Updated: November 17, 2012 6:12AM
Dear Mr. Berko: Last year, you seemed positive that interest rates would begin to rise in 2012, but they’ve continued to remain low. When are they going to go back up? We get a modest income from Social Security and my pension. We have $210,000 in savings and certificates of deposit, and we were getting along pretty well with the $9,450 in interest income. That stopped last November, and five months ago, I had to take a part-time job — two half-days a week — with a catering firm to make up some of the difference. Now I may lose that job because they can’t use me during the day anymore and need me to work two half-evenings a week. At 78 (my wife’s 80), it’s too tiring to work between 4 and 9 p.m., and I can’t leave her alone at night. This year, we had to take $5,400 from our cash for increasing living costs, which are going crazy, and to buy a used window air conditioner. Next year, we must replace our 1990 Mercury, which has 216,000 miles and recently cost us $945 for repairs.
We’re scared we will run out of money. I’m scared I won’t find a part-time job and scared about putting money in a high-risk stock market to maintain ourselves. So please tell us the names of some stocks that have minimum risk and that will give us at least 7 percent, which would be a great help. Our next-door neighbor helped me write this letter. She and her husband are in the same financial position, and so are many of the residents in our mobile home park. Please tell us some good stocks, and can you give us a better guess when rates will go back up?
— GW, Indianapolis
Dear GW: Unless you’re a member of Congress, a prominent state legislator or an important political contributor, you won’t be given advance information before interest rates begin to rise. Last year, I thought I had good reason to believe that rates would rise early in 2012, but I was as wrong as two left shoes. Now it looks as if interest rates could remain low well into 2015 and beyond. What a bloody mess. Scared seniors such as you folks — who relied upon secure savings, CDs and money market funds for a good portion of their incomes — are now forced to expose their principal to unsuitable risks. You can thank the Federal Reserve, whose actions are governed by the Obama administration. However, a growing opinion among many economists is that using low rates to fix the economy has been as effective as washing one’s feet with socks on. In the past three years, low rates have failed to jump-start the economy, and observers believe that the administration’s continued insistence on low rates will fail again. Low rates without changes in entitlements and the tax code make as much sense as the Occupational Safety and Health Administration’s demanding that employers provide sinistral maintenance workers with left-handed screwdrivers.
With the exception of some energy master limited partnerships I’ve discussed previously in the column, I can’t recommend any “suitable” equity investments for you. But thanks to a businessman in Indianapolis, whom I’ve known for years, you now have a day job from 10 a.m. to 2:30 p.m. three days a week. It’s off the books, and you’ll earn $10 an hour.
Meanwhile, consider a reverse-annuity mortgage on your mobile home. This could provide you with a few hundred dollars (tax-free) a month; the AARP is an excellent source of information. You may also consider a single premium immediate annuity. A $100,000 SPIA could provide you with a joint and survivor income of about $500 a month. This would allow you to keep $110,000 in cash for future things and stuff. But before you sign on the line, run it by me first.
Or don’t invest a penny; keep your $210,000 in cash earning 1 percent; and withdraw $7,000 in principal each year. At that rate, it would take you at least 30 years to run out of money, at which time you would be 108.
Please address your financial questions to Malcolm Berko, P.O. Box 8303, Largo, FL 33775, or email him at firstname.lastname@example.org.