Sunday, March 27, 2016

Government Stealing from the Elderly

Since I am getting close to the age of 70, I have to take money out of my IRA or I will be penalized. So I cranked up an IRA withdrawal calculator and went about figuring out what I have to withdraw. I used 100k for the illustration, I started late and I'm a couple of thousand short. Didn't think much of it. I used an interest rate of 1/2 of a percent. I Wrote down what I needed to withdraw in order to not get penalized. Then I decided to try different interest rates. You can double click on the pics for a better view. Anyone remember the saying, "Compound interest is the 8th wonder of the world?" And then there is the rule of 72. Divide the interest rate into 72 to calculate the number of years it would take for your investment to double without adding any money to it. A half a percent divided into 72 is 144 years. You kind of have to wonder "Do I have the time to wait for it to double?" The return on investment is totally meaningless. I'm hoping to live to 90 and I can't even afford age 80. Kinda sucks and it isn't even my fault.

Here is where it started to grab my attention, I plugged in 3 percent interest and generated the second printout. The amount I had to withdraw each year was more than the year before.

When a person enters retirement age, Their savings are the "worker" that they will depend on for their benefits. It is the interest rate earned on those savings that will determine their comfort level in retirement. The Federal Reserve by lowering interest rates to zero, has stripped the elderly of their full retirement income. Retires can have back what they put in, but no more than that. The Federal Reserve has changed the rules after the card game started.

Notice that the withdrawal amounts of $4,000 a year on my account, even at a 3% return is not a real game changer. And nobody is paying 3 percent.

Then when I typed in 8 percent interest, I realized that the politicians had found a way to rip off the elderly by manipulating the interest rates through Federal Reserve policy. We are in the middle of a Great Depression and how do they fix it? They rob me of the interest on my hard earned savings. 8 percent would have been a reasonable return on my savings, not 1/2 of one percent. If I'd have known that I was going to get such a lousy rate of return, I would have put my money elsewhere 20 years ago.

I have observed that a zero drops off of our purchasing power every 20 years. What cost a penny in 1964 cost 10 cents in 1984 and now a dollar in 2004 and probably $10 in 2024. The trouble is, my example is a linear progression and government spending and inflation is more of a logarithmic progression. Common sense suggests that precious metals will more than hold their value over the next twenty years. At todays interest rates, it could become the only game in town.

Half the world is looking at 30% unemployment and the stock market is roaring to absurd new highs. Housing is back to the highs of the bubble year of 2007, totally unaffordable. The present interest rate so low that there is no reason to save, even for retirement. Once you realize what the government has done to our retirement financing, you'll be too old to do anything about it. Real compound interest is a thing of the past. Its still a wonder; you just get to wonder where it went.


dearieme said...

The elderly really ought to punish the government, or more generally The Establishment. That might mean voting for Trump - an action that wouldn't appeal to me (if I had a vote) unless his opponent were as awful as .... ah, Hellary. In a choice between the preposterous and the vile, I'd hold my nose and vote for the preposterous. That is, in the unlikely event that The Establishment doesn't somehow block him before the election.

Of course, even if his election couldn't be blocked, he might anyway prove a great disappointment. It's not as if interest rates are healthy anywhere else in the advanced world.

Anonymous said...

You and I are about the same age. I'm already seventy years of age that is. I had close to $180,000 in an IRA account. Me and my good buddy Jack Daniels sat down and decided to take some distribution of my IRA. Jack decided at my age I should take a little extra . Ended up taking out $30,000 plus a little extra. Ended up with about $50,000 taxable. Just paid Federal taxes .$6,300 plus $ 400.00 to state. After taxes I put balance in Silver eagles. Think I made next to nothing on interest from Vanguard last year. Screw the government and the banking system. While you are at it screw AARP . They are no more than a shill for this POS government we are under. If the POS AARP was worth a sh#% they would be raising hell about banks not paying seniors any interest.

Jim in San Marcos said...

Hi Anon 6:00

Believe it or not, I have a similar story.

I just finished our taxes for my wife and I. If we had put $13,000 in our IRA this year we could have saved $3,000 in taxes. We decided to pay the taxes and bought 10 ounces of platinum.

Silver is a little bulky. Putting 40 pounds of silver in a safe deposit box is difficult. You have to load the box in the vault one tube at a time. I buy one tube (25 maple leafs) a month, so it isn't bad dropping it off. My IRA is chasing a 1 percent return.

The neat thing is that this bullion is invisible, if I get thrown in a rest home. It doesn't show up as a visible asset like a bank account.

