Nonretirees and retirees differ significantly on the economic trade-offs associated with low interest rates, according to a new Wells Fargo/Gallup Investor and Retirement Optimism Index survey.
Two-thirds of surveyed investors overall said that the benefits of low interest rates outweigh the costs. This view was shared by nearly three-quarters (73 percent) of nonretirees, but by less than half (47 percent) of those who are retired. Nearly twice as many retirees than nonretirees (43 percent vs. 22 percent) said that low interest rates hurt savers and investors.
Low interest rates tend to be more of an issue for retirees given their greater dependence on low-risk investments for their retirement income. Federal Reserve Chairman Ben Bernanke and the Federal Open Market Committee have taken steps over the last four years to keeping interest rates low to stimulate consumer spending, which accounts for 70 percent of the economy.
But, Gallup observes, “this has pushed investors into riskier assets by depriving them of the low-risk, higher-rate options that retirees most often desire.” A first quarter Millionaire Corner study of Millionaire households found that more than half (53 percent) of households ages 65 and older, it is more important to protect their principal than grow their investments.
For the Wells Fargo/Gallup survey, 68 percent of retirees—compared with 61 percent of nonretirees and 63 percent of respondents overall--said that lawmakers should take into account the economic impact on older Americans when interest rates are kept low for an extended period of time.
Because of low interest rates, a third of nonretirees said they will have to delay their retirement, while 42 percent of respondents overall said they feared running out of retirement savings, the survey found. More than one-third (35 percent) said they are giving less to charity than they might have otherwise, while more than one-quarter (28 percent) said they are taking more overall investment risk than they might if interest rates were higher.
Half said that it is somewhat likely that today’s low interest rates will lead to a sharp increase in inflation down the road. Inflation is an issue of increasing concern to Millionaires that we surveyed. Sixty-four percent said they are concerned about it, up from 55 percent last year. It is especially an issue of concern to baby boomers ages 55-64 (68 percent).
Donald Liebenson writes news and features for Millionaire Corner. He has been published in the Chicago Tribune, The Chicago Sun-Times, The Los Angeles Times, Fiscal Times, Entertainment Weekly, Huffington Post, and other outlets. He has also served as a marketing writer for Chicago-based Questar Entertainment and distributor Baker & Taylor.
A graduate of the University of Southern California, he is married with a college-age son. He also writes extensively about entertainment.