Low interest rates hard on retirees

There is no relief in sight for retirees and other savers, who have borne the brunt of the Federal Reserve's easy money policy, as interest rates have once again tumbled to lows not seen in more than a year. The benchmark 10-year rate plunged to just below 2.2% last week as fears of a new recession in Europe and even disinflation, as well as China's slowing economy, brought foreign money flooding into the U.S. bond market. The fear that the strong U.S. dollar and the resulting falling demand for U.S. exports might transmit Europe's economic weakness to the U.S. economy will likely keep the Fed from ending its program of quantitative easing and trying to increase interest rates any time soon. As a result, savers have little hope of earning a return on their savings in bank accounts or money market funds. Normally that might induce them to put more of their accumulated savings into the stock market, but while interest rates have been declining again, so too has the stock market, as equity investors also fear weakness being transmitted to the U.S. from Europe. Financial advisers will have to help their clients navigate this difficult time in the stock and bond markets — and there are no easy answers. The strategy will differ for each client, based on the financial situation and risk tolerance of each. For some, that will be to stand pat and wait for interest rates and the stock market to turn. For others, those with higher risk tolerance, now might be the time to increase equity positions, buying when stock prices are lower. Once again, this is an opportunity for advisers to demonstrate their value to their clients by providing sage advice in a worrisome time.