Obama's Policies Undermine Retirees' Nest Eggs

Obama's Policies Undermine Retirees' Nest Eggs


Does President Obama care about old people? On both ends of the income spectrum, older Americans have been hurt not only by the recession, but also by White House policies. For those dependent on government services, cuts to Medicare, Medicaid and broadly-hinted future changes to Social Security suggest diminished services going forward.

Meanwhile, wealthier Americans who have saved for retirement also face serious challenges, including the terrible housing market, extra-low yields on “safe” investments and a suggested sharp hike in taxes on dividend income for those in higher brackets. With 40 million people now over 65, millions more about to reach retirement age and more than 80 percent  in that age group confirmed voters, Mr. Obama’s seeming indifference to older folks is a puzzle.

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Obama administration policies aimed at supporting the economic recovery have made life tough for those who have planned to live off their savings – even those with condor-sized nest eggs. Compared to earlier generations, they start off behind the eight-ball because of the disastrous housing slump. The Federal Reserve reports that home equity dropped 39 percent from 2006 to last year’s third quarter, crimping those looking to borrow against the value of their house. People planning to sell their homes have been hit hard, too.  At the end of last year, home prices were down a hefty 34 percent from the high point in mid-2006. 

At the same time, thanks to the Federal Reserve’s quantitative easing and low interest rate policies, earnings on savings accounts, CDs and money market funds – the kinds of investments that appeal to risk-averse seniors -- have nearly vanished. Meanwhile, Obama’s recent proposal to hike taxes on dividends from 15 percent to 39.6 percent will penalize those who invest in equities, seeking the higher yields that some stocks offer.

The Heritage Foundation reports that nearly half of all tax filers in the over 65 category report dividend income; a great many would suffer a substantial hit. Heritage further points out that increased taxes on dividends lowers stock prices. Since about one quarter of stocks is held in retirement accounts, seniors would suffer not only a loss of income but would also see their wealth decline. Those golden years are quickly becoming at best gold-plated.

It could get worse. For all retirees living on a fixed income, the corrosive influence of rising prices is a nightmare. Inflation has remained low in tandem with mediocre global demand growth, but more recently commodity prices have ticked higher. One indicator -- the price of i-Shares commodity-indexed GSCI ETF -- is up 22 percent since a low point last October. Increased tensions with Iran have boosted oil prices, which have also been pressured by the extra-easy money policies of the Fed and consequent sinking U.S. dollar. 

A more general upsurge in commodities is also considered likely by some. Morningstar analyst Abraham Bailin, who cites a U.N. study projecting an 11 percent global population increase by 2020 and a 20 percent increase by 2030, says, “the global middle class’s surging growth will compound demand for food and energy as diets and transportation habits become more like the West’s.” That’s exactly right.

While U.S. inflation of 2.9 percent - the report for January – doesn’t seem threatening, it is a challenge for someone depending on a  0.74 percent yield on a one-year CD (the national average.) Moreover, the two biggest spending categories for older Americans – housing and medical outlays – are among those that have seen the biggest price increases. Because of lagging new construction, rents in many markets have risen ahead of the nation’s annual average rate of about 3 percent. Medical expenses – the second-biggest outlay for seniors after housing – rose at a 3.6 percent rate in January, according to the Bureau of Labor Statistics.
Thankfully, President Obama has abandoned his earlier plan to restrict the cost of living adjustments now part of Social Security. While this entitlement program needs restructuring, consigning a large segment of the population to gradually diminishing real income seems heartless. For people over 65, some 42 percent of income stems from social security.

Similarly, older Americans are concerned about Mr. Obama’s recent proposals that would result in another $56 billion in Medicare cuts over ten years. Nowhere has the president proposed structural changes that might actually reduce costs – like those recommended by Paul Ryan, for instance. Instead, Mr. Obama’s 2013 budget looks mainly to cut payments to providers, from which seniors can anticipate a filtering down of reduced services.

In a report last year, the Medicare Payment Advisory Commission reported that “profit margins on Medicare patients remain negative for 64 percent of hospitals.”  That’s not promising. One instance of changed policies stemming from cost-cutting in the news lately is the closing of almost 350 nursing homes in the past several years. Increasingly, patients receive medical services instead in their own homes. While touted as both cost-efficient and more appealing to patients, at-home care is unlikely to be as all-encompassing as received in a nursing home.

In his State of the Union Speech, amidst promises to veterans, factory workers, entrepreneurs, the unemployed, teachers, the children of illegal immigrants, college students, construction workers, homeowners, environmentalists, manufacturers, President Obama mentioned seniors exactly twice – vowing the security of Social Security and Medicare even as he promised to rein in the costs for those programs. Sounds like seniors have become nothing but a cost center to the Obama Administration.