How are low interest rates affecting retirees?
Answers
Invest more in stocks
Stock returns are higher than bond returns over the long run, so increasing stock allocations will increase expected returns. Retirees should be aware that this is not a surefire route to success: as portfolio values increase, so do the downside risks of running out of money. Stock markets can remain flat for long periods of decline for prolonged periods: The UK stock market is currently at the same level as it was in 1999.
Delay retirement
Retirement income has always been significantly affected by an extra year of employment (and one less year of retirement). According to a study, an additional year of work is worth $43,796 when the interest rate is 3% and $54,935 when the interest rate is 1%, a 25% gain. The impact of a lower interest rate on retirement income is that it reduces the contribution from investment earnings and increases the contribution from delayed retirement savings.
