Living your formative years during an
era when 5+ percent rates on CDs were considered something of a birthright,
it’s easy to see how that static view of the world could be very wrong, but that
doesn’t make it any easier on folks who are dependent on today’s
meager CD returns for income as detailed in this story in today’s Wall Street Journal.
Interest Rates Crack Retirees’ Nest Eggs
With short-term bank CDs paying less
than 1%, the World War II veteran expects his remaining $45,000 stash to
yield just a few hundred dollars this year. So, he’s digging deeper
into his principal to supplement his $1,500 monthly income from Social
Security and a small pension.
“It hurts,” says Mr. Yeager,
who estimates his bank savings will be depleted in about six years at his
current rate of withdrawal. “I don’t even want to think about
Mr. Yeager is among the legion of
retirees who find
themselves on the wrong end of the Federal Reserve’s epic attempt to
rescue the economy with cheap money.
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.
Mr. Yeager’s struggle highlights a
nagging dilemma facing Fed Chairman Ben Bernanke. The longer the central bank keeps
interest rates low to stimulate the economy, the more money it pulls out of
the pockets of millions of savers. Among the most vulnerable
are retirees, who have few options to restore lost income on investments
built up over entire lifetimes.
This is well worth reading in its
entirety, though, it might make you cry. I just wish one of the interview
subjects would have said something like, “I
saw this lunacy at the Fed coming almost ten years ago and bought gold”.
To summarize, in a nation still desperately short on domestic savings, the
central bank continues to punish the savers while, basically, handing money
to the big banks via freakishly low interest rates.