“Fed’s Low Interest Rates Crack Retirees’ Nest Eggs”

The above is one of the headline stories on the front page of yesterday’s WSJ. 

 My response to this article, “no kidding” and “what took you so long to figure this out.”  I’ve wailed in a previous post how I’m unhappy that the Federal Reserve has kept the interest rate at historic lows, how if you are trying to save, the Federal Reserve is making it difficult.

Although I chastised the title of the article, it is a well-written piece by Mark Whitehouse.  Some noteworthy quotes from this article follow.

A long spell of low interest rates has created a windfall worth billions to banks, mortgage borrowers and others it was designed to benefit.  But for many people who were counting on their nest eggs, those same low rates can spell trouble.

A recent survey by the Employee Benefit Research Institute indicated that one in three retirees had dipped deeper than planned into their savings to pay for basic expenses in 2010.

Most economists agree that the Fed’s interest-rate policies, together with other measures, have helped avert a much deeper economic slump.  Still, the situation for savers has become progressively worse since the Fed first lowered its interest-rate target close to zero in late 2008.

“Americans who have done everything right, have worked hard, saved their money and stayed out of debt are the ones being punished by low interest rates,” says Richard Fisher, president of the Federal Reserve Bank of Dallas and a voting member of the Fed’s policy-making open market committee.  “That state of affairs is not sustainable for a long period of time.”

Low rates don’t just hurt retirees. They also penalize people of any age hoping to build up funds for the future, and discourage rainy-day savings that could make U.S. consumers more resilient to job losses and other financial jolts.  Americans’ net contributions to their financial assets, such as bank and 401(k) accounts, amounted to 4% of disposable income in 2010, according to the Fed.  That’s the lowest level since it began maintaining records in 1946-except for 2009, when people actually pulled money out.

The article profiles retirees living in Port Charlotte, Florida including a 91-year-old World War II veteran.  I highly recommend this article.

Although I don’t expect to retire for another 25 years, I know individuals who are retired (including my mother) and those who are about to retire.  I have a good friend, a retired teacher living in Florida.  We have exchanged e-mails and talked about this very topic – the extreme low interest rates.  She did the right things.  She paid off her house before retiring.  She calculated how she could live a comfortable life based on her pension, social security and savings, using an average annual rate of return of 6%.  When will we see 6% for savings again?  Not any time soon.

The Federal Reserve needs to STOP PUNISHING SAVERS & RETIREES.  Stop manipulating the interest rates.  The Federal Reserve needs to look at BOTH SIDES OF THE EQUATION – borrowers and savers.  The Federal Reserve has focused, since 2008, on the borrowers.  What about savers?  What about retirees?

The following two paragraphs from the WSJ article does not directly concern the Federal Reserve.  But that institution needs to take heed nonetheless. 

The pain inflicted on savers could have political repercussions.  Retirees are among the country’s most active voters, with the power to influence a wide range of issues, such as who will bear the burden of fixing the federal government’s finances and whether politicians should rein in the Fed.

Over the past few years, seniors have taken a conservative turn: In the 2010 elections, Republican congressional candidates attracted 59% of the over-65 vote, compared to 48% in 2008, according to exit polls-a larger shift than that seen among the general populace.

With a “sea change” in politics, there may be “no cover” for the Federal Reserve.



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