This world is giving me a headache -

The financial world has never been scarier. Economists and statesmen thought they knew everything, but it turned out they knew nothing. America was back on track a few months ago, remember? Jobs were on the upswing. GM’s commercials during the Super Bowl told us “Detroit is Back.” What happened?  A few months later, our powerful economy stalled again, which means more recent college grads are graduating to the couch and the video game console.  Yes, Dorothy, this ain’t the 1950s.  It’s 2012, with rising taxes and trillions in the red. Where do we go from here?

Here is my take on some commonly asked questions:

Are we facing another global financial meltdown? No, I don’t think so. Germany is trying to play hard ball with Greece, Spain and Italy, but, at the end of the day, expect trillions of euros to go toward solidifying the bonds of the PIIGS (Portugal, Italy, Ireland, Greece and Spain).

Do you think the powers that be have a plan in place to fix Europe? No, I don’t. I think Germany & Co. won’t show their hand until they have to. Nothing will be put in place until it is absolutely necessary to avoid a meltdown or a run on the banks. The good news is that everything should come to a head in the next 90 days, according to some strategists.

Is this what they mean by “kicking the can down the road”?  Yes, kind of. It’s another way of saying that everything is tolerable–until it’s not. Only then will some type of action take place.

I feel a crisis is very possible and I am nervous about my money. Should I just stick it in the bank? No, I think that’s way too extreme. World contagion could happen, but I think it’s unlikely. Europe has gone this far to stabilize the economy; they won’t stop now. And America is not Europe. America does more commerce with Canada, China and Mexico than it does with Europe. Expect just a 1% to 2% slowdown in sales as a result of this European mess.

JPMorganChase just lost billions on one trade. I thought U.S. banks were supposed to be safer after the 2008 financial crisis? U.S. banks have minimized their financial risks and have cleaned up their books since 2008. Due to the lack of growth in the financial industry, I wouldn’t want to own their stock, but I wouldn’t lose any sleep about the safety of my or America’s bank accounts.

Should I purchase an annuity now even with these low rates? I always say that no one has ever gone broke putting money into an annuity. In fact, current annuity owners are jumping for joy over their high guaranteed interest contracts. That said, rates are at all-time lows, so purchase with caution. I’d still buy an annuity, but start out with a smaller amount and keep purchasing contracts over time. Annuity rates are higher than bank CDs, and they are tax-deferred and offer other benefits to boot. You can’t go wrong!  Just try to keep the surrender penalties to seven years max right now.

How long will interest rates remain this low? I heard the other day that rates could be in the sewer for another five to seven years. All this worldwide debt has to be dealt with. I still think the Fed wants inflation. Once Europe is tamed, I expect a real push for growth in America. In my opinion, we have a good two to three years of running in place before the economy and housing kick in. Hurry up, already!

But I need income now. What can I do? Whatever you do, don’t reach for a more risky investment. Bond funds have market risk, and you are too late to the game to purchase now. Immediate annuities will give you the best income flow, but limit your purchase to 25% of your fixed nest egg.

In Florida, I hear a lot about index annuities. Is that an alternative for my income needs? Yes and no. Index annuities are the most misunderstood annuity product ever created. Some are good, but some are burdensome and costly. I would tread lightly here at the moment, and ask for several products to review from the annuity adviser.

Pay-it Forward:

If your post graduate will be living on her own, make sure she has a kitchen full of pots and pans. Convince your daughter to make her own coffee and cook her own meals. A cookbook would make a great gift, too. If Mom and Dad really want to splurge, how about paying for a group cooking class? What a great way to learn how to eat healthy and save money in the process!


Earl E Bird

I'm Earl E. Bird and I am very concerned about saving for my senior years. I am amazed at the stumbling blocks that exist when saving for retirement. That's why I take my time when making decisions on building my nest egg.

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