From wikiSenior

This Financial Mess . . . Choices for Seniors

Our biggest Halloween 2008 scare is certainly the financial news. For seniors who have retired, or are about to, this type of news is certainly not encouraging. The Federal Reserve has cut interest rates by half a point once again, and the stock market seems to be primed for ‘another record’ rise or fall. The only sure thing happening is uncertainty. Whatever nest egg anyone has is certainly smaller at this point. Any income from that smaller egg is shrinking.

Of course, the financial picture is never just about finances or sub-prime mortgages. In this week’s cover story for Newsweek, The World That Awaits, by Richard N. Haass, Mr. Haass addresses President #44. He writes,

"There will be days when you will wonder why you worked so hard to get this job. What will make it so difficult is not just all that awaits, but the constraints that will limit what you can actually do. When George W. Bush became president nearly eight years ago the world was largely at peace, the U.S. military was largely at rest, oil was $23 a barrel, the economy was growing at more than 3 percent, $1 was worth 116 yen, the national debt was just under $6 trillion and the federal government was running a sizable budgetary surplus. The September 11 attacks, for all they cost us as a nation, increased the world's willingness to cooperate with us. You, by contrast, will inherit wars in Iraq and Afghanistan, tired and stretched armed forces, a global struggle with terrorism, oil that has ranged as high as $150 a barrel, a weaker dollar (now worth 95 yen), substantial anti-American sentiment, a federal budget deficit that could reach $1 trillion in your first year, a ballooning national debt of some $10 trillion and a global economic slowdown that will increase instability in numerous countries."

What does this mean for seniors? Truthfully, I have no idea. I can only share my suspicions.

• Since the current mess isn’t just financial, I suspect this downward cycle will be both deep and long. Financially, the world is too inter-linked for anything to happen too quickly.
• If you are mainly in stocks, I wouldn’t anticipate much performance over the next year. The bottom of the stock market isn’t going to be the result of any daily spike. It will occur as the result of some external event in the middle of a long trough. The improvement out of that trough will be very gradual for a number of weeks. I suspect the current daily spikes are simply nervous, knee-jerk reactions.
• If you are mainly in cash, feel blessed that you have maintained the principal. However, the revenue you can generate from that cash will get less before it gets better. One-year CD’s may be a smart choice at the moment, because rates may not improve that much over the next 12 months.
• If you are on social security, the cost of living formula that penalized seniors last year made up for it this year. At 5.8%, that adjustment together with the lower energy costs that are starting to ripple through the economy, will help dealing with this coming year.
• With the outlook for cash so dim, I also intend to take another look at restarting the social security clock. Check out the wikiSenior article on Social Security. Such a move might be rash, but it is certainly worth doing the math.