Monetary policies meant to stimulate the economy may be hurting retirees on a fixed income. And the current economic environment is forcing some to put a hold on retirement altogether. Boomers nearing retirement age might not be able to hang up their hats just yet. As life spans increase and interest rates stay low, more people are finding themselves working longer.
We asked Ross LaRoe, associate professor of economics at Denison University, to comment on retirement in the near future. LaRoe teaches microeconomics, public finance and the history of economic thought. He also conducts seminars on contemporary economic issues.
Has the current economic situation changed retirement planning for baby boomers?
The financial crisis of 2007 to 2009 has eroded the value of many baby boomers' retirement savings, causing them to postpone retirement plans. While the markets have recovered some of their losses recently, they continue to be volatile and, hence, an ongoing source of concern for many, if not most, of those near retirement.
For retirees already on a fixed income, what effects has the recession caused?
Paradoxically, one of the main problems for those already retired is the result of monetary policies pursued to help stimulate the economy. These steps have been necessary, and it may be that even more aggressive measures will be necessary in the future. Nonetheless, they have resulted in record-low interest rates, which, in turn, have depressed the incomes of many of those living on fixed incomes.
Although the economy is still showing unsteady legs, an individual can plan for retirement. Whether you can contribute money to a savings account now or create a plan for when you can start contributing, any step toward a future retirement goal is better than doing nothing.
When Should People Start Saving for Retirement?
When determining the total amount needed to retire, professor LaRoe suggests using a financial planner. If you do not have one, start searching for one immediately. The sooner you start planning for retirement, the more you can begin making your future retirement plans.
If you can't afford a financial planner, there are many ways to stash away even $50 per month to get you into the routine of compiling your nest egg. Automatic payday bank transfers into an account earmarked for retirement is one technique individuals use. This can help ensure you begin your journey to a stable, long-term retirement.
Some individuals use investment plans and put their money into 401(k) accounts or individual retirement accounts while others are still not able to do so. The first step can be the hardest, but don't give up.
We would like to thank Ross LaRoe, associate professor of economics at Denison University, for his insight.