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Retirees Must Stand Up and Fight the Federal Reserve

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For years, the Federal Reserve's policy of keeping interest rates near 0% has crushed retirees trying to draw income from their life savings. Yet as if the challenge of having to squeeze blood from the Fed's stone weren't enough, now many financial experts are telling cash-strapped senior citizens that they should stop complaining for the good of the country.

In an article in The New Yorker, columnist James Surowiecki argues that the Fed doesn't hate savers. Rather, he points to the millions of working Americans who lack substantial savings and instead have massive amounts of debt outstanding, implicitly arguing that more people benefit from low rates than are hurt by them. Citing figures that senior citizens get only 10% of their income from interest payments, he concludes that the Fed's actions are not only justified but also too conservative for the current economic situation.

Federal Reserve Board Building, Washington, D.C. Source: Wikimedia Commons.

It's easy to argue that for the good of the entire country, retirees should bear the brunt of the burden. After all, they do tend to have more savings than younger Americans, having had a whole career to create their retirement nest eggs.

But retirees are far less wealthy than younger Americans in one key asset: the value of their human capital. Younger Americans can look forward to years or even decades of future earnings from wages and salaries -- earnings that will add up to hundreds of thousands or even millions of dollars of income. Even those needy seniors who are fortunate enough to find work largely have to accept low-paying jobs with few future prospects.

Moreover, low rates have also held back growth of other income sources for retirees. Social Security recipients have gotten minimal cost-of-living adjustments in recent years, and although low rates would usually spur inflation that would lead to higher COLAs for seniors, official inflation figures have remained subdued for years -- even as many of the actual costs that seniors pay have risen sharply.

All for what?
Moreover, the benefits of low rates haven't been as clear as many believe. Rates on home mortgages have indeed fallen to extremely low levels, helping to spur housing activity that brought once-struggling homebuilders Hovnanian (NYSE: HOV  ) and PulteGroup (NYSE: PHM  ) back to life, with higher orders and sales figures recently.

But many borrowing rates haven't followed the Fed's policy lower. Citigroup (NYSE: C  ) , JPMorgan Chase (NYSE: JPM  ) , and Bank of America (NYSE: BAC  ) have largely kept credit card interest rates high to bolster their massive profits, with double-digit rates looking especially egregious in light of the less than 1% rates those banks pay most of their savers.

Stop blaming savers
Blaming retirees for their current problems simply adds insult to the injury of having part of their incomes taken away from them. The solution isn't to artificially raise rates, but letting the free market have more of a say in where rates should go would at least give savers a fairer chance to assess their investment options to try to make ends meet.

To save as much as you can for your retirement, the best investing approach is to choose great companies and stick with them for the long term. The Motley Fool's free report "3 Stocks That Will Help You Retire Rich" names stocks that could help you build long-term wealth and retire well, along with some winning wealth-building strategies that every investor should be aware of. Click here now to keep reading.


Read/Post Comments (13) | Recommend This Article (13)

Comments from our Foolish Readers

Help us keep this a respectfully Foolish area! This is a place for our readers to discuss, debate, and learn more about the Foolish investing topic you read about above. Help us keep it clean and safe. If you believe a comment is abusive or otherwise violates our Fool's Rules, please report it via the Report this Comment Report this Comment icon found on every comment.

  • Report this Comment On April 06, 2013, at 1:29 PM, punky11 wrote:

    Not to mention they took our retiree insurance away from us and now we have to buy medicare part D, They increase the cost of our medicare part a and b every yr, so we totally lose cost of living, If I were not able to play in the stock market to supplement my income I would have to stay home all the time just pay for groceries and utilities,

  • Report this Comment On April 06, 2013, at 2:49 PM, gimmethefacts wrote:

    I just want to interject here that the Federal Reserve is a rip off, and was never intended "For the People" it was established by the wealthy for the wealthy and they have no remorse for what they have committed against the American citizens. With our S.S.# we are nothing but a commodity and working drones for their benefit. Consider the pattern in our history of depression, who always comes out on top? not the working class heroes.

  • Report this Comment On April 06, 2013, at 3:25 PM, Stevegarry22 wrote:

    This story, as with many, smack of, "Hurry up and drop dead". Fortunately I have been able to save Off Shore, where the rates and returns are higher. Unfortunately many people my age did not have this luxury. Since odumbo was reelected I cut my company's employees down to less than 50, and I have the majority of my savings in off shore tax havens. I'm not getting rich from the interest, but it is more than I would get in a local bank.

  • Report this Comment On April 06, 2013, at 3:33 PM, dockdoc wrote:

    The fedeeral governement and the Fed are punishing the savers and rewarding the epople who got over theri head in debt, We punish the savers and the workers and reward the speculators who were trying toflip houses, people who wont work because they collect disability. We should be doing the opposite: reward good behavior and discourage mooching.,

  • Report this Comment On April 06, 2013, at 4:03 PM, justinphilpot wrote:

    the promise that America held for so long is dead.

    the old retirees are a debit to America's social security and need to be gotten rid of as fast as possible, so the illegals can be "bought" with the retirees benefits.

    the government's way to do this is to "starve" the retirees out. run them out of money is the plan.

    fighting is the only way to stop this extermination of oldsters. vote the bastards out or ???????????

  • Report this Comment On April 06, 2013, at 5:13 PM, mikeflores2000 wrote:

    Fools are blaming the wrong team.

    Without cheap energy, the economy falters.

    Without tax revenues from jobs, benefits falter.

    Anyone alive when M. King Hubbert coined

    Peak Oil in 1956 and President Carter warned day of judgement in 1977 aka baby boomers have only

    to blame themselves.

    Don't believe it?

    Research it.

