The Federal Reserve’s announcement two weeks ago that it expects to hold interest rates near zero at least until 2023 could hurt retirees who invest in bonds by forcing them to prematurely claim Social Security or dip into their retirement accounts.
This is according to Olivia S. Mitchell, Wharton professor of business economics and public policy and executive director of the School’s Pension Research Council, who shared her perspectives on the matter in a recent podcast.
“Low returns from the market are essentially a tax on retirees,” said Mitchell. “In the good old days, people used to ladder their bonds, put a little bit of money in the market, and try to live off those returns. This is not feasible any longer. In fact, it’s even worse, because those lower nominal returns are in many cases negative in real, or inflation-corrected, returns.” (Note: A bond ladder refers to investments in bonds with varying maturities so that a portfolio does not get locked into one type of bond.) Read the full article.