Impact of low interest rates on retirement

Baby boomers getting ready to retire in today’s low interest rate environment may want to wait awhile, according to a recent report from the Employee Benefit Research Institute. That’s assuming, of course, that low rates are only temporary.

EBRI ran a simulation that would determine the Retirement Readiness Rating for those retiring under current conditions; it assumed today’s low interest rates are a permanent condition. Results showed that between 25 percent and 27 percent of boomers and Gen Xers would run out of money.

But that’s only when viewed in isolation. Factor in other sources of income — such as Social Security, defined benefit annuities, housing equity and other savings — the picture improves. It also looks better for retirees who are trying to finance less than 100 percent of their pre-retirement income.

“Not surprisingly,” the report said, “there appears to be a very limited impact of a low-yield-rate environment on retirement income adequacy for those in the lowest- (preretirement) income quartile, given the relatively small level of defined contribution and IRA assets and the relatively large contribution of Social Security benefits for this group."

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