​How The Fed Hurts Retirees - Finance​​

July 20, 2021

How The Fed Hurts Retirees - Just a few years ago, Henry Baker III, 75, was earning 4.7% interest on his $80,000 in savings. The income paid for a week-long vacation for him and his wife, plus more.

However, that rate dropped down to 0.15% in 2011.

Baker took everything out of CDs at the beginning of this year when his bank closed (another unfortunate sign of the times), and he went to a bank that offered a special checking account with a 0.5% interest rate.

Within six weeks of opening that account, it dropped to 0.35%. That said, it’s still better than any other investments he can find, including bonds.

About a quarter of his net worth is in that checking account. The rest of his funds are invested in mutual funds and a few individual stocks.

When a retiree today loses investment value, they have to pull from somewhere to meet their expenses. As you trim interest rates, it starts hitting us in the pocket.

Another story comes from Julie Moscove, 69, from Fort Lauderdale, Fla.

After being burned in the stock market, her money is almost entirely in savings.

At one point, it was being built up by good interest rates, and now it’s barely moving. CDs and money market funds offer next to nothing. She earned half of a percent or less.

The baby boomers are the ones who supposedly have all the money, but we’re not regenerating this money because the Fed is keeping interest rates so low.

As a result, we’re not creating the spending that will grow the economy. In fact, Moscove had to cut back on her spending. Now, she only gets what she needs — no luxuries.

David Both, 65, from Raleigh, N.C. isn’t having the best retirement either.

“Keeping interest rates low encourages investment in other things, like stocks — and I understand that’s part of the objective,” he said.

Before the recession, he and his wife had about a quarter of their funds in a money market account that earned around 3.25% in interest each year.

Their original intent was to build up that savings, but when the economy started changing, their interest rate fell to around 0.25%.

“I started shifting money to stocks. Now we keep only 8% in savings. It’s not a lot of money, but it’s enough that if we had an emergency, we could use it immediately. We’ll also use part of it to pay for our 25th anniversary trip to Tuscany this fall,” Both said.

Investing in stocks gets capital to businesses, and that could put people back to work. Most retirees believe it’s a worthy goal. If you put people back to work, that helps the entire economy.