If you’re not planning to retire before then, you’re better off leaving it in the market.

Retirement funds typically invested in real estate, stocks and mutual funds have been in freefall, causing those who are facing retirement or those who have already retired to take a huge hit. To complicate matters, like other adults, seniors have racked up huge credit card debt and tapped into their home equity.

A recent NYT Times article found that some of the reasons for seniors financial distress and resulting financial vulnerability are:

• Shrinking medical safety net makes retirees vulnerable to the rising costs of healthcare. Even those covered by Medicare often have huge prescription drugs costs.
• Many middle aged and seniors are caring for aging parents, which ratchet up their expenses and need for additional money.
• They often need money for home repair.
• They have often been hounded by aggressive brokers persuading them to take on more debt than they could handle or need.

In addition, many seniors faced the same temptations as other adults, and pulled money out of their homes for vacations, cars, and luxury items. Others saw an opportunity to buy investment property as a once in a lifetime opportunity. What they didn’t count on was the collapse in the home market, and so are now saddled with debut and unable to sell. Even those who didn’t gamble are victims of falling home prices and the stock market downturn.

–kyle–

While there is no reason to panic (if nothing else, we probably can count on Congress to vote to maintain faith in the retail banking system), it is a good idea to only keep the maximum amount the FDIC ensures – 100,000 in one account.

By the way an alternate Alt-A loan is one in which borrowers have excellent credit scores but can’t document their income and assets. Lenders are becoming increasingly concerned that these may be the next set of loans to default.

While some experts believe prices have fallen enough to get a bargain, I believe that the news from the country cousins indicate house prices still have a way to go before they reach the bottom. This means if you are contemplating buying a new home, it might be a good idea to wait. For those of us who had counted on our homes to provide additional retirement income, this is not good news.

Experts predicted that we’d behave like we did in 2001, when we spent between 20 and 50 percent of our rebates. Because American spending equals 70 percent of our country’s economic activity, they believed the spending would keep the economy growing through the summer, after which they expected the effects to drop off. This would leave off where we started: a deteriorating job market, eroding paychecks, tight credit, and falling real estate prices.

How have economists predictions panned out? The economy expanded slowly from April to June – slower than economists expected. The reason it grew at all was because of increased spending by consumers and increased exports. The problem is that spending and exports can’t keep growing. In the case of the tax rebates, they have mostly been distributed. They bolstered spending, but they have not been enough to generate the type of activity that will continue after the cash has cycled through the system.   

As of now the housing market is still in free fall, unemployment is trending up – the latest report shows unemployment rate is now at 5.7%, and there is a possibility that the anemic growth may be revised to show that it was really a contraction. With all this bad news do anyone believe we are not in a recession?

It’s not like this is the first time the American economy has had to be bailed out by rich investors. But unlike in the past when one or two wealthy individuals or investment banks could step in and stop the bleeding, the economy is in such bad shape that only the investment income of rich countries can make a difference. Just recently Paulson approached the heads of Abu Dhabi Investment Authority, the world’s largest “sovereign wealth fund” (SWF) encouraging them to buy American businesses. 

SWFs are excess capital generated by a country or region that is invested in mutual funds. In the 1990s the funds held $500 billion combined. Today they hold about $3.5 trillion. That’s more than all of the assets controlled by all the hedge funds in the world. By the end of 2012 this figure is expected to be at least $10 trillion.

According to Weiner, the new power of SWFs has been on display during our recent mortgage crisis. They’ve essentially rescued the international financial system by injecting tens of billions of dollars into troubled banks. Citigroup, for instance, raised about $20 billion from a consortium of SWFs from Abu Dhabi, Kuwait and Singapore. UBS secured nearly $10 billion from a Singapore fund that now controls 9% of the bank. Merrill Lynch took in about $11 billion from SWFs from Kuwait, Singapore and South Korea. Even Morgan Stanley got $5 billion from China’s SWF.   Weiner notes that this is a change in the way globalization has traditionally worked. In the past real power in international finance was held by a few individuals, whereas now it is held by rich countries. 

This turn of events is not without potential problems. Since it is foreign governments which control the funds, these countries will increasingly own substantial investments in companies in important industries such as biotechnology, computer technology, and aerospace. According to former treasury secretary, Larry Summers, there is no way to know the political intent behind these investments. It may reach a point where decisions about our jobs, home loans, school loans rest on with foreign governments.      

Reasons given for the falling value of their stock is fear that they won’t be able to raise enough money from investors to cover growing losses from bank defaults. Freddie Mac’s stock has fallen 50% in the past week. Experts see their troubles as further evidence that the housing downturn may last well into next year.   

Fannie Mae and Freddie Mac are privately owned companies whose stock is publicly traded. They were charted by the federal government to buy or guarantee loans and mortgage securities. They are owned and operated by stockholders. They are protected financially by the federal government. This means that taxpayers are on the hook for any losses. Among government support they receive is access to a line of credit through the U.S. Treasury, exemption from state and local income taxes and exemption from SEC oversight. They do not lend directly to homebuyers, but buy up loans from lenders then bundle the loans together and sell them to investors.  

Small businesses pay about 18% more than do major firms for the same type of coverage. They face wild jumps in rates when they replace a younger worker with an older worker or a male with a female. In some cases, workers must also qualify, that is prove that they are in good health; something older workers have a harder time doing.

The abuses in the healthcare system are many. They will continue as long as we allow the healthcare providers the freedom to do whatever they will. Last year,  even as the  CEO of Anthem Blue Cross received $42 million in bonuses, in an act called rescission, they have been systematically dropping individuals’ healthcare policy after they seek service for major illnesses and refusing to pay valid hospital claims. You can imagine most of those affected are in their middle or older years. (Recently, 480 California hospitals banded together and successfully sued Blue Cross).

The fact that these types of abuses are a part of our healthcare system is an indictment against our society. Does the right of these firms to exploit us trump the rights of the people to have reasonable healthcare? With more of the population working for small companies, this issue deserves serious attention, since an unhealthy society cannot compete in this globalized world.