Low Interest Rates, Good or Bad?

The Fed has committed to keep interest rates low for the next two years. This sounds good to most Americans. Many believe or hope it will help improve the economy and revive the depressed housing market and inspire consumer spending.

Unfortunately these low rates are also a threat to retirees, the savers. First low rates put continued pressure on pensions widening the gap and increasing short falls in terms of what is needed to meet their obligations. For those retirees overly dependent on interest income low interest rates pose a real challenge over the next few years.

In two years the Fed will likely (be forced to) look to create the right mix of inflation and higher interest rates to help pay down the debt.

There really isn’t a U.S. solvency issue. However failure to address the U.S debt long-term creates fear with our foreign investors. We’ve seen recently how the global economy impacts the U.S. economy. If some of these foreign investors say just China and Japan were to sell off their U.S. investments this could lead to a U.S. concern way down the road. The US continues to be the safest place to invest on the planet.

However just a couple of years down the road retirees will likely find that inflation comes into play. Gradually we are seeing food and gas prices rise now which are not calculated in the official inflation rate used for retirement benefit increases.  Imagine a bit further down the road the cost of a gallon of gasoline and a loaf of bread with inflation soaring. For retirees living on a fixed income this presents a real problem.

Living on a fixed income may prove increasingly difficult. Many individuals in their forties and fifties planning for their retirement have come to realize that the equity in their homes is no longer a nest egg for their older age. Consequently, selling their homes and then downsizing with a mountain of cash is no longer realistic. Retirees face a potential $200,000 out of pocket health care bill.  Sending one child to public college for 4 years costs approximately $100,000 of todays dollars, $200,000 private. College tuition and expenses should be broken into thirds in the event a retirees money is tight. I recommend allocating one third  from savings, one from third grants and scholarships, and one third from student loans from the Federal government.  With these and other potential unfunded or under-funded liabilities a retirees nest egg may prove inadequate. Too  many future retirees will work to age 67-70. But what kind of work will they perform?

The Solution

Perform Creative Work. Forward thinking folks are simply taking the bull by the horns and creating the life they want for themselves in older age.  They know how to keep their living costs in check. They know how they can outlive their money. They are neither unprepared nor “needy” the root of unhappiness.

They understand that a leisure retirement (Endless Summer) is not as ideal as it sounds. They’ve found their muse or passion and have made it their new life’s work. This type of work makes them happy inside providing moments of quiet reflection in which they happily discover they are content. Through the process of performing creative work all throughout their retirement they’ve taken the uncertainty out their older age and achieved their “Peace of Mind”.

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About Roger O'Keefe

My background is in education and finance. I'm a published author and photographer, former radio talk show host, and creative retirement planning expert. My work is a love of labor, I do not sell any products of any kind. I've appeared as a guest on more than 50 national and local television and radio shows. With a Masters in education, I'm a licensed educator and author of the “Future Bright Program” and the California State Department of Education “Teacher Appreciation Program.” I'm a member of the American Association of Retired Persons and the National Care Planning Council NCPC. I'm currently writing my second book and reside in the Rocky Mountains of Colorado. My mission is to reshape retirement planning one person at a time. Please visit my website www.creativeretirementplanning.net and take advantage of the many complimentary online seminars, resources, and retirement planning tools.
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