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. Eight 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 today’s 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 is 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. It’s still a wonder; you just get to wonder where it went.
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