M.D. Harmon: Seniors are strained by shrinking assets, rising inflation

The polls continue to find that voters’ attention remains focused on the economy—not so much in the sense of Bill Clinton’s “It’s the economy, stupid,” as in, “It’s the stupid economy.”

And that matters a great deal to the group most often viewed as the one most up for grabs in November, the so-called “50-plussers.”

They are those either retired or close enough to retirement to be very aware of how their plans for the future are being wrenched out of shape by two powerful forces.

The first one is what’s going on in the stock market, their employers’ retirement programs and the changes now being pondered and implemented for seniors’ health care.

And the second is a form of “hidden” inflation not easily tracked by traditional measures of that insidious force.

First, let’s pay heed to a pair of recent columns, the first one by Glenn Harlan Reynolds, a libertarian law professor at the University of Tennessee who blogs as “Instapundit” (a blog well worth bookmarking, by the way). He recently wrote on the economic pressures facing those now entering their retirement years—and they are grim.

What has happened is that people who for decades thought they were planning effectively and responsibly for their lives after their working years had ended have had the rug pulled out from under their feet by low rates of return on their investments and savings, including stock values and interest rates paid on deposits.

As Reynolds notes in a column published Aug. 29 in USA Today, “Interest rates on bonds, CDs and money market accounts—staples of the retirement crowd’s portfolio—are at historic lows.”

He says he is “shocked” to see banks offering negligible interest rates—0.35 percent on a money market account, 0.9 percent on a CD—while stocks are “nothing to write home about” and real estate values, on which many pinned their hopes a decade ago, are worth only dismissal: “Forget about it.”

Some years ago, he says, when returns on deposits averaged 5 percent at banks, a $360,000 portfolio of CDs would produce $18,000 a year in interest. Couple that with $1,500 a month in Social Security payments, and retired people could make $36,000 a year—not enough to make them rich, but enough to keep them independent, assuming their houses were paid for.

“Now change that 5 percent to 0.9 percent,” he writes, and with the same Social Security payment, “you’ve got $1,770 a month to live on, just $21,240 a year. That’s a brutal 41 percent cut in income. And it’s why many senior citizens around the country are being forced to draw down savings to make ends meet.”

Reynolds says that savers have taken the hits they have because government has kept interest rates low to benefit banks and the big creditors who owe them money, a move government economists say was absolutely necessary to avoid a very deep recession, possibly one as deep as the Great Depression.

But that amounts, Reynolds says, to “a tax on savers for the benefit of borrowers and those who made bad loans.”

In a column with a similar theme in the Aug. 27 Minneapolis Star-Tribune, reporter Jennifer Bjorhus profiles people who have decided that their retirement funds aren’t sufficient to support them and who have decided that they will have to work well beyond the dates that they had expected to pull the plug and relax.

“Already,” she writes, “an estimated 44 percent of boomers between the ages of 48 and 64 will run short of money in retirement for their basic needs and uninsured health care costs, according to the Employee Benefit Research Institute (EBRC), a nonpartisan research group in Washington, D.C.”

And 2012, of course, is the year in which the first cohort of baby boomers, who were born starting in 1946, when millions of soldiers came home from World War II, are turning 66, the age at which full Social Security benefits can be paid.

That means millions of people are finding out, some for the first time, that their carefully laid plans will have to change.

Low interest rates make many retirees believe “there’s nowhere to go with your savings,” says one consultant quoted by Bjorhus.

And don’t look for quick relief: “It’s going to have repercussions not for one or two years, but basically for the rest of our lives,” said former Minnesota state demographer (and recent retiree) Tim Gillaspy.

Altogether, Bjorhus says, “personal interest income in the U.S. totaled $986 billion last year—down about 25 percent from 2007, according to the U.S. Bureau of Economic Analysis. That’s $332 billion foregone.”

If the trend continues, said the EBRC’s Jack VanDerhei, many boomer retirees could find themselves depleting their assets for living expenses until they are left with Social Security “and perhaps whatever housing equity they have,” leaving them potentially to ask “really interesting societal questions like, do you expect to move in with your kids?”

The second powerful force at work in the economy, Reynolds says in his USA Today column, is an understated inflation in the prices of many staples that is going mostly unnoticed and unreported both in the major media and in government economic reports and forecasts.

As he notes, “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 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.”

Those are two examples of a widespread trend in a steadily increasing costs for staple commodities. “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.”

This double squeeze of vanishing interest returns and consumer price hikes, Reynolds says, creates “the makings of a major national crisis.”

In fact, he says, “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.”

Reynolds suspects that we’d hear much more about it if there were a Republican in the White House rather than a Democrat.

That’s undoubtedly true. But this sort of thing doesn’t need the news media to publicize it, as people are learning it for themselves every day, as they read their financial statements, try to balance their checkbooks and pay the bill at the register as they check out from grocery stores.

And pet stores: My personal story about this issue involves the last time I went to the local fauna-supply outlet to buy the special food my corn-allergic canine needs. I buy the big bag to save money (though it doesn’t last long for our chowhound), and I noticed the label on the shelf gave a price for the 35-pound bag I usually buy.

But the bags themselves were only 30 pounds. So when I plopped a bag down by the register, I asked the clerk how much less they were charging now that the size of the bag had been reduced by 14 percent.

You already know the answer I got. Multiply that times all the things you buy every month, and you can see where we’re headed.

It is not a good place.

Especially if the guy who helped to create it is re-elected in November.

M.D. Harmon, a retired journalist and military officer, is a free-lance writer and speaker. He can be contacted at:mdharmoncol@yahoo.com.