low interest rates

Seniors Can Have a Silver Lining

I am going to post an article in two parts that discusses why there is a potential silver lining for seniors due to a number of factors.  Although low interest rates have impacted savings and investments, they have created an excellent opportunity in mortgage rates.  Plus property values have increased by two figures.

The “Silver Lining”.

Reverse Mortgages a Silver Lining of Low Interest Rates for Seniors
Posted By Alyssa Gerace On June 19, 2013 @ 5:44 pm In Data,News,Reverse Mortgage | 1 Comment

The historically low interest rates stemming from federal economic recovery efforts negatively affect seniors’ annuity investments, but the impact on reverse mortgages presents a silver lining, suggests research recently published by the Boston College Center for Retirement Research (CRR).

While more than half of today’s households will not have enough retirement income to maintain their preretirement standard of living as of 2010, low interest rates are not necessarily to blame, the CRR finds in an issue brief [1] on the impact of interest rates on the national retirement risk index (NRRI).

“Households are less vulnerable than expected to today’s historically low interest rates, but higher interest rates would also provide no real cure to the problem of inadequate retirement saving,” the brief says.

A few factors explain the minor impact of low interest rates to senior households, including the muted effect interest rate changes have on annuity income.

“One’s initial thought might be that a doubling of interest rates would lead to a doubling of retirement income,” says the CRR. “But annuity payouts consist of a return of principal along with interest earnings. Since changes in interest rates only affect the interest portion of the annuity payout, the impact on the full annuity payout is much smaller.”

Another reason: financial assets for most households are only a “modest portion” of total wealth—only 10% for middle-income households aged 55-64.

Written by Alyssa Gerace

To be continued in the next post.


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