Monday, June 24, 2013
Retirees need to see infrastructure spending to help bond portfolios
Rick Newman is writing on Yahoo! finance that rising interest rates as imputed by Bernanke won’t help savers, because the rates affected are mostly long term, as in this article.
The unfortunate effect on retirees is that bond funds drop in market value (because of higher rates and because the Fed and China may not buy as many of them) and higher yields are slow to re-enter, to produce income, because older bonds have to mature. And stocks drop. Total nest eggs can drop 20% easily,
The Fed’s action may have been motivated by a desire to defuse a future debt ceiling crisis, which some people say could jeopardized Social Security payments (but we don’t think so, as we have explained recently).
The best policy hope for retirees is for some big infrastructure projects (schools, roads, railroads, communications, and especially hardening the power grid) – upping the demand for bonds. Obama might be good for this.