Tags: federal reserve | interest rate | retirees | senior citizens

Bankrate.com: Fed Policy Crimps Retiree Finances

By    |   Wednesday, 29 January 2014 07:25 PM

The Federal Reserve's low-interest rate policy is putting the squeeze on retirees, according to Bankrate.com.

It lists six ways:
  • Fed policy has pushed rates on certificates of deposit, money market accounts and savings accounts to microscopic lows. And those are investments many retirees rely upon for income.
  • Many retirees count on annuities for income too. But "with interest rates at all-time lows, annuity payouts are also at all-time lows," Alan Moore of Serenity Financial Consulting tells Bankrate.
  • Low interest rates have hampered returns for pension funds. Already, 94 percent of corporate defined benefit pensions were underfunded in 2012, according to a recent report by Wilshire Consulting.
  • Long-term care insurance premiums have soared, because the insurance companies are earning less on the money they invest in bonds. So those companies have raised premiums to compensate.
  • The paltry returns of safe investments, such as savings accounts and CDs, are pushing retirees to take more risk, investing in stocks and bonds. If rates rebound, bond investors will suffer.
  • All of the Fed's easing could ultimately lead to a massive outbreak of inflation.
Editor’s Note: Retire 10 Years Earlier With These 4 Stocks

The Fed has critics on plenty of other scores as well. James Grant, editor of Grant's Interest Rate Observer, accuses the central bank of engaging in "a massive experiment in price control," as he told CNBC.

"They don't call it that. They fix the [federal] funds rate. They manipulate the yield curve. . . . I said 'experiment in,' but there is no really suspense about how price control turns out. It turns out invariably badly."

Meanwhile, the Fed has tapered by $10 billion at each of its last two meetings, leaving its monthly bond buying at $65 billion.

"Ultimately, the Fed sort of had no choice but to reduce purchases (Wednesday)," Dan Greenhaus, chief strategist at BTIG brokerage, told the Associated Press. "If they had paused, they risked sending a signal to markets that they lacked conviction."

The central bank launched its current round of bond purchases in September 2012, its third such effort since the financial crisis in late 2008.

"The Fed's action represents a continuation of its resolute determination to end (bond purchases) during 2014," Daniel Alpert, managing partner at Westwood Capital in New York, told Reuters. "The policy has hit its 'sell by' date."

Editor’s Note: Retire 10 Years Earlier With These 4 Stocks

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The Federal Reserve's low-interest rate policy is putting the squeeze on retirees, according to Bankrate.com.
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2014-25-29
Wednesday, 29 January 2014 07:25 PM
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