Retirees, active workers have different views on low interest rates

Low interest rates are a bright spot in a lackluster economic recovery for many Americans, but that's not a view shared by lots of retirees, according to a new survey.

Seventy-two percent of non-retired Americans believe that the benefits of low interest rates outweigh the costs, according to the Wells Fargo-Gallup Investore and Retirement Optimism Index survey conducted May 4-12.

That compares to only 47 percent of retirees.

Low interest rates can make it hard for retirees to live on retirement savings held in interest-yielding investments and hard for those planning a retirement to save ahead in such investments.

One out of three investors responding to the survey said they will delay retirement because of low interest rates, and 34 percent of the retirees acknowledged fears that low interest rates may cause them to outlive their savings.

Another consequence of the low interest rates for retirees has been fewer desirable investment options. The survey found 19 percent of the retired said that low interest rates will cause them to put money in investments they "might have avoided."

Rates are so low on most certificates of deposit's right now that a 1 percent return on a one-year CD is considered good. On Bankrate.com, a popular rate comparison webs ite, the best one-year CD listed offered a rate of 1.110 at CIT Bank. The best three-year CD offered a 1.42 rate.

The condition of interest rates can also have a negative effect on insurance costs, by yielding lower returns on invested premium dollars that insurance companies can use to hold down future premium increases.

The survey cast a further light on how retirees feel about the economy compared to non-retired Americans.

Retirees' optimism about the future direction of the economy fell to 17 from 38 in February on the Wells Fargo/Gallup Investore and Retirement Optimism Index. That compared with an optimism index of 27 for non-retirees, down from 41 in February.

The index was established with a baseline score of 124 in October 1996, peaked at 178 in January 2000, and hit a low of -65 in February 2009.

The survey sampled 1,018 randomly selected investors across the United States, and was comprised of 75 percent non retired and 25 percent retirees.

Timi Kadlec, senior investment strategist for Wells Fargo in Des Moines, said attitudes about low interest rates have changed, resulting in different investment strategies.

"Our thought a couple years ago was that it wouldn't last this long," Kadlec said. The Federal Reserve Board hasn't felt comfortable enough with the economy to raise interest rates, however, yielding the "two-edged sword" of lower interest-denominated earnings and lower borrowing costs.

As a result, Kadlec said retirement financial planning is requiring more diversified portfolios with multiple asset classes. He said stocks with growth potential as well as dividends have become a bigger part of the retirement portfolio.

"People have to take a more holistic approach than they did in the past," he said.

Kadlec said the addition of growth components in the retirement portfolio also meets a need caused by the increased longevity of retirees.

More retirees are carrying debt into retirement, Kadlec said. The low interest rates are reducing the difficulty of carrying that debt, helping to offset their impact on retirement income.