Today we’ll discuss a couple more money eroding factors. I think these might hit home for a lot of us. Enjoy!

Eroding Factor #7: Decline in Interest Rates

When an individual deposits money into a bank they are essentially giving the bank a loan. In turn the bank pays that person interest for lending them their money. I’m sure that many of us have put money into a savings account or CD in the last couple years. What has happened to interest rates during that time? They’ve fallen. Hard. What was once around 5% a couple years ago is now lucky to be 2%. In fact, most would be lucky if their interest rate has been earning more than the inflation rate.

Am I saying that saving money in a bank is a bad thing? Of course not. In order to build wealth you must actually learn to save. However, if you’re banking, no pun intended, on that money growing rapidly, it’s simply not going to happen. This decline has made it difficult for a lot of older folks, even those who are retired, to get a decent return on their money. They are hoping to supplement their income with additional savings during retirement, but these lower interest rates are not allowing them to do so.

Eroding Factor #8: Decline in the Stock Market

This factor has probably been a more difficult pill to swallow. Most individuals are quite aware of this factor having experienced it in the last year. How many people have lost anywhere from 30-50% of their retirement income? A lot of us have. Here’s a statistic: for those of you that have lost 50% of your account values in the last year, it will take seven years to earn back the amount that was lost. By the way, you must earn at least 10% each year during those seven years to be where you were.

Again, am I saying that you should stay away from the stock market? No. The stock market can be very effective in an person’s financial plan, but only with money that they can afford to lose, retirement or not. A good thing to remember is that risk does not always equal high return. It often can mean the opposite, as we’ve recently seen.

I hope that today’s discussion didn’t bring back too painful of memories for those affected by these eroding factors. Our next discussion will cover the last two money eroding factors. Until next time.