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Retirees Walloped by Near-Zero Interest Rates

A few years ago, Mae B. Haynes routinely earned nearly $1,000 each month on her retirement nest egg of nearly $200,000—enough, she recalls, to pay for all the extras each month after she had spent her Social Security check.

But today, the retired broadcast executive says, she just can’t make ends meet. Blame record low yields on money market accounts and certificates of deposit that produce nearly nothing in interest. As for the monthly earnings from her nest egg, “now I’m only getting $45” at most, explains Haynes, 72, of Wayzata, Minn.

Meanwhile, she says, her auto insurance and property tax rates continue to climb, as well as her heating bills. “It’s not making up what I need,” she says of the return on her retirement funds. “I can’t tighten my belt any tighter except to skimp on food. People like me simply can’t survive on zero interest rates.”

Savers suffering

Across America, retirees like Haynes are expressing similar worries as the Federal Reserve has flooded the nation’s banks with money in a successful move to drive interest rates near zero and stave off the collapse of the nation’s financial system.

Now, banks have enough capital that they don’t have to compete aggressively to win a saver’s deposits. The near-zero rates they’re offering on deposits are injuring retired Americans who need higher returns on their accrued savings to pay the bills.

“It’s the single most common question I get from most people looking for investment ideas,” says James M. Klein, principal and senior portfolio manager for Meritage Portfolio Management, an investment management firm based in Overland Park, Kan. “They want to know, ‘What can I do to keep some money safe, but still make a decent return?’ ”

According to data from the Social Security Administration, more than half of all married recipients—and nearly three-quarters of unmarried recipients—get more than 50 percent of their income from investments and pensions outside Social Security. These older Americans are especially hurt by low interest rates. (The 35 percent of all retirees for whom Social Security makes up 90 percent of income are essentially unaffected.)

Klein says a typical client comes to him after having a certificate of deposit mature that once paid 3 percent per year, or $125 per month on a $50,000 investment. Now, that same CD may pay only $50 per month, and the client wants something better.

“What I try to explain to them is that their government has given them a choice: either [the opportunity for] a decent return on their investment, or the safety of their principal. It’s just that unfortunately today, you can’t have both.”

‘A gasp of frustration’

Brandon Kipp, a financial adviser at the Farmers & Merchants Bank in Burlington, Iowa, says his clients were initially frustrated and angered by the cut-rate interest being offered on CDs and money market accounts. “Now they accept that it is what it is. It’s more a gasp of frustration.”

The best rate his bank now offers is 1.4 percent on a 16-month certificate of deposit, meaning a $50,000 investment would yield a mere $43.75 per month. “If their money is coming out of a CD, it’s pretty clear that their tolerance for risk is very low,” Kipp says.

Kipp recalls the late 1970s and early ’80s, when certificates of deposit paid attractive rates, but interest rates for car and home loans were also sky-high. “Then it was a great time to be a saver, but a terrible time to get a loan. Now the shoe is on the other foot,” he says.

Last month the Federal Reserve reiterated its policy of holding key interest rates at “exceptionally low levels … for an extended period”—generally taken to mean an additional six months. These low rates mean banks can make a healthy profit lending funds to their very best customers at 3 or 4 percent, because they’re paying even less on certificates of deposit and money-market accounts.

As of March 15, the average annual interest rate on a CD nationwide was 1.348 percent, according to, while an average money market was yielding only 0.883 percent.

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