'Financially repressed' struggle in retirement

Mitch Strohm

We're always happy to see someone else in the media highlighting how much the Federal Reserve's campaign to keep short-term interest rates at record lows has hurt savers, especially older savers.

A recent Bloomberg article titled Americans Can't Retire When Bill Gross Sees Repression does a great job.

“We’re going to be financially repressed for decades,” Bill Gross, the 69-year-old billionaire co-founder of bond giant Pacific Investment Management Co., told Bloomberg, citing Federal Reserve interest rate policy that aims to cut borrowing costs. “I hate to be gloomy, but, yes, for the next 10 years, the oldsters, and I’m in that camp, are going to be disappointed in terms of the policy rate.”

The Fed, of course, has driven short-term interest rates to record lows in an attempt to pull the economy out of the worst financial crisis and recession since the 1930s.

It's done that by drastically reducing what's called the federal funds rate, which is what commercial banks pay to borrow money from each other through the Fed.

That has killed returns on bank deposits like CDs at a time when older Americans should be switching their portfolio from volatile stocks over to safer investments.

The Bloomberg article points out that about 75 million baby boomers, born from 1946 to 1964, are starting to retire and face meager returns.

“Interest rates that have prevailed for the last few years have made it more challenging for savers to accumulate wealth, particularly if they are trying to do so in a relatively risk-free way," James Poterba, professor of economics at the Massachusetts Institute of Technology in Cambridge, told Bloomberg.

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Unfortunately the Fed isn't planning on bumping up the feds fund rate anytime in the near future.

In their latest Federal Open Market Committee, the Fed predicted that the benchmark rate wouldn't hit 1% until the end of 2015.

Now, we'll certainly take 1%, considering that the Fed has been holding the benchmark rate at essentially zero since December 2008.

But maybe the Fed should bump it up sooner.

We're not looking to sabotage the economic recovery, but easing up just a little bit would make such a difference for savers.

Americans are hurting.

Bloomberg chats with Dan Fuss, vice chairman of Loomis Sayles & Co., about the impact of low rates on retirees at the grocery store near his home.

Fuss, who is 80, said, “If you look at the average age of the people bagging the groceries, I want to help them push the cart out; and look at those riding the commuter train at rush hour, a lot of them are my age.”

“The savers are screaming,” he said.

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