to the probable destruction of our economy. At that time, the more aged spenders will severely cut back on their expenses to keep from wiping out their retirement savings. Their purchasing sustains a significant portion of our overall economy.
Government records reveal that investment earnings accounted for almost ten percent of the income of Americans age sixty-five and older at the time that the economic recession first started. In 2011, it comprised only six percent of their income. They have been forced to become much more reliant on Social Security, pensions and even public support.
The present economy has required middle class Americans to make several tough decisions too. They now have to undertake bigger risks with their wealth, work for longer periods of time, temper retirement goals and protect hard-earned income in accounts that won’t bring in much of a return. The Fed’s decision has left savers and older people as the collateral damage of “stimulating” the state of the economy with low interest levels.
Baby Boomers Affected The Most
Baby boomers are the biggest victims of the economic downturn and its bleak aftermath. Those American citizens that are near retirement age, but that don’t yet have access to Medicare and Social Security, have lost the most earning ability of any other age group. Their household incomes are 10 percent below anything they generated when the recovery first began three years ago. Their retirement savings and property values have decreased rapidly at the worst imaginable point in time. Many are even supporting elderly parents as well as unemployed children.
Those who lost their jobs in the few years before becoming eligible for Social Security, may not even be able to access lower-priced health care. Employers are downsizing their full-time employees and offering more part-time job opportunities because of the rising costs of medical care. Part-time jobs, however, do not offer health care benefits.
There are only two options available to make ends meet if rates of interest and returns on investment are poor. An individual either can work for a longer time or reduce expenses. The job marketplace has become extremely unkind to older workers. With companies downsizing and cutting back on their payrolls, there is hardly any opportunity out there for older workers to get more hours of work. As the costs of living continue to go up, it becomes quite difficult to spend less also.
Over the past 12 months, the average period of joblessness for older adults was 53 weeks, compared to 19 weeks for teens. Older workers are more likely to have been let go from companies that are downsizing, like manufacturing companies. Many of the older generation just can’t afford to return to school to acquire or enhance abilities. If they try to put any more money away for retirement, their retirement dreams will sink away.
Companies would rather hire younger, energetic personnel that will agree to a lower pay rate and possibly stick around longer. These companies feel that their long-term costs for training will grow as a result of the older worker’s shorter longevity. They are hesitant to hire older staff members because they think that they may be a health risk that will cause their premiums to go up also.
Other Effects of Low Interest Rates
People that choose to retire several years early receive up to a thirty percent cut in every month’s check for the remainder of their lives compared to those that wait until the present full retirement age of 66. For this reason, elderly workers are obliged to continue working until full retirement benefits kick in. When older individuals stay employed a longer time, there are not as many opportunities for promotion within a business. Then there are fewer new jobs to be found which raises unemployment.
Lower interest rates influence the price of health insurance also. Large health insurance firms are forecasting large premium increases in the coming year. Smaller companies as well as people that shop for coverage on their own will certainly be affected by the new mandates built into Obamacare. These mandates are scheduled to take effect next year.
Historically low interest rates are draining the profit right out of the long-term medical care industry and benefits are steadily vanishing. All of this seriously hurts older people who count on affordable long-term medical care.
If interest rates stay low, the “price” of money drops which affects the banking institutions that are in the business of lending money. Lenders collect less from loans which then causes them to reduce the interest paid on deposits in an effort to maintain profitability. As a result, savers collect less on their deposits. Once again, this ultimately ends up harming people who are planning to retire comfortably.
Americans now do work which is less physically strenuous but more intellectually challenging when compared to our previous history. This should be beneficial to the elderly that have more experience and training. It ought to be less difficult to keep their current job or find another one if they must safeguard their investments. Unfortunately, this is just not the case these days.
Companies frequently choose to reduce operational costs in these challenging economic times by hiring cheap, unskilled people and getting rid of the older higher paid employees. They also look to thin out the number of full-time workers and hire more part-time employees. Some companies are going out of business these days partly because of this “dumbing-down” practice.
The elderly could be used in a much more effective way improve businesses and the economy in general. Plenty may even be happy to accept a modest pay cut so that they can work more hours and keep their health benefits. This valuable resource of our elderly should not be wasted in the effort to keep costs low. Younger workers really should be required to work more efficiently and learn more in order to advance and increase the performance of their companies. These kinds of wise moves would ultimately revive our overall economy.
Interest rates in America are lower than at any time since the Declaration of Independence was signed in 1776. This is good news for the younger spenders, but it is terrible news for elderly savers who count on a return from their investments funds. One of the biggest investments that the elderly possess is their education and experience. We shouldn’t let this to go to waste. The Federal Reserve shouldn’t be allowed to play with interest rates at all. The free market system is quite capable of performing in an efficient and equitable manner without a need for their help at all.
These persisting low interest rates ARE crushing the retirement dreams of elderly Americans. As George Carlin once said, “It’s called the American Dream because you would have to be asleep to believe it.” Older Americans DO deserve a reward for all the hard work that they have done. Let’s do our best to make sure that they receive and are able to keep what they deserve. Eventually, everyone will be in the same boat that they are in. We need to plug the leaks in this American ship now.
I wish you the best of “believing” in all of your future endeavors,
ROB – (admin)
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