Low interest rates hurt retirees

Rate cuts have seniors who live off low-yield investments watching their money closely.
Sunday, August 17, 2003 | 12:00 a.m. CDT; updated 2:21 p.m. CDT, Tuesday, July 22, 2008

John and Shirley Whipple were living high, and times were good. They bought a top-of-the-line motor home, a Fleetwood Flair. They took vacations, traveling the country.

“We did anything we wanted to do,” John Whipple said. They weren’t extravagant, he said, but money wasn’t a worry.

Like many investors, Whipple enjoyed the good times in the stock market. But when the stock bubble burst and the national economy slipped, it hit retirees’ portfolios. Because of the bad market, many seniors switched to safer, FDIC-insured investments such as certificates of deposit that rely on a solid interest rate to produce returns. According to a 2001 Federal Reserve Board study, about 36 percent of people over 75 own CDs at an average value of $32,700.

Attempts to jump-start the economy hurt seniors again. Starting in the summer of 2000, interest rates began to fall. The Federal Reserve, led by Chairman Alan Greenspan, has cut the general interest rate 13 times to a 40-year low. Home building and mortgage refinancing benefited, but the result has been disastrous for those trying to live off interest from their investments.

Times have changed for many seniors across the nation, and many, like the Whipples, are watching their money more carefully.

“People who just a few years ago were making 5, 6, 7 percent on their CDs are now making 1 to 2 percent,” said Mary Wilkerson, vice president of marketing at Boone County National Bank.

While Wilkerson expects interest rates in time will return to normal, she doesn’t know when. Most seniors say they can’t afford to ride out long-term fluctuations in interest rates or in the stock market.

Harold Bassett, 86, retired in 1982 from MU, where he was a professor of food science and nutrition. Bassett lived through the Great Depression and feels as if his life is cycling back to 1929. Food, clothing and shelter — things he struggled for during the Depression — he finds himself struggling for again. He had expected to live in large part off interest from his investments, and, like many seniors, he has had to spend his principal to get by.

“Without any income, we’re rapidly using up our reserves,” Bassett said. “If I live a few more years, I could conceivably be out on the street.”

While the news might be all bad for seniors relying heavily on CDs, Tom Baumgardner of Edward Jones Co. in Columbia said safe options are still available. He emphasized the importance of having money in diversified types of investments, not just in different places. While there is no single investment option for everyone, dividend-paying stocks might be a good choice for some, he said.

Safer stocks still involve some risk of losing one’s principal. But Juli Niemann, an analyst at R.T. Jones Capital Equities in St. Louis, said that the worst risk in the stock market is over and that interest rates are going to remain low for the foreseeable future.

Seniors should consider moving their money out of guaranteed, low-yield accounts, Niemann said.

“Take your pulse and decide if you can stand more excitement,” she said.

Though most of the economy is experiencing low inflation, which is good news for those on fixed incomes, medical expenses continue to rise rapidly. Seniors are living longer, paying higher medical bills and facing weaker retirement options. That combination makes it increasingly difficult to leave the workforce.

Some are feeling the pain of having left the job market too early after taking early-retirement incentives.

“Nobody can retire, unless they have a huge kitty, until they’re 70,” Niemann said. “I just flat-out tell them, ‘You can’t.’ “

But for seniors such as Bassett, long out of the job market, there is no time to consider another career.

Retirees now find themselves cutting out the extras, such as trips and gifts to relatives. Both Bassett and Whipple said they’d like to give gifts to family members, but can’t. Over lunch at the Oakland Plaza Senior Center, they said there’s nothing left to trim from their budgets.

“We don’t have a lifestyle now,” Bassett said. “There’s no style to it. It’s just life.”

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