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.

Fed’s Low 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 it.”

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.

Tim Iacono

Iacono Research.com