ElderLaw News — The Estate Planning & Elder Law Firm, P.C. — MD, VA, DC
ElderLaw News

ElderLaw News is a weekly e-newsletter that brings you reports of legal developments and other trends of vital interest to seniors and their advocates. This newsletter is brought to you by The Estate Planning & Elder Law Firm, P.C., William S. Fralin, Esq., President.

Interest Rates and Retirement

A recent Wall Street Journal article discusses the dilemma many retirees face because of current interest rates.

The Federal Reserve has been keeping interest rates low in order to stimulate the economy. This has created benefits for banks, mortgage borrowers, and others, but it has created problems for millions of savers. Retirees are the most vulnerable because they do not have many options to restore lost income on the investments they have made over their lifetimes.

According to data from the U. S. Department of Labor, in 2009 the average investment income for the 24.6 million households headed by people age 65 years and above was $2,564. This was down 34% from 2007. According to the Employee Benefit Research Institute, one in three retirees had used more of their savings than planned to pay for basic expenses last year. The average interest rate paid on relatively safe investments, including savings accounts, certificates of deposit, and money market accounts is 0.24% as of January 2011. This is the lowest level on record since 1959. These rates do not compensate for inflation, which was running at a 5.6% annualized rate for the three months ending in February 2011.

Richard Fischer, president of the Federal Reserve Bank of Dallas says, “Americans who have done everything right, have worked hard, saved their money and stayed out of debt are the ones being punished by low interest rates. That state of affairs is not sustainable for a long period of time.” The results of the pain inflicted on savers could have political repercussions because retirees are among the country’s most active voters.

Low interest rates also penalize people of any age who are trying to build up funds for their future. These rates also discourage people from saving for emergencies such as job losses and other financial issues. According to the Federal Reserve, Americans’ net contributions to their bank and retirement accounts amounted to 4% of disposable income in 2010, the lowest level since the Federal Reserve started maintaining records in 1964, with the exception of 2009 when people pulled money out of savings and retirement accounts.

Some retirees are maintaining more of their assets in equities, hoping to benefit from increases in the stock market and to avoid running out of money. This goes against the traditional advice of some financial planners, who recommend that retirees keep more of their assets in relatively safe, fixed income investments. Neil Kasanofsky, a financial adviser in Port Charlotte, Florida, says, “The fear is palpable at this point in their lives. Given the low level of interest rates, you’re hard-pressed to tell someone to get into bonds or ten-year CDs.” Some people are in even more trouble because they took out mortgages or ran up credit card debt, and now they do not have the interest income from their investments to help pay off these debts. In the meantime, many seniors have cut back on expenses as much as they can so that they do not outlive their money. Time will tell how each of these strategies will play out.

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The Estate Planning & Elder Law Firm, P.C. is an elder law firm. We represent older persons, disabled persons, their families, and their advocates. The practice of elder law includes estate planning, estate and trust administration, powers of attorney, advance medical directives, titling of assets and designations of beneficiaries, guardianships, conservatorships, and public entitlements such as Medicaid, Medicare, Social Security, and SSI, disability planning, income tax planning and preparation, care management, and fiduciary services. For more information about The Estate Planning & Elder Law Firm, P.C., please visit our website at http://www.chroniccareadvocacy.com.

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