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The elderly and CD's

Lutherf

Lutherf

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So you've finally passed that 3 score and ten milestone. Even part time work is no longer appealing to you, the kids are well grown and even the grandkids are on their own and doing well. Your house is paid off and between your pension and social security you have plenty of income for your needs plus a healthy chunk for your desires. On top of that you have a couple of hundred grand just sitting in the bank that you really don't plan on needing but certainly don't want to lose. So what do you do with it?

Well, if you're like millions of people you buy CD's. They're safe. They're insured and that .65% you're getting is better than nothing...right?

Look, I understand the thought process. You certainly don't want to go out speculating with that money and something is better than nothing but you are actually squandering it. That .65% is hardly any better than burying the cash in coffee cans in the back yard and every year the buying power of that money is dwindling. 20 years ago a gallon of milk cost about $2 and today it's nearly twice that. 20 years ago you could buy a nice car for $20k but today that's the cost of an entry level model. In fact it's pretty safe to figure that prices today are about 75% higher than they were 20 years ago and we'd be lucky if that was the extent of the increase we see over the next 20 years so why in the heck would you accept a rate of return on your money that will amount to less than 14% growth over 20 years is simple inflation is likely to cause prices to increase 75%? That's the equivalent of losing more than $150,000 in adjusted dollars!

Please folks, think about this stuff. If you took that same $250k and put it in a fixed rate annuity at 6% you'd more than double that money and be receiving a payout every month or every year. Why not buy your CD's with THAT money instead? Heck, you could buy a small CD every year with the benefit and at least that way you'd be able to take advantage of rate increases (if we ever see them again). And annuities aren't the only option either but what you need to realize is that just tying the money up in products that have a rate of return lower than the rate of inflation is a loser and you are paying quite dearly for that "safety".
 
speaking of stupid, my savings are still in a savings account, which is even worse than a CD. i left the money there because i wanted to be able to access it in an emergency like unexpected end of contract. however, i'm getting ready to move it into something else because the interest payments on it are just insulting. i would have liked to do it sooner, but my job security has been less than ideal up until now.
 
I'd personally find a few blue-chips that are notorious for being generous with dividends. Now you wouldn't be able to buy a buttload of stocks at the rate they sell for, but if I had that money I'd find a company that 1) declared dividends all the time, 2) offered preferred stock, and 3) had a cumulative option that pays in arrears. Then I'd just treat the money I get as a type of pension that I get every so often.

The other option would be to find a coupon bond - maybe one that pays in perpetuity. I like the idea of just "living off interest" while the principal stands firm.
 
I don't have anything of substance to offer, but when I saw the thread title, I thought it was going to be about the elderly and compact discs. I'm disappointed.
 
Lutherf said:
So you've finally passed that 3 score and ten milestone. Even part time work is no longer appealing to you, the kids are well grown and even the grandkids are on their own and doing well. Your house is paid off and between your pension and social security you have plenty of income for your needs plus a healthy chunk for your desires. On top of that you have a couple of hundred grand just sitting in the bank that you really don't plan on needing but certainly don't want to lose. So what do you do with it?

Well, if you're like millions of people you buy CD's. They're safe. They're insured and that .65% you're getting is better than nothing...right?

Look, I understand the thought process. You certainly don't want to go out speculating with that money and something is better than nothing but you are actually squandering it. That .65% is hardly any better than burying the cash in coffee cans in the back yard and every year the buying power of that money is dwindling. 20 years ago a gallon of milk cost about $2 and today it's nearly twice that. 20 years ago you could buy a nice car for $20k but today that's the cost of an entry level model. In fact it's pretty safe to figure that prices today are about 75% higher than they were 20 years ago and we'd be lucky if that was the extent of the increase we see over the next 20 years so why in the heck would you accept a rate of return on your money that will amount to less than 14% growth over 20 years is simple inflation is likely to cause prices to increase 75%? That's the equivalent of losing more than $150,000 in adjusted dollars!

Please folks, think about this stuff. If you took that same $250k and put it in a fixed rate annuity at 6% you'd more than double that money and be receiving a payout every month or every year. Why not buy your CD's with THAT money instead? Heck, you could buy a small CD every year with the benefit and at least that way you'd be able to take advantage of rate increases (if we ever see them again). And annuities aren't the only option either but what you need to realize is that just tying the money up in products that have a rate of return lower than the rate of inflation is a loser and you are paying quite dearly for that "safety".
Click to expand...

There's something to be said, though, for losing value at a predictable rate rather than risk losing value at an unpredictable rate.
 
samsmart said:
There's something to be said, though, for losing value at a predictable rate rather than risk losing value at an unpredictable rate.
Click to expand...

CDs are highly predictable, at least from a "worst case scenario" point. If you think that rates are going to rise, you can always make sure you get option CDs that will allow you to re-adjust.

