By Glenn Harlan Reynolds
Thank goodness we have a Democrat in the White House. Otherwise, America’s seniors would be facing a serious crisis.
The ingredients of the crisis are already here. Interest rates on bonds, CDs and money market accounts — staples of the retirement crowd’s portfolio — are at historic lows. (I’m always shocked to see what banks are touting. Really? 0.35% — that is, 35/100 of a percent — on a money market? 0.90% on a CD? Yep.) Stocks are nothing to write home about, still well below their highs of five years ago. As for those real estate investments? Forget about it.
The squeeze is real. Some years ago, when earning say 5% on your money was realistic, a $360,000 portfolio of CDs would produce $18,000 a year in interest — that’s $1500 a month. Couple that with an unexceptional Social Security payment of about the same amount, and that’s $36,000 a year, $3,000 a month. Nothing fancy, but enough to get by.
Now change that 5% to 0.9% and you’re earning $3,240 per year, or about $270 a month. Add that to $1,500 a month in Social Security and you’ve got $1,770 a month to live on; just $21,240 a year. That’s a brutal 41% cut in income. And it is why many senior citizens around the country are being forced to draw down savings to make ends meet.
The Federal Reserve’s low interest rates are a boon to overextended banks and to the borrowers who owe them money. (As well as the world’s greatest debtor, the U.S. Treasury). But these benefits come at the expense of savers — both those who hope to see their savings grow enough that they can retire someday, and those who have already retired expecting to live on interest at rates far higher than those that prevail today. The low rates are, basically, a tax on savers for the benefit of borrowers and those who made bad loans.
There’s little hope the policy will change because the Federal Reserve says to expect this to last.
That’s not all. For senior citizens, it’s a double squeeze. While incomes for retirees are going down, costs are going up. Gasoline is now roughly double what it was when President Obama took office and, in many places, it’s back up in the neighborhood of $4 a gallon.
According to the Bureau of Labor Statistics, ground beef recently hit a national average of more than $3 a pound, the first time in history it’s reached that level. (When Obama was inaugurated, it was $2.35). Anyone who has spent time in a grocery store knows that this sort of thing is happening on every aisle — coupled with “shrinkage,” as manufacturers reduce the amount of product in a box while keeping the price the same, a way of hiding price increases from (they hope) inattentive consumers. And it’s going to get worse, according to the Department of Agriculture, when this summer’s drought hits food prices in a few months.
In fact, with this double squeeze, we have the makings of a major national crisis. There’s only one thing missing: the kind of news media attention you’d usually get with this many senior citizens suffering in an election year.
I’ve been watching these developments for a while, and by now you’d expect a lot of sad news coverage about old people who diligently saved for retirement being squeezed by high prices and federal policies, being forced to choose between medicine and food or having to let go of pets and move in with children because things have just gotten too expensive, living on cat food and the like. But actually, we’re not hearing much.
I can’t help but feel that we’d be hearing a lot more if the White House were occupied by a Republican, rather than a Democrat who has received unprecedented news media support. But luckily, that’s not the case. So let’s be thankful that a major national crisis has been averted. At least until Jan. 20, 2013, anyway.
Glenn Harlan Reynolds is a law professor at the University of Tennessee. He blogs at InstaPundit.com.