How retirees struggling for income can cope with Fed’s new normal
Posted on 18 December 2012
By Mark Miller
Permanent URL of this article: http://retirementrevised.com/money/how-retirees-struggling-for-income-can-cope-with-feds-new-normal
If you are still wondering whether we are in a “new normal” investment climate of ultra-low interest rates, wonder no more: Federal Reserve Chairman Ben Bernanke settled any lingering doubts last week when he guaranteed rates will stay near zero at least through the middle of 2015 — or until the jobless rate falls to at least 6.5 percent, or the inflation rate jumps above 2.5 percent.
Bernanke’s unprecedented announcement might be good for the economy, but it is bad news for retirees, who already have suffered through four years of historically-low interest rates.
Ultra-low interest rates have inflicted all manner of pain on retirement.
Insurance companies have raised the price of annuities and long-term care policies as a result of low returns on bond-oriented investment portfolios. Pension plans have had trouble meeting their investment objectives, forcing them to reduce their funded ratios and creating political and fiscal havoc for plan sponsors.
The most direct problem facing retirees, however, is how to generate income from retirement savings. The traditional reliance on low-risk bonds and certificates of deposit just does not work in this rate environment, and higher-yielding products come with unattractive levels of risk.
However, now that we know the “new normal” is here to stay for at least a few more years, there are several low-risk options for retirees, and people who expect to retire soon, and a low-risk option is by far the best approach one can take in uncertain times.
Learn more in my column today at Reuters Money.
