President Donald Trump has long been pushing for lower U.S. interest rates, exerting pressure on the Federal Reserve — despite the fact that the central bank is not controlled by the president. If Trump gets his way, however, there could be ripple effects across the economy, some of which will impact retirees.
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Here’s a look at how retirees could benefit if interest rates were lower.
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Increased Portfolio Values
Retirees could see a boost in their investment portfolios in a lower interest rate environment.
“Lower rates tend to boost equity markets by making borrowing cheaper and pushing investors toward riskier, higher-return assets, so this could benefit retirees’ stock portfolios,” said Dr. Shawn DuBravac, economist and CEO of Avrio Institute.
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Cheaper Debt
Debt gets cheaper when interest rates decrease, which could benefit some retirees.
“Retirees who still carry debt, like mortgages or personal loans, may benefit from reduced interest expenses, improving their monthly cash flow,” DuBravac said.
More Affordable Annuities
Lower interest rates can benefit retirees who want to add annuities to their retirement portfolios.
“For retirees considering annuities, lower rates can lead to better pricing on certain variable annuities that rely on market performance or benefit from falling rates,” DuBravac said.
A More Stable Economy
Lower interest rates could mean “a lesser risk for a recession and a thriving economy,” said Joel Russo, owner and retirement advisor at NJ Retirement Planning in Sea Girt, New Jersey. This means less risk that assets in retirement accounts would lose value.
There Are Risks, Too
While lower interest rates could benefit retirees’ finances, there would also be some possible downsides.
“Retirees who rely on income from CDs, bonds or money market accounts will likely see those returns shrink, and that can in turn hurt their ability to generate stable income,” DuBravac said. “Lower rates can put upward pressure on inflation, which can erode purchasing power. This can be especially impactful for retirees on fixed incomes.”
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Sources
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Dr. Shawn DuBravac, Avrio Institute
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Joel Russo, NJ Retirement Planning
This article originally appeared on GOBankingRates.com: Trump Wants To Lower Interest Rates: 4 Ways That Could Benefit Retirees
