New Retirement Concepts of Taxation

I figured when I retired, I’d have my home paid off, 300k in the bank and $1,200 in Social Security in monthly income.  Part of my retirement was going to be from my nest egg of 300K.  I had figured that I should be able to get about 8 to 10 percent on my invested savings; figure about $2,000 to $3,000 per month.  I accomplished my goals, but that 300K in the bank now only generates about $400 per month.  So basically, I’m not retiring.  I like my present standard of living and I still have my health.

The government has two ways of taxing; the obvious one, earnings and the not so obvious, savings. There are two basic categories of voters; those with savings and those with none.  If you have nothing, you are only taxed when you earn a paycheck or buy something taxable.  These people have support life-lines like Social Security, food stamps, health care and supplemental SSI---any wonder why they vote Democrat?

Inflation is a despicable invisible tax on savings.  Every "debt ceiling" dollar printed today over time, will make your hard earned savings put away today, worth a lot less in the future.  Notice that if the government wants to borrow money, they have to borrow from people who have money.  That sounds obviously simple, but it escapes most people; if you have nothing, they can’t borrow from you.  Now there is also a third method of taxation that involves controlling the interest rates on bonds.  Bond rates are normally a function of risk.  The more risk, the higher the rate.  But if the government comes in and takes the risk out of the market by guaranteeing the loans and printing as many dollars as necessary to do it, they can keep interest rates extremely low. And no, they are not giving the banksters free money, they are just making good on the bad loans made to Joe Six-pack.  In essence Joe Six-pack borrowed your money in the bank and spent it on a house and now can’t pay it back. All the government did was pay off his non-performing loan and keep the bank from collapsing due to gross incompetence and mismanagement.

By controlling the interest rates in this new fashion, many silver foxes can’t retire because of the lack of generated interest income.  Instead of 30K interest on their nest egg of 300K, they get 5K.  Any way you look at it, the retiree is losing 25K a year.  I think this is why the investment in housing rentals has skyrocketed.  300K invested in the housing market should return more than 5K a year and 24K wouldn’t seem unreasonable.  The only trouble I see with this, the home is not easily convertible to cash if circumstances of old age dictate it (waiting for the market to come back might not be an option).  Notice however, if you give the house to your kids in a trust with the rent payable to you for life, future rest home expenses couldn’t claw back on the principle invested in the home that was given to the kids.

This present administration's new approach to economics and finance, has one problem, the economy is not reacting as anticipated.  Retirees have a lot less money to spend and students have a lot more (As long as they’re students).  There are few high paying jobs, the kids are moving back home and rentals go unrented. New cars are selling at a good clip, nothing down and you pay the sales tax of 10% before you drive out. Try and sell a used car; find someone with $2000 in the bank to purchase one.  People are trading in their old cars because they can’t afford to get them repaired.  Do the math, $1,800 for a new transmission or $800 “drive out” for a new car? Rumor has it you can get a free cell phone when you sign up for food stamps. In the 1930's they didn't have food stamps, they had soup kitchens--but I digress.

So, to tie up the loose ends, what happens next?  The government has taken away my independence by robbing me of the interest I anticipated in retirement.  Of course they will blame it on “Wall Street and the Banksters” who are just as abstract as the name “Uncle Sam”—these imaginary individuals offer us a focal point for our anger and are not people you can grab by the neck and choke some sense into.  In the coming weeks Congress has to face the budget bill, the national debt ceiling and a President with a super-sized ego that refuses any compromise. The President wants to tax the rich; you know, the people like you and me, who saved $100 a month for 40 years.  The neat thing if the government comes to a stop, they can’t spend any more of what they don’t have. And that sounds very weird. Plus, if you think about it, whatever they were spending, really wasn't theirs to spend anyways.

Obama kind of reminds me of the guy rowing a boat as fast as he can. Someone asked him where he was going and he said “I’m not sure, but we are making very good time!”