Just taking a moment to update our high yield savings rate forecast for 2011. Given the dismal outlook for the economy and what seems like a never ending stream of negative prints on economic activity indicators we have little reason for improved yields. The Federal Reserve Bank has gone on record indicating no intent to increase rates until 2013, meaning they don’t expect much in the way of growth or inflation in the foreseeable future.
What Does This Mean for People Relying on Fixed Income
People who have been living on fixed income for the last several years have seen their yields drop precipetously since the initial financial crisis in 2008. Since then yields have been in a free-fall. It was hoped by many that the initiation of QE2 by the Federal Reserve might jump-start the economy but it really only fueled speculation in financial markets.
Given the Fed has opted to keep rates low for an extended period, fixed income yields will remain exceptionally low. High interest savings accounts online are paying dismal rates today and are not keeping up with cost increases in health care and energy. Some still wonder whether they need to know how to beat inflation or deflation. Mercifully some of the froth appears to be coming out of the commodities markets but prices are still elevated, particularly in relationship to fixed income earnings. This will continue to put stress on seniors living on fixed incomes.
Economic Forecast Calls for Contraction
Our economic forecast calls for further economic slowdown (at least), with a high probability of contraction at this point. Nearly every economic print we’ve seen of late has been dismal, and those few that haven’t been dismal have been rated “OK” based on already low-ball expectations. The US economy is a mess, and so is the global economy. Savers and retirees living on fixed income must not rely on fixed income yields on high rate savings accounts or other income assets to be sufficient. Additional diversification into better yielding assets is one possible solution.
What to Do to Improve Income During Recession
There are several things people can do to improve their prospects in the midst of recessions. For some who have been around the block a few times, making money during recession economies is nothing new, and given a lifetime spent accumulating assets, many seniors have some resources to live off and or know the steps to make do during tough times. Younger people have more options to earn and time, energy, and technological skill set to do so if they get started today.
While overall prospects for growth are poor, we certainly hope the politicians in Washington D.C. and elsewhere come to see the gravity of the problem and find solutions. Many (myself included) fear they will not act in 2011 and continue to use the economy as a politcal football for the 2012 elections. Shame on them.