Thursday, September 09, 2010

Debtors Win; Savers and Retirees Lose

See Graham Bowley's front-pager in this morning's NY Times, Debtors Feast At the Expense Of the Frugal. Dirt cheap mortgage rates may help home refinancing, but bank deposits are falling for lack of interest. Bowley offers a clear overview of how nest eggs have moved out of banks into Treasuries, driving yields to extraordinary lows, and into junk bonds.

Rock-bottom returns on bonds and bank deposits have left many retirees with little choice but to spend down principal. About all wealth managers can do is to recommend an orderly approach – better to lose a little each year rather than reach for high yield by investing in shaky IOUs or outright scams that result in larger losses. (Adv.: One of the most helpful publications I've seen on the subject is Merrill Anderson's Managing Your Assets in Unsettled Times.)

Back in the late 1970's, retirees saw their nest eggs down-sized by double-digit inflation. (See the graph in the U.S. Trust ad below.) Now they must spend down their assets because government policy penalizes savers by giving borrowers a nearly free ride.

Weren't we all supposed to be deleveraging?

Graham's Bowley's name seemed vaguely familiar, but not as a financial reporter. Turns out he's the author of "No Way Down: Life and Death on K2."

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