Americans Can’t Retire When Bill Gross Sees Repression

Feeble returns on the safest investments such as bank deposits and fixed-income securities represent a “financial repression” transferring money from savers to borrowers, says Bill Gross, manager of the world’s biggest bond fund. Workers 65 and older, struggling with years of depressed yields, are the only group of Americans who are increasingly employed or looking for jobs, according to Labor Department participation-rate data. 

“We’re going to be financially repressed for decades,” Gross, the 69-year-old billionaire co-founder of Pacific Investment Management Co., told Bloomberg Radio Feb. 7, citing Federal Reserve interest-rate policy that aims to cut borrowing costs. “I hate to be gloomy, but, yes, for the next 10 years, the oldsters, and I’m in that camp, are going to be disappointed in terms of the policy rate.” 

“The magic of compound interest works very slowly when real rates are very low,” said Poterba, also a professor of economics at the Massachusetts Institute of Technology in Cambridge. “Interest rates that have prevailed for the last few years have made it more challenging for savers to accumulate wealth, particularly if they are trying to do so in a relatively risk-free way.”

U.S. Treasury yields are at least 2 percentage points under what they would be otherwise because of the Fed’s low-rate policies and stimulus programs, said William Ford, former Atlanta Fed president who wrote a 2011 paper estimating the impact on savers of monetary easing. That reduces their income by at least $280 billion annually, his analysis shows. 

“The costs of low interest rates are being ignored,” Ford said in an interview. “It is killing savers, elderly savers who are living on life savings that have been conservatively invested.”

 Loomis Sayles & Co. Vice Chairman Dan Fuss, 80, can see the impact of low rates on retirees at the grocery store near his home in Wellesley, Massachusetts. 

“If you look at the average age of the people bagging the groceries, I want to help them push the cart out; and look at those riding the commuter train at rush hour, a lot of them are my age,” said Fuss, who managed the two best large U.S. bond funds during the past 10 years. 

He says he’s still working because he loves it, yet empathizes with those who have no choice. “The savers are screaming.”

DYI Comments:  It is very possible that financial repression could be with us well into the 2020's as Boomer's begin receiving Social Security and Medicare. Those two programs are under funded which will require large borrowings at low rates.  Look to the Federal Reserve to step on gas (money printing) when it is needed to push down rates.  With all of this cheap money flowing around the stock markets volatility up and down will most likely be very exaggerated.

So Buckle up we're in for a bumpy ride!

DYI 

  Here's How Much You Should Have Saved Up For Retirement By Now

Interesting chart you may find helpful.

Want to retire with $1 million? Here's how much you need to be saving right now

How much you need to save also depends on  the return rate. This chart shows how much you need to put into your savings account each month for a variety of annual return rates:

 

DYI