I would love to blog today about the competition between Spain and Greece – which country will steal the headlines, and who is in worse shape. But today I don’t care about them, or their problems. Today I care most about those being screwed the most with the current U.S. financial condition. U.S. senior citizens – they are the ones being hurt the most by current monetary and fiscal irresponsibility.
You know, there are at least four classes of senior citizens in the U.S. – there are upper class seniors, middles class, lower class, and poverty class seniors. All of them, especially those who have played by the rules and contributed handsomely to the Social System, are persistently being compromised in the current Market environment.
Perhaps the best way to illustrate this point is to describe the ideal senior position. Let us consider the lifelong American, a private citizen, a hard worker who has paid an entire career into the Social Security System. His employer, by the way, has also matched every nickel of his contribution towards the social security of his retirement. His wife, too, has contributed to the same system, but admittedly, not to the same monetary extent. They are a middle class couple, a middle class people – nothing fancy, just an honest day’s pay for an honest day’s work. They raised two children and lived a frugal life. Their children, now, are six figure income families living nicely in suburban neighborhoods. They, the proud parents, remain living in the same meager dwelling of their children’s youth. Somehow, beyond college and marital expenses, they have managed to save a few bucks in order to supplement their Social Security benefits. Through thoughtful consideration and experience, they had ascertained that a reasonable quality of life could be had until expiration with just a 5% return on their savings per year. At retirement they had planned to do what their parents had done – they would buy U.S. government bonds and live happily ever after.
But today caught them by surprise. The 10 U.S. year bond yield is below 2% – well short of their required rate of return, even before inflation. This market condition has persisted for far too long – cheap and easy money has been a multiple decade disease. During this time our senior citizen couple sought higher income percentages in the stock market, via high dividend issues. High dividend stocks, those considered to be mature and low growth, suffer greatly during downside stock market corrections because they have less future value. Though they have lost money, our senior citizens continue to incur higher risk in hopes to earn higher income (dividend) reward. This works out great, unless “the market” goes down – or if the government raises taxes.
If the government raises taxes on dividends, not only do they raise taxes on every mutual fund owner, but they also raise taxes on every senior citizen trying to supplement their Social Security with investment income. This will drive seniors into a more risky proposition, forcing them to seek income through higher growth-higher risk capital gains instead of more stable-more mature dividend issues – not to mention risk-free government bonds; which is where they should be. Reason being, seniors shouldn’t have to live with the volatility that juniors inflict on “the markets” (see below.)
Why force seniors into taking such a volatile risk on their responsible long-term career?
Cheap and easy money policy combined with reckless fiscal policy is the Real problem here – and it hurts senior citizens more than any other demographic over the long-term. And it always will.
The Federal Reserve must begin reversing this insanity by raising interest rates and doing so in swift fashion – if for no other reason than to provide a safe, high income investment suitable for our most treasured Senior Citizens.
There should be no dilemma.