You raise an interesting issue with the AARP. Why haven't they kicked some butt on this interest rate? I guess as we progress from 70 to 75 we are supposed to lose our minds and not give a damn.

I know I was saving for many years, because I was getting $5,000 on 100K of T-bills a year, way back when. And then they changed the rules.

Jack Daniels has always been a good friend of mine and a great financial advisor. We might not live to see the change in interest rates, but we can make it downright painful for this government policy. They need our funds in the bank so they can borrow them.

Jim in San Marcos said...

Hi dearieme

I hope we get a chance to vote for Trump. History suggests that we will elect the most incompetent person to office. Obama comes to mind as an example.

I see Trump as a person to rally around to fix what is broken, the rest want to continue the present game, with business as usual.

Anonymous said...

"They need our funds in the bank so they can borrow them." -- That's not even close to the truth. $16 Trillions was printed in a few key strokes to save the banks in the 2008 crisis. Forget about the economics, trillions of dollars can be printed with a few more strokes on the keyboard...

Jim in San Marcos said...

Hi Anon 7:44

Our government borrowed 4 trillion to fill the gap with the last financial disaster in Real Estate and Lehman Brothers.

Our banks had loaned our savings out to people who paid too much for their homes, or those whose credit was so bad, that they couldn't pay the loan back. The people who were going to lose money in the deal were not the banks, but the savers, whose money the banks had loaned out carelessly. The government, by borrowing the 4 trillion, the banks were made solvent and the depositors did not lose any money.

Money in the bank for you and me, means we have decided to save instead of consume. The money is a measure of work done and credits we have been issued to consume product at a later date.

The trouble is, our government has borrowed 18 trillion dollars and they borrowed it from savers like me and they spent it. As long as we all don't want our money today, they can pay us back one at a time. If everyone wanted their money at the same time, they can't pay it.

In a Ponzi game you need more funds coming in than going out. IRA's and 401K's are the new money coming in that the government can borrow to cover the Treasury's being redeemed. These plans were introduced as retirement plans, but they were designed for Congress to use as a piggy bank to borrow from. Congress was running out of money to borrow in the 1970's.

At some point when this blows up, those holding the bag of 20 trillion in IOU's will probably get about 15 cents on the dollar. If you have no savings, you lose nothing. If you pull your dollars out of the bank now, you reduce your risk of loss. The biggest drawback to precious metals is that they pay no interest. Well if the bank is not paying any, precious metals are real, and governments can't print precious metals.

Your idea that the government can print its way out of this mess is an oversimplification of absurdity.

AIM said...

One should NEVER have any type of retirement account that is constructed and regulated by this corrupt government. (When the government reaches one of its upcoming levels of desperation for more money it will probably tax retirement accounts, and/or take a portion of them, and/or convert the capital into long term government bonds, or any number of things that will be damaging to retirement account holders.) One would be much better off keeping their retirement savings outside of any of these programs in a personal account... learn to be an active investor... and start investing for a decent return and building up one's own personal investment portfolio. Yes, it takes study, good advisors or mentors, and hard work in the beginning. Those with IRAs, 401ks, etc. that are holding stocks and bonds are doomed to losing most all of their savings/capital. I pulled all of my capital out of retirement accounts a long time ago and paid the 10% penalty and the taxes. By taking control of my own money and investments, studying and developing my investment skills, I made all of that lost capital back rather quickly and have significantly built up my net worth. Don't have anything to do with the government or government programs... they are after your savings. BTW, gold may play a larger role in your investments than you think (check out Jim Rickard's new book, "The New Case For Gold". He dispels a lot of myths and false data about gold.) Good luck every one.

Jim in San Marcos said...


What a lot of people don't realize is that most of these investment advisors work off of a pyramid diagram and ask you where you want to put your money, high risk, medium or low. None of the people managing your money have ever been in a full blown bear market. One 401k I had funds in, did worse than what the penalties would have been if I cashed it in, go figure.

Money investment management by others has always proved work at a diminished level. The only one that has your best interests at heart is you.

I think you will do OK

AIM said...

Thanks Jim. What people need to realize is that one of the Golden Rules of Investing is, "Never turn the control of your money over to another person or entity." Unfortunately 80% of the people do so. There is one person that can protect your wealth, build your wealth and act as the steward of your capital and have your best interests in mind. And that is the person that you look at every morning in the mirror when you are brushing your teeth. Those who don't heed this golden rule will pay dearly for it.

Anonymous said...

Draghi: “the ECB cannot single-handedly create the conditions for a sustainable recovery in growth”. A confession? The world was under impression that Central Bankers are omnipotent.