Low Interest Rates: Bad for Retirees, Worse for Gen X-ers

by Dan Caplinger

For years, low interest rates have hurt retirees trying to generate enough income from their retirement savings to cover their living expenses. But the biggest impact from low rates on retirement prospects could well hit current workers, including those who are still more than a decade away from retiring, according to a recent study from the Employee Benefit Research Institute.

The Impact of Low Rates on Retirement Readiness

Obviously, for retirees who are living in part on investment income, low rates have an immediate impact on their standard of living. With few prospects to add to whatever they’ve managed to set aside in their retirement nest eggs, retirees are largely at the mercy of banks and other financial providers that determine how much interest they’re willing to pay their customers on their investment balances. With rates on certificates of deposit having fallen from around 4.5 percent five years ago to less than 1.5 percent today, according to figures from Bankrate, the roughly 3-percentage-point drop equates to about $250 less in monthly interest income for every $100,000 in savings a retiree has.

But for those who are counting on long-term returns from their investments to help them get ready for retirement, the EBRI study reveals an equally troubling trend. The study found that among baby boomers and members of Generation X, fully 25 to 27 percent of those who would have had adequate income to retire comfortably based on historically normal interest rates won’t earn enough investment income if low rates continue indefinitely.

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