Retirees—the Recession's Main Victims

09/21/2010 12:30 pm EST

Focus: MARKETS

John Bollinger

President and Founder, Bollinger Capital Management

John Bollinger, editor of Capital Growth Letter, says low yields on savings instruments are delivering the final blow to retirees already reeling from a housing bust and stock market crash.

Who is the real loser in this recession?

The fixed-income investor, specifically retirees who rely on rolling [certificates of deposit] at their local [savings & loans] for income, and people in similar straits.

Bank Rate Monitor reports that the national-average interest rate for a six-month CD is 0.35%. Of course, higher rates can be found—in some rare cases, easily and safely—but income investors are in trouble when you have to reach out to five-year maturities to get a single-digit yield. (Of course, all these rates are far less than the rate of inflation, even the officially understated inflation rate, which means that by definition, investors are accepting negative real yields!)

[Also,] with the average Social Security payment a bit over $1,000 a month, the retiree who saved $100,000—well above average—is struggling to get $1,000 income from their nest egg per year, which means less than $15,000 gross income per year!

In the past decade, retirees and potential retirees have seen substantial declines in stocks and real estate—in many cases, leaving their net worth in tatters. Now, with interest rates near zero, they are being forced to dip into what little principle they have left.

This is where the real tragedy of the new century lies: For most of these people, recovery will be nearly impossible. This is the Great American Horror Show, the one that no one wants to talk about. I'd call it the Impoverishment of the Boomers, but it is so much more than that.

The glib Obama/Bernanke/Geithner/Reid/Pelosi oligarchy—and equally glib Bush/Bernanke/Paulson/Frist/Hastert [oligarchy] before them—is sweeping a tragedy of epic proportions under the table. (Oligarchy is the correct term here, as it refers to the concentration of real power in the hands of a very few people.)

These people need real relief. I am no economist, but it seems that the easiest and quickest relief would be to take their tax and regulatory burdens to zero—no taxes and reduce or eliminate fees of all kinds. Others can figure out what else might help, but this is a first step that will warm their hearts, help them fill their bellies, and let them know that their government is acutely aware of their plight and actually does care.

A note to Republicans: If you actually manage not to shoot yourselves in the foot this fall and you gain some control, please don't forget these folks. This isn't a political problem; it is an American Tragedy.

Subscribe to Capital Growth Letter here…

Related Articles on MARKETS

Keyword Image
11 Reasons to Buy Microsoft
16 hours ago

For our latest recommendation, we revisit one of the world's most prominent technology companies, Mi...