Retirement Dreams Becoming Nightmares

While Zero Interest Rate Policies (ZIRP) and Negative Interest Rate Policies (NIRP) continue to work through the financial system savings of all types are being wiped out. Slowly and steadily drained of any real growth or even managing to keep a foot-hold on the current balance. 

The Federal Reserve in the U.S., the European Central Bank in the European Union and the Bank of Japan have been engaged in the two above mentioned “monetary policies” under the misguided belief these enormous economies would be “jump started” by forcing us to spend our savings. 

If we choose to leave our savings in investment vehicles a great many of us are being punished with severely low or negative interest rates on our savings accounts. 

If you haven’t looked at what a savings account pays in interest in while this will give you an idea. My local bank offers 0.05% interest on a basic savings account. If, for example, you were to deposit a humble $10,000 into a basic savings account at this bank at the end of one year you would have earned a whooping $5.00. 

If you have been to the grocery store, have insurance of any type or have family still in school, then you are well aware of the raging inflation that impacts our lives everyday. 

Will $5.00 worth of interest do anything for you or your retirement? After you factor in inflation you have actually lost approximately 5-6% of your net worth on your $10,000 deposit. A far cry from being a positive $5.00.

DYI Comments:  Interest rates below the rate of inflation is nothing more than financial repression. The longer this is maintained those with traditional pension plans such as school teachers, fire fighters, police officers, and state employees will have their promised retired package reduced. Those plans (the majority) have an eight percent assumed growth factored in which obviously is impossible to achieve.  With quality long term bonds around 3.5% and an estimated return for stocks between (at best) 0% to 2% pension returns will be scaled back.

Those with 401k's will suffer as well as most participants have a 60% stock and 40% bond mix that under the best of conditions will deliver a return in the neighborhood of 2%.  These returns are BEFORE INFLATION.  As shadow stats is pointing out inflation is about double what our government is telling us.

The best that can be done is to keep your maturities short despite world wide central banks hammering rates lower.  As the cat comes out of the bag with our citizens realizing that inflation is far higher bond rates will begin to move up.  Only until that time occurs will DYI be interested in a position in long term bonds as determined by our weighted averaging formula.

Until then.....THE GREAT WAIT CONTINUES

DYI