How Can A Retiree Get Fired?

Federal ReserveLike most people, many times during my working career I put up with a lot of crap from my employer; I had bills to pay and a family to support. Grit your teeth, shut your mouth, deal with it; couldn’t afford to get fired and lose my income. The fear was real. I loved Johnny Paycheck’s song, Take this job and shove it, I ain’t working here no more.

I was excited when I started my own business; I’d never have to worry about being fired again. No more having to put up with someone’s crap because I needed the money. That was wrong – big time!

My “boss” became my clients – had to please them. Clients can fire you, go elsewhere and you lose the income. Either way, self-employed, or working for someone else, bills had to be paid and dependable income was a necessity. Keep ’em happy and hope they pay their bills on time.

When I retired, once again, I rejoiced. My wife and I built a nice nest egg. We invested in FDIC-insured CDs, had dependable income coming in, no worries about losing customers or putting up with someone else’s crap.

It was a great feeling of freedom – until it wasn’t!

The music stopped in 2008. The casino banks made terrible investment decisions; the Fed bailed them out with trillions in cheap money

"Bank Lives Matter" printed on a black backgroundBank lives mattered more than citizens; particularly savers. Using the Fed’s cheap money, the banks called in all their CDs. All of our dependable income was snatched away – literally overnight. They fired their customers, taking away the income we counted on to pay the bills.

Corporate America followed suit, refinancing their bonds at much cheaper rates.

At our ROMEO (Retired Old Men Eating Out) breakfast we realized we all had the same problem. “Set for life” was an illusion! We worked hard, saved our money, invested safely and thought we could enjoy regular income throughout our golden years. One member remarked, “I’m upset, scrambling to replace my income just like the time I got fired!” Same fears, same consequences. Yes, a lot of us “Retired Old Men” got fired!

Allianz Live reports:

“A remarkable 61% of Americans say they are more afraid of running out of money than they are of death….”

While none of us were broke, we still had our nest egg – in cash. We had major concerns; our bills didn’t go away….

First was the loss of income. We were taught, “Live off the interest and never touch the principal.” We couldn’t do that anymore. CDs and investment-grade bonds paid a mere fraction of what they paid a few weeks earlier. Many had to tap into the principal to help pay the bills.

Replacing the lost income was fraught with risk. The stock market was a risky proposition for retirees. Like our parents before us, we hoped to live off the interest and leave some money to our children. The Allianz life study is real, we not only feared running out of money before we died, but also being a burden on our children.

None of us were prepared for what happened.

How To Find A Financial AdvisorScrambling to find a solution

Millions made a mad dash to replace the lost income:

  • Many friends went back to work.
  • Some investors, ignoring the fact that the rating agencies improperly rated investment bonds, tried to replace their safe CD income with interest from bond funds that were much riskier than their ratings indicated.
  • Others went into the stock market, looking for dividend-paying companies, willing to accept lower income, while hoping for stock appreciation.

The market was immediately flooded with cash from desperate savers; the worst possible time to go shopping for opportunities that millions of others were also frantically seeking. Good options got expensive – and their returns became minimal.

When rates dropped in 2008, for a short time, 2% CDs and bonds were available. The banks continued to struggle, the Fed continued to create money out of thin air and interest rates dropped to zero for almost a decade.

FRED chart federal funds effective rateThe Fed’s cheap money inflated the market. Stock prices soared, not because of business conditions; trillions in investment capital had no place else to go – a classic definition of a bubble.

Multpl.com shows us the numbers:

S&P 500 historical pricesSince the 2008 bailouts, millions of Baby Boomers retired. Some did well, adjusted their standard of living, figuring things out as best they could. We also have friends who are now very senior, broke, and dependent on their children. The fears came true, they outlived their money.

Corporate America jumped on the borrowing bandwagon with billions in cheap money, wasting much of the cash on extra dividends and buying back their stock at an all-time high – with no regard for the long-term consequences of their decisions. Stock prices hit new highs, along with executive bonuses. A nice party while it lasted….

The inevitable inflation appeared; the Fed ignored it for far too long, and was finally forced to raise interest rates, hoping to avoid a dollar collapse and hyperinflation. The Fed is nowhere close to their 2% inflation target, while desperately trying to keep the casino banks afloat and the stock market bubble from bursting.

Like the wind & tide shift as the eye of a hurricane passes, trillions of dollars are flooding back to fixed-income products, paying what used to be considered normal interest rates.

The stock market continues levitating….

Yahoo Finance reports:

The stock market is in a ‘cluster of woe’ that risks seeing steep, abrupt losses, investor who called the 2008 crash says.

  • Stock market conditions are among the worst in history, markets guru John Hussman said.
  • The market risks seeing sudden steep declines similar to other periods of weakness like 1987 and 2000.
  • A stock market drop as steep as 65% wouldn’t be surprising.”

What’s different today?

The Fed has used up all it’s “free money” ammunition. They are desperately trying to keep the market levitated until after the election, knowing that rate reductions and pumping more money into the system will cause inflation like the Carter years.

Investors are faced with a stock market bubble about to burst, possible double-digit inflation, and an overall unstable investment market.

We recently wrote about callable, versus non-callable fixed-income products. The casino banks are putting pressure on the Fed to drop rates. They have paper losses in lower interest rate bonds putting a crimp on profits and bonuses. While we know what the Fed should do, no one knows what the Fed will do.

First and foremost, don’t get trapped like 2008. The only way to avoid getting fired again is to invest in non-callable CDs and bonds, which is a challenge.

I searched my online broker for non-callable CDs from five to thirty years.

Chart: non-callable CDs from 5 to 30 yearsThere were 18 available; the longest available was 10-years paying 4.4% interest. Are you willing to tie up your money for a decade at 4.4% with the possibility of your principal being destroyed by inflation? The banks aren’t dummies; they are not going to get trapped either.

I modified my search to 4-year through 5-year non-callable. Dozens are available, with only four offering a five-year maturity. Interest rates ranged from 3.8% to 4.45%.

The published inflation rate in March was 3.48%. Readers regularly point out how phony the government numbers are; not even close to what the real world is experiencing.

Subscriber Robert G. shares a graphic of what real inflation looks like for grocery prices.

grocery prices 2020 vs 2024

Even with interest rates near 5%, it’s unlikely you are beating true inflation; making long-term commitments risky.

My wife and I are invested in non-callable short-term offerings which gives us reasonable interest, less long-term risk, and liquidity should the market tank.

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Don’t get fired again!

Don’t let the banks fire you again. When the Fed finally caves and pivots, expect the banks to immediately call in their current CDs. Don’t be fooled; you can’t depend on the interest income until maturity – unless they are non-callable.

Beat the shopping crowd.

Once the market senses the pivot coming, expect to see billions in cash desperately looking for dependable yield. He who panics ahead of the crowd, has a better chance of finding safety.

In addition to gold and other inflation-beating assets, start shopping now – in the right places.

I’m wary of fixed-income investment funds and ETFs. While they promote “diversification safety” – their bond holdings will get called in also. The rating agencies can’t be trusted; the default risk is likely much higher than advertised.

Dividend-paying stocks are a good option, selecting companies that will survive through thick and thin. Unfortunately, many of the highly touted “dividend aristocrats” still pay dividends well below the inflation rate.

I’ve seen dividend newsletters promoting opportunities, paying less than current inflation – citing the stocks “fair value” signaling a buy. To beat inflation, you hope the stock appreciates in a market that is likely to drop. That is speculation, not dividend investing.

Others focus on dividend income only, from companies that are likely to continue paying during tough times. These are generally different corporate structures, requiring the bulk of their profits to be passed through to their owners. Yields of 5-8% are not uncommon.

Don’t get fired, milk current rates for as long as you are comfortable. Meanwhile, start researching and find those opportunities now. Beat the shopping crowd, prices will skyrocket when the pivot comes.

A little help goes a long way!

When I started Miller On The Money nine years ago, I vowed to keep our newsletter FREE! I’ve kept my promise.

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On The Lighter Side

Flowers in May in Millers' front yardIt’s now May and the desert is alive with color. Jo and I were in Scottsdale last week and many of the resorts are beautiful, just fantastic flowers and bushes everywhere. Couldn’t take photos, we were headed to a doctor’s appointment.

Temperatures are in the 80s’ and just beautiful. Soon we will experience desert heat, triple digits and see a lot of brown and dust. Enjoy it while it lasts.

Speaking of doctors, Jo’s coming along nicely. The doctor examined her, bent her surgically repaired knee, while she gritted her teeth trying to smile, and commented on how well she was progressing – well ahead of most people two weeks after surgery. Not bad for a woman in her mid-70s. I am very proud of her; she goes to rehab three days a week and works very hard.

Quote Of The Week…

balloon printed with a hundred dollar bill about to be popped by a hand holding a hat pin“What has been holding this Wall Street house of cards together this long is the New York Fed’s willingness (even eagerness) to throw trillions of dollars at the problem at the earliest sign of a hiccup. The fly in this ointment is that the New York Fed is literally owned by these same Wall Street mega banks while simultaneously creating emergency bailout programs and then outsourcing the work to the banks being bailed out. If ever there was the perfect design for a replay of the Hindenburg, this is it.” — Pam and Russ Martens

And Finally…

Friend Char P. sends along some clever thoughts for our enjoyment:

  • For most people, when you lose your “khakis” you’ve lost your pants. When you’re from Boston and lose your “khakis” you can’t start your car.
  • If I waited until I had all my ducks in a row, I’d never get across the street. Sometimes you just have to gather up what you’ve got and run for it.
  • I don’t know how to use TikTok, but I can write in cursive, do long division and tell time on clocks with hands.
  • Some call it multi-tasking. I call it doing something else while I try to remember what I was doing in the first place.
  • I made a huge to do list for today. I just can’t figure out who’s going to do it.
  • A mandate isn’t a law, it’s when 2 men go to dinner.
  • Have you ever noticed that all instruments searching for intelligent life are pointed away from the earth?

And my favorite:

  • I got myself a seniors GPS. Not only does it get me to my destination, it tells me why I wanted to go there.

Until next time…

Dennis Miller

“Economic independence is the foundation of the only sort of freedom worth a damn.” – H. L. Mencken

 

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