But, as Luther pointed out, CDs are basically the poor man's version of preserving wealth instead of creating it.
 
Gipper said:
CDs are highly predictable, at least from a "worst case scenario" point. If you think that rates are going to rise, you can always make sure you get option CDs that will allow you to re-adjust.

But, as Luther pointed out, CDs are basically the poor man's version of preserving wealth instead of creating it.
Click to expand...

I get that. But in a volatile global economy like we have had in the past 6 years, preserving your wealth at a predictable net lossay be better than risking that wealth to greater rewards but also greater loss.

Personally, I'd talk to a financial advisor and get a well diversified portfolio, especially ETFs.
 
Gipper said:
I'd personally find a few blue-chips that are notorious for being generous with dividends. Now you wouldn't be able to buy a buttload of stocks at the rate they sell for, but if I had that money I'd find a company that 1) declared dividends all the time, 2) offered preferred stock, and 3) had a cumulative option that pays in arrears. Then I'd just treat the money I get as a type of pension that I get every so often.

The other option would be to find a coupon bond - maybe one that pays in perpetuity. I like the idea of just "living off interest" while the principal stands firm.
Click to expand...

Even that's better than a CD. Exxon(XOM), for example, is one of the top dividend paying stocks and right now it's paying the equivalent of more than 2% per share. Buying equities is a tough call for a lot of older folks whose primary concern is not losing their stash but the payoff and tax advantages can be really significant....unless or until cap gains lose their preference treatment.
 
samsmart said:
There's something to be said, though, for losing value at a predictable rate rather than risk losing value at an unpredictable rate.
Click to expand...


That's exactly the trade off a lot of these folks are considering but from what I have seen most of them don't understand the risk factors so they choose based only on what they do understand and end up missing out.

-add-
Keep in mind that the "predictable rate" you're talking about isn't all that predictable. Can you tell me what the inflation rate will be in 2 years much less 10 or 20?
 
Lutherf said:
Even that's better than a CD. Exxon(XOM), for example, is one of the top dividend paying stocks and right now it's paying the equivalent of more than 2% per share. Buying equities is a tough call for a lot of older folks whose primary concern is not losing their stash but the payoff and tax advantages can be really significant....unless or until cap gains lose their preference treatment.
Click to expand...

It helps when you know what you're doing. As sam mentioned, their best bet would be to give a ring to someone who knows more about it.

Just after 9/11, I put a few bucks that was burning a hole in my pocket into gold bullion. I was playing a hunch that the dollar was about to plummet...and I was right. I just wish I had done what my great aunt and uncle did. They sometimes ask me for some off-the-cuff advice and I told them at the end of 2001 to dump your money into gold.

I sold in 2008 - less than 7 years later - and tripled my money (not that it was much). They, on the other hand, made an absolute killing. I sold when it was just over 800. They decided to wait, and ended up selling just shy of a grand. Once it hit 900 I begged them to get out, as I didn't see it going over a grand.

I was a little off, but they still did quite well for themselves.
 
Gipper said:
It helps when you know what you're doing. As sam mentioned, their best bet would be to give a ring to someone who knows more about it.

Just after 9/11, I put a few bucks that was burning a hole in my pocket into gold bullion. I was playing a hunch that the dollar was about to plummet...and I was right. I just wish I had done what my great aunt and uncle did. They sometimes ask me for some off-the-cuff advice and I told them at the end of 2001 to dump your money into gold.

I sold in 2008 - less than 7 years later - and tripled my money (not that it was much). They, on the other hand, made an absolute killing. I sold when it was just over 800. They decided to wait, and ended up selling just shy of a grand. Once it hit 900 I begged them to get out, as I didn't see it going over a grand.

I was a little off, but they still did quite well for themselves.
Click to expand...

I wish I'd had that foresight. When gold started going up all I saw was another bubble and when it hit $900 I started laughing at how over inflated it was.
Oops!:lamo

I guess I just remembered the Hunt brothers taking it on the chin in the 80's and couldn't manage to look past that.
 
Lutherf said:
I wish I'd had that foresight. When gold started going up all I saw was another bubble and when it hit $900 I started laughing at how over inflated it was.
Oops!:lamo

I guess I just remembered the Hunt brothers taking it on the chin in the 80's and couldn't manage to look past that.
Click to expand...

I really didn't think that it was hard to predict. As you probably know, gold has a very inverse correlation with the value of the USD. I sensed with a good deal of certainty that the value of the dollar was going to drop. I just thought that it was going to recover long before a grand. I pulled out at 800, expecting it to crest around there...but I was wrong.

It happens. If I was always right, I'd be stupid ass rich.

It's better than me trying to play the ForEx, which is a crapshoot.
 
