My mother passed away at the age of 91. She was smart, stylish and fiercely independent. An avid reader of MONEY magazine and of news about the Federal Reserve and interest rates, she would be at a loss by a recent article: How Should Retirees Invest With the Fed Keeping Rates Low? It said, “With limited room for error, retirement investors need to deftly avoid major pitfalls while considering some shrewd and creative allocation strategies in response to the new reality.”
That’s advice for professionals, not for someone who grew up haunted by the Great Depression and built her retirement savings slowly, seeking the best interest rates and laddering certificates of deposit (CDs) and Treasuries. She did an admirable job and slept peacefully; her savings were safe and growing.
Then the Great Recession hit, CDs came up for renewal and my mother’s carefully constructed retirement savings — and spending — plans fell to pieces. She was frightened and frantic when rates fell to 3%, then 2%. She spent hours analyzing whether to break a CD for the tiny rate increase available at another bank. It’s painful to imagine what she would be going through now with rates under 1%, trying to figure out how to make her stagnant savings last, deciding what she might do without.
Unfortunately, many retirees continue to face this exact dilemma because of low interest rates.
Could things have been easier for my mother? Yes. An immediate annuity would have offered her certainty and reduced anxieties. But she didn’t want to “give up” any part of her savings. Many retirees feel the same way.
How decisions about retirement savings will be impacted by our current economy is unclear. Will workers and retirees “avoid pitfalls” and have “shrewd and creative allocation strategies”? That’s not likely.
Hopefully, the SECURE Act will help them by requiring retirement plans to illustrate savings as potential income in retirement, not simply as a lump sum to protect. Had it been available when my mother was working, I’m convinced that simple guidance – and reasonable interest rates — could have eased her retirement anxieties.