Posted on Wednesday, 5th October 2011 by

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It has been a trying time for annuitants and Social Security recipients who have essentially been forced to live on fixed incomes these past two years. Finally it looks promising; we may receive a COLA in 2012 of around 3.6% if Congress doesn’t block the payout for whatever reason. If we are fortunate enough to receive the increase some of it will be absorbed by a reported 3.8% average 2012 FEHB premium increase. The FEHB average increase for 2011 was 7.3%. However, it is a relief to many who had to absorb those costs and live on less these past two years, much less when you consider how skewed the CPI-W formula is when it comes to true inflation. My personal feeling is that Congress won’t interfere because it is an election year. Time will tell.

TSP Returns

The G and F funds had small gains in September, 0.16% and .73% respectively. The S fund was the biggest looser dropping 10.73% and the I Fund was a close second dropping 10.55%. There is little good news to report, over the past twelve months only three funds are ahead, the C fund with a meager 1.11% increase, and the G and F Funds with 2.58% and 5.34% increases respectively. Visit our TSP pages for more information on the THRIFT program.

The market continues to be highly volatile and this week the S&P was at the same level it was three years ago with virtually no gain over that time period. The S&P hit 1099.23 on October 3, 2011 the same level it was on the same date in 2008!

The Savings Dilemma and Higher Yielding Savings Options

What are we to do? The administration bailed out GM, Chrysler, the banks, teachers, municipal workers, and Fannie May and Freddie Mac to name a few at the expense of those in retirement and on fixed incomes. Many retirees and those approaching retirement planned, saved, and did the responsible and right things to get ahead only to be left behind by this administration. Then, the Federal Reserve stepped in to artificially keep interest rates at or near zero and anticipate maintaining that rate for some time. The current federal funds rate has been kept artificially low at less than 0.25 percent since December 2008. Savings accounts and CD rates have followed suit and rates are often less than 1.0% no matter how much you have in your account.

One of our CDs came due last month and I complained to the bank manager about the low rates they were offering. He replied rather sarcastically, “Why would we pay more to use your money when we can borrow what we need from the Federal Reserve at near zero percent.” The Motley Fool posted an excellent article titled “Where to Park Your Cash” and summarizes savings account options that can best match your needs.

Unfortunately, there are far too few options for retires and conservative investors that like to park their life savings in safe havens. The few that are left, such as I-Bonds and Treasury purchases through Treasury Direct, are becoming more restrictive, with cumbersome new regulations to further confuse participants. The Treasury Department is phasing out paper savings bonds as of January 2012 except for savings bonds that can be purchased with your federal tax return.

What was once an easy-to-use process has now become unavailable and onerous for those who aren’t computer literate or dislike opening and maintaining online investment accounts. The Wall Street Journal recently reported the following in one of their articles, “It’s true that Americans will still be able to buy savings bonds electronically, through a Web-based platform known as Treasury Direct. But the system isn’t user-friendly, and it presupposes ready Internet access, which about 35 percent of all Americans and 65 percent of low-income Americans do not have. And the system requires a user to have a bank account, effectively excluding the 17 million American adults who are “unbanked.” This may explain why less than 1 percent of the 55 million people who own savings bonds have Treasury Direct accounts.”

Up until a year ago, federal employees and retirees could easily purchase paper savings bonds through automatic payroll deductions. A bond would arrive in the mail shortly after you accumulated sufficient funds to purchase the denomination elected. Anyone could go to their local bank, credit union, or savings-and-loan institution and purchase E or I savings Bonds for themselves, their children or grandchildren, and the bond would arrive in the mail. You can still elect payroll deduction but you must set up an online Treasury Direct account and your bonds are now held in a book-entry system.

Several years ago the Treasury decided to dramatically reduce the dollar amount of savings bonds that anyone could purchase in one year to $10,000 per person ($5,000 in paper bonds and $5,000 through the online Treasury Direct program). Starting in 2012 only $5,000 a year can be purchased. If you would have preferred converting a low interest CD to an I-Bond, currently paying 4.6%, you are just out-of-luck. Instead of making things easier for the public, everything now is considerably more complicated with new cumbersome regulations, limitations, and restrictions.

Treasury Direct doesn’t even offer regular quarterly statements or provide a customer service phone number to call if you are having major problems with your account. Imagine the fines and penalties that a private financial institution would be assessed by government regulators or FINRA if they didn’t supply these basics. For example, when you go online to Treasury Direct after setting up an account, you never receive a quarterly statement or any statement of any king, EVER! They advise you to print out the screens on your computer.

Here are a few of the issues I have with Treasury Direct

  • No official quarterly or annual statements (EVER)
  • The summary screens, when printed for your home records, don’t format correctly and they don’t have a print screen function on the site. You get overlapped content.
  • I had to log on to my account four times today because of the antiquated navigation used on their site. The site is not user-friendly.
  • Your summary screen doesn’t show accumulated Treasury bond values. You have to select each bond in your account to determine its current value and then manually add the gains. For example, if you own Treasury Inflation Protected securities you only see the face amount on the summary screen, not the accumulated inflation values.
  • No option to convert book-entry bonds into paper bonds. What happens if the Treasury Direct site is down for an extended period or there are major Internet connectivity problems?  You don’t have any statements from Treasury Direct to confirm your holdings.
  • No customer support or phone numbers to call if you have problems with your account. When you click on contact, all you have is an online form to fill out!!!
  • You have to transfer your Notes, Bills, Bonds or TIPs to a bank or brokerage account if you want to sell them before their maturity date. Book-entry Savings Bonds are cashed in on the site and the funds from the sale are transferred direct into your bank account.

We are too dependent on the Internet today and this is just one more example. The Treasury must step back and reevaluate this program and where it is going. Are there no internal audits, controls, feedback that is actually collected and reviewed? Government over regulates almost everything in our society today except themselves it seems. In this case it is just about as lax as you can get when dealing with equity accounts and financial matters.

I would hope they will reconsider and continue selling paper Savings Bonds, dramatically increase the purchase amounts, and improve their web site.

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