Low interest rates affect seniors’ ability to pay medical expenses

About Judith Graham

Judith Graham (@judith_graham), is a freelance journalist based in Denver and former topic leader on aging for AHCJ. She haswritten for the New York Times, Kaiser Health News, the Washington Post, the Journal of the American Medical Association, STAT News, the Chicago Tribune, and other publications.

A lot is written about people who don’t save enough for retirement. But what about older adults who saved diligently, only to find the value of their nest eggs depleted in this low-interest rate environment?

Judith GrahamJudith Graham (@judith_graham), AHCJ’s topic leader on aging, is writing blog posts, editing tip sheets and articles and gathering resources to help our members cover the many issues around our aging society.

If you have questions or suggestions for future resources on the topic, please send them to judith@healthjournalism.org.

I’m not talking here about stocks that take a tumble, slicing into their value. I’m talking about the interest rates that older people earn on money put away in bonds, money market funds, or certificates of deposit – and that they count on to supplement Social Security payments in their retirement years.

When these interest rates are at historically low levels, as they are now, people who counted on earning 5 percent to 7 percent annually from their savings can find themselves instead earning instead 1 percent to 2 percent. That can make a real difference in the affordability of their retirement plans and their ability to handle expenses such as payments for housing, food, prescription medications or out-of-pocket medical expenses.

For a really good examination of the issue, look at this story in the Minneapolis Star Tribune by Jennifer Bjorhus. It’s full of detailed analysis and personal stories that illustrate this problem which, it’s safe to say, is playing out with seniors in every community across the United States.

Here’s one example from Bjorhus’ story:

“At 91, retired mechanic Glenn Summers does all his own yard work at his Bloomington home. He has kept most of his money in safe havens such as money market accounts for income to supplement his Social Security and pension. The nest egg used to generate $10,000 to $15,000 more than it does now.

Like many seniors interviewed for this story, Summers is loathe to complain about the losses. He gets by, he said, “but I don’t have any extra.”

Altogether, personal interest income in the U.S. totaled $986 billion last year – down about 25 percent from 2007, according to the U.S. Bureau of Economic Analysis. That’s $332 billion forgone.”

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Some background is important here: The Federal Reserve has adopted what Bjorhus refers to as a “near zero interest-rate policy” to help stimulate the economy and make it easier for consumers to purchase big-ticket items such as homes or cars. Few would argue that the economy needs help, though some have questioned the Fed’s policies.

The downside is that retirees with limited incomes suffer in this kind of economic environment. As Bjorhus says in her nut graph, “low rates are penalizing ‘savers’ such as seniors and others on fixed incomes, forcing millions of middle-class Americans to reconsider how they will live when they retire, if they can retire at all.”

Also, the Fed’s policies are making it hard for Baby Boomers to plan ahead for their retirements. Bjorhus explains their dilemma nicely:

“The low-interest rates are the latest financial challenge for a wave of baby boomers on the cusp of retirement. Already, an estimated 44 percent of boomers between the ages of 48 and 64 will run short of money in retirement for their basic needs and uninsured health care costs, according to Employee Benefit Research Institute (EBRI), a nonpartisan research group in Washington.

As traditional pensions fade away, people approaching retirement typically shift their money into safer fixed-income investments, such as bonds, to generate income to carry them through their golden years. That leaves them more vulnerable when interest rates are low.”

In reading Bjorhus’ story, it became clear that she relied on financial advisers in her community as important sources in their own right and, it appears, helpful sources of contacts with consumers. Those of you covering aging take note: If financial advisers aren’t on your source list, they probably should be.

It also became clear that this piece is one that could be done by media outlets anywhere in the country. The issue that Bjorhus brings forward is one that’s national in scope but local in its impact, with a very strong human interest factor.

Though the topic may seem a little dry on first blush, if done the right way it can be compelling and timely. Another important tie-in: worries about escalating out-of-pocket medical expenses for seniors. For all these reasons, my advice to aging reporters would be “go for it!”

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