What If Returns Do Not Go Up?

Prime Rate - You Get Much Lower

A lot of retirement planning are based on a 7% rate of return.   Especially pension plans that are not subject to change.  With the Federal Government keeping interest rates artificially low these pension plans are