August 27, 2012

#RETIREMENTFAIL: Low interest rates throw wrench into retirements.

John Folsom holds a solid job in medical device sales and has put two children through college. He has lived his life, as he sees it, “trying to play by the rules.”

He and his wife invested for retirement by socking money into safe mutual funds to build a nest egg that could support their dream of one day having a house on a lake. But at 53, Folsom looks at his retirement portfolio and sees that “the rules” aren’t working.

The market crash and housing collapse hammered his net worth. Now the Apple Valley man’s life savings are earning about half what he had expected, dragged down by record-low interest rates.

“All of our calculations have been thrown asunder, and everyone has to rethink the whole deal,” said Folsom said, who is planning to push back his retirement five years, possibly until he’s 67.

The Federal Reserve’s near zero interest-rate policy, aimed at stimulating the economy, has created bargains for borrowers refinancing a mortgage or buying a car. But the low rates are penalizing “savers” such as seniors and others on fixed incomes, forcing millions of middle-class Americans to reconsider how they will live when they retire, if they can retire at all.

“We’re not really seeing the positive benefit of low rates, but we’re seeing a huge negative hit,” said Tim Gillaspy, who recently retired as Minnesota’s demographer. “And that needs to be discussed as a national policy issue.”

The low-interest rates are the latest financial challenge for a wave of baby boomers on the cusp of retirement. Already, an estimated 44 percent of boomers between the ages of 48 and 64 will run short of money in retirement for their basic needs and uninsured health care costs, according to Employee Benefit Research Institute (EBRI), a nonpartisan research group in Washington.

Then there’s the food-price inflation. I’m glad to see someone addressing this, but I have to think that if we had a Republican in the White House, everyone would be talking about it. . . .