So, I guess you need to be little patient and hopeful, as the Gold prices tends to increase for every few months and sometimes on weekly basis, which could really not expect. As I was recently looking to buy some jewelry and just the day I went there to bought it rise up in about 5% in a sudden.
 
Lutherf said:
So you've finally passed that 3 score and ten milestone. Even part time work is no longer appealing to you, the kids are well grown and even the grandkids are on their own and doing well. Your house is paid off and between your pension and social security you have plenty of income for your needs plus a healthy chunk for your desires. On top of that you have a couple of hundred grand just sitting in the bank that you really don't plan on needing but certainly don't want to lose. So what do you do with it?

Well, if you're like millions of people you buy CD's. They're safe. They're insured and that .65% you're getting is better than nothing...right?

Look, I understand the thought process. You certainly don't want to go out speculating with that money and something is better than nothing but you are actually squandering it. That .65% is hardly any better than burying the cash in coffee cans in the back yard and every year the buying power of that money is dwindling. 20 years ago a gallon of milk cost about $2 and today it's nearly twice that. 20 years ago you could buy a nice car for $20k but today that's the cost of an entry level model. In fact it's pretty safe to figure that prices today are about 75% higher than they were 20 years ago and we'd be lucky if that was the extent of the increase we see over the next 20 years so why in the heck would you accept a rate of return on your money that will amount to less than 14% growth over 20 years is simple inflation is likely to cause prices to increase 75%? That's the equivalent of losing more than $150,000 in adjusted dollars!

Please folks, think about this stuff. If you took that same $250k and put it in a fixed rate annuity at 6% you'd more than double that money and be receiving a payout every month or every year. Why not buy your CD's with THAT money instead? Heck, you could buy a small CD every year with the benefit and at least that way you'd be able to take advantage of rate increases (if we ever see them again). And annuities aren't the only option either but what you need to realize is that just tying the money up in products that have a rate of return lower than the rate of inflation is a loser and you are paying quite dearly for that "safety".
Click to expand...

Annuities come with fees, that can eat up your earnings.
Gotta be careful and variable rate annuities can end up paying out crapily like a cd.
 
Harry Guerrilla said:
Annuities come with fees, that can eat up your earnings.
Gotta be careful and variable rate annuities can end up paying out crapily like a cd.
Click to expand...

Depends on what you get into. Someone who purchases, for example, single premium life fixed rate or indexed annuity with a guaranteed minimum rate should never have to worry about fees because the benefit is guaranteed at the beginning of the policy. I'm not as big a fan of "flex premium" plans with multi-year buy ins especially for younger people because at 40 or 50 things are likely to change quite a bit in the coming 20 years and you don't want to be tied up in something that is either difficult or expensive to get out of.
 
CanadaJohn said:
I'm slow - I've been here about two months and still haven't figured out how to start a thread - that's probably a good thing.
Click to expand...

Are you looking for elderly CDs or men/women who love them?
 
Lutherf said:
Depends on what you get into. Someone who purchases, for example, single premium life fixed rate or indexed annuity with a guaranteed minimum rate should never have to worry about fees because the benefit is guaranteed at the beginning of the policy. I'm not as big a fan of "flex premium" plans with multi-year buy ins especially for younger people because at 40 or 50 things are likely to change quite a bit in the coming 20 years and you don't want to be tied up in something that is either difficult or expensive to get out of.
Click to expand...

I just never cared for annuities because most of the ones I know can barely cover TVM-based costs, let alone any sort of profit.

It's the same reason I wish for the privatization of Social Security. You could stick 10% of your paycheck in a bank's savings account and probably come out ahead than "investing" in Social Security. It's punishment for any wise investor.
 
I still hold stocks ($100,000) at 65 even through the crashes of 1985 and 2008. I own fairly conservative mutual funds (20%) too much in cash earning bird droppings ($250,000), an IRA fairly aggressive ($20,000), an annuity $130,000, heavy in to bond index fund $150,000 and one corp bond fund $140,000, a couple CDs ($250,000) and own my home. I am at approx. one million and probaly will work past 66 to maybe 67. Health is good and zero debt. I just cashed in a 30 year I bond with 11 years on it and for $30,000 I cashed out at $43,700. I did so because too many people are screaming treasury bonds are fixing to crash and they said "crash". All in all I can't say I am comforatble but I got away from the doom and gloom approach a couple years ago. With this world economy not even Warrne Buffet knows for certain what to do. I am putting money now in to a good dividend paying fund ( Vanguard) and a little in a gold ETF fund and a EFT real estate fund (purely guesswork following Jim Cramers advise). Either way, it's all guesswork and always will be.
 
Tip for the elderly: CDs go in that cupholder thing that comes out of your computer. :mrgreen:
 
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