3 Ways Low Rates Are Affecting Savers and Retirees

It was not long ago that the Federal Reserve Chairman, Ben Bernanke, admitted that the low rates that they have been maintaining to stimulate the economy has hurt people who live on fixed incomes – and in particular, retirees.

But people would like to know how this works, and so, here are 4 ways by which the Feds have hurt savers and retirees:

#1: Weak Returns on Savings

Rates on money market accounts, certificates of deposit as well as savings have dropped drastically. This isn’t good for those who are depending on safe and fixed returns, quite sadly. Most of these people turn out to be retirees. But as experts suggest that it’s best to keep your funds in these accounts instead of diversifying to more riskier (and profitable) investments.

#2: Pension Funds are hit hard

With almost 94 percent of pension funds being underfunded in 2012, it can be safely assumed that they are in serious trouble already. Unfortunately, the assets won’t grow as quickly as they should since interest rates are low. The only positive, if one can call it that, is that most retirees today don’t have pension funds in the first place.

#3: Lowest rates on Savings and CDs

With very low rates being offered on safe investments such as savings and CDs, this is causing retirees to move to riskier investments such as the stock market and quite sadly, even bonds.

While most people are aware of the issues that come with investing in the stock market, most people are not cognizant of the fact that bonds aren’t as safe as they seem. That’s because when the rates rise again, bonds prices will fall.