  • Report this Comment On April 06, 2013, at 5:28 PM, boonedoggle65 wrote:

    It is sad indeed that our government no longer believes in a free market economy. It wasn't so long ago that our politicians criticized China for directing and manipulating their economy and currency.

    I based my retirement planning to receive "market rate" interests on my investments. Unfortunately, thanks to Ben Bernanke & Co. , my income is down about 50%.

    Yip, Bernanke has certainly assured huge profit for his member banks. No cost for funds? Just think how much money Wal-Mart could make if they didn;t have to pay for inventory!

    In fairness, shouldn't Bernanke, the employees of the Fed and all the employees of the member banks take a 50% cut in pay while their efforts have assured that I must?

  • Report this Comment On April 06, 2013, at 5:41 PM, lugmauler wrote:

    this doesn't surprise me any. i think it's high time to forcibly remove them fools from office. and this time when we elect them, make sure they don't law back ground what so ever.

  • Report this Comment On April 06, 2013, at 6:14 PM, megam wrote:

    My husband and I are senior who have work for over 45 years in professions that were education and nursing. We raised very successful children, who by the way, make far more than we when we brgan our careers. We have managed to balance and save our finances and managed to save and live with in our means, while this younger generation blow every dollar on items that they do not need and try to live like the Joneses. Why doesn't this young geberation get off their asses and work and learn to live within their means, instead of sulking over the old senior bastards, as some may call us who have saved for the future. The Feds are too eager to steal all they can from the senior population beacuse we have incompetent morones running the country into the debt beyond belief. We paid our SSI and why should these so called professionals worry about our SSI that we paid into for retirement. By the way, take thses lazy asses off SSI that pretend to have disabilities. Grany you, there are people who are disabled and derserve help, but those four percent that mooch off the government need to get a job and pay into the system that they have been robbing for years. Personally, as long as the government gives them the freebies, they will continue to get their food stamps and SSI for as long as they can. This bunch off lazy asses have played the system and it is generational and continues to be so because we have government officials who are reluctant to step up and do what has to be done - Shunt the pipeline off and make them work for all their freebies.

  • Report this Comment On April 06, 2013, at 7:38 PM, luckyagain wrote:

    Exactly how do you fight the Federal Reserve? This article puts forth the premise that somehow individual savers can fight the Federal Reserve. I would put forth that savers should make better use of their money in dividend paying stocks or bonds than whine about the minimum interest that they receive from saving in a bank. The only thing that you get from a saving in a bank is the guarantee that the account is insured. If you do not want this guarantee and the low interest rate that comes with it, then just buy bonds or dividend paying stocks. Many people just do that and receive a nice dividend or interest payment. It is time for every individual to take responsibility for their investments instead of demanding that government or the Federal Reserve guarantee a return.

  • Report this Comment On April 06, 2013, at 8:31 PM, JoeMiddleclass wrote:

    From Forbes: “Didn’t Chairman Bernanke say, ‘The Federal Reserve will not monetize the debt.’ “Yes he did, as clear as day to the House Budget Committee back on June 3, 2009.”

    From an April 4, Bloomberg interview with Richard Fisher, the Dallas Fed governor: “We are buying so many Treasuries now. We’ve been monetizing the debt. We continue to do so.” Yes, Bernanke lied under oath.

    If you are an investor right now you had better understand this because this is all that matters at this moment. Monetizing the debt means the Federal Reserve is printing money to buy the Treasury bonds the U.S. government issues. The U.S. government has a massive budget deficit. That is how they borrow money; they issue Treasury bonds. So, the Federal Reserve prints the money and buys the bonds. As they do this they increase the prices on the bonds and decrease the interest yields on the bonds. Therefore, they manipulate the interest rates to lower them.

    SO YES BLAME THE FEDERAL RESERVE

    And while you are at it recall all those people you elect that give themselves special perks in Health and Retirement while whittling away at your benefits to cover all the pork they serve themselves and their cronies. We need a ten million American March on Washington to stop this insanity while we still can

  • Report this Comment On April 06, 2013, at 9:17 PM, gordonkearse wrote:

    The American dream had to run out for some generation. We had extended ourselves too far. And we're competing for the same natural resources that the rest of the world desires.

  • Report this Comment On April 06, 2013, at 9:59 PM, TigerPack1 wrote:

    BEN never expected the moral hazard thing of ripping people off to be recognized by the masses, when he started the ZERO forever madness in mid 2009. [I have been screaming at people since then, the sheer madness of one man (many banksters actually) alongside the unelected Federal Reserve system takeover of the markets would lead to America's demise. All we need now is a stock market crash to wake people up - regarding the spiralling debt situation that CAN MATHEMATICALLY NEVER BE PAID BACK.]

    I congratulate people some 4 years later for recognizing reality, a little late, but kudos for your ability to think rationally on your own.

    We are stuck with it now, or we will be in a massive DEPRESSION almost overnight.

    All that is left to figure out, as the 2013 recession becomes more apparent to the masses, is what will the exact timing of HYPERINFLATION money printing be - like what was announced in Japan last week. The END GAME is 20% or 30% annual inflation, perhaps as early as 2014. Then visualize the outcry over ZERO forever from the "capital" market controls. You will be losing 20% or 30% of your wealth EACH YEAR holding savings assets in the failed U.S. banking system of PONZI fraud.

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Dan Caplinger
TMFGalagan

Dan Caplinger has been a contract writer for the Motley Fool since 2006. As the Fool's Director of Investment Planning, Dan oversees much of the personal-finance and investment-planning content published daily on Fool.com. With a background as an estate-planning attorney and independent financial consultant, Dan's articles are based on more than 20 years of experience from all angles of the financial world.

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