How Fed Policy Has Devastated Three Generations

Retirement can be an unpleasant prospect if you’re not ready for it. An in-depth report on Americans’ retirement prospects comes to us from Dennis Miller, a columnist for CBS Market Watch, and editor of Miller’s Money Forever.

It’s not just the Boomers who are trying (often in vain) to retire this decade; it’s also Gen-Xers, who are the most indebted generation (and the one that saw their assets depreciate the most in the Great Recession). The Millennials haven’t been spared, either; in fact, over time they may be the hardest-hit, since near-zero interest rates are keeping them from compounding their savings in the early years of their careers, when the power of compounding is greatest. In addition, the difficult post-college job market and sky-high levels of student loans have kept most Millennials out of the stock market, and they are far less likely than previous generations to open a retirement savings account.

This is not a problem the government is going to be able to fix. One way and another, Social Security will do less for people in coming years, not more. We are all going to be more dependent upon our own resources if we want to have anything that resembles what we have come to think of as a secure and comfortable retirement.

Following a protective instinct, conservative investors shifted their money from stocks to bonds… at exactly the time interest rates were rapidly falling for most classes of income investments.

Boomers have suffered more losses and settled for lower income than ever before. The double whammy took a serious toll on the retirement dreams of many. But that was OK, because there was always Social Security as a backstop.

It’s become increasingly obvious, though, that Social Security is not keeping up with the times.

By tying its payouts to the Consumer Price Index (CPI)—a measure as flawed at predicting actual consumer prices as a groundhog at predicting the weather (a consumer price that doesn’t include fuel or food?)—as a net effect, the real value of Social Security payouts has shrunk dramatically.

Here’s a chart of official consumer inflation vs. the real numbers calculated by economist John Williams of ShadowStats (he uses the US government’s unadulterated accounting methods of the 1980s). While the official number is 2%, real inflation is in the 9% range.

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