With interest rates so low, it's hard not to assume that seniors have become a casualty of the financial crisis. But five years since the great recession, the finances of many responsible senior citizens are turning out just fine. The crisis definitely hurt many people financially, but prudent seniors reaped many benefits too. Here are a few reasons why seniors have come out ahead since the recession:
The housing crash affected seniors the least. A 60 percent drop in house prices is awful for many people who bought houses during the boom, but the price really just dropped back to the level it was at a few short years ago. Since many seniors have lived in their homes for decades and carry no mortgages, the house was just as affordable to the seniors with or without the crash. In fact, since property taxes are tied to housing prices, it can be argued that a housing crash actually helped many seniors because it reduced their annual carrying costs.
And even for seniors who carry a mortgage, things turned out decent. That's because of the record low interest rate policy of the Federal Reserve and the fact that seniors are more likely to have enough equity in their homes to refinance after the price drop. Remember how a 6 percent interest rate was considered amazing before the crisis? Now it's practically half that rate. Seniors could literally be saving thousands, if not tens of thousands of dollars a year if they refinanced.
Inflation, so far, has been tamed. Another huge problem, especially for seniors, is inflation. Inflation diminishes the spending power of retirees so that their fixed income buys less. But the fact of the matter is that we've enjoyed one of the smallest inflationary periods of our lifetimes during these past few years.
Fixed income investors made a ton of money in bonds. The bond bubble was supposed to have burst by now, but bond prices continue to defy gravity and go up. One day, interest rates probably will go up and bond prices down, but just like the housing recovery, seniors are only giving up some of the gain they've gotten in previous years. Seniors who don't try to jump from one investment to another will do just fine.
Equity investments have done fine for those who stayed the course. One of the biggest headlines of the turmoil was the decline in equity prices. But seniors who had healthy doses of bonds, as they should, weathered the storm just fine. Even for those who were stock-heavy, they probably did OK as long as they didn't sell all their shares at the bottom when everyone else was panicking. In fact, investors who stayed the course should actually have more money in their portfolio today than at the market peak in 2007 because of dividends and interest.
Technology is making headway in reducing everyday costs. From ways to cut cable TV costs to using smart alerts to reduce energy consumption, technology is making it extremely easy to cut what was once assumed to be fixed costs. While some costs are going up, plenty of seniors are not only spending the same amount year after year, they are actually spending less than in previous years. Inflation is a major threat to us all, but it's only your personal inflation that matters.
While the financial crisis was a trying time for people in or near retirement, many people who stayed the course and made smart decisions are now doing just fine.
David Ning runs MoneyNing, a personal finance site that shares money moves you can make to significantly increase your chances of having a comfortable retirement. He likes to share simple changes that anyone can make, such as picking the best online savings account and figuring out whether a 0 percent balance transfer credit card makes sense.