Low Interest Rates Leave Retirees as “Collateral Damage”

For those looking to refinance existing mortgages or obtain financing to purchase senior living properties, today’s historically low interest rates are a boon. But the seniors being courted to live in those retirement communities aren’t exactly rejoicing, as their investments and savings are reaping very minimal returns—throwing a wrench into the retirement plans of many.

Saving money used to be the key to middle-class retirement, writes the Minneapolis StarTribune, but now those savings aren’t generating cash as expected, and even retirees who “played by the rules” aren’t necessarily going to win.

Fed Chairman Ben Bernanke has testified before Congress that he’s well aware of the savers’ plight. In February, he acknowledged that it was a tradeoff, but it was necessary to get the overall economy back to health.


Fed governor Sarah Bloom Raskin downplayed the impact of the interest rate policy back in March, noting that interest-bearing assets are only a “modest” portion of household assets, estimating it was less than 7 percent.

A Star Tribune analysis of federal data, however, shows that 17 percent of household assets were in interest-bearing classes last year, as opposed to say, stocks or pensions. That’s up from 15 percent before the crash, meaning households are even more exposed to interest rates fluctuations.

As Jack Ablin, chief investment officer at Harris Private Bank in Chicago, sees it, the Fed’s policy leaves savers and retirees as “collateral damage.”


The situation has forced middle class Americans to make some difficult choices: take greater risks with their money, work longer, temper retirement expectations and safe-keep hard-earned savings money in accounts that won’t earn much.

More retirees with less income means the economy could feel the drag from less consumer spending. The critical question is how long will interest rates stay low, Jack VanDerhei, director of research at EBRI’s Center for Research on Retirement Income. The Fed has committed to keeping rates near zero through 2014. If rates stay low beyond that, retirees spending less could be “the tip of the iceberg,” he said.

“You’re going to have retiree households that are going to literally run out of everything but Social Security and perhaps whatever housing equity they have,” VanDerhei said. “Many of today’s boomers are going to end up depleting their assets and at their point you get some really interesting societal questions like, do you expect to move in with your kids?”

Read the full piece at the StarTribune

Written by Alyssa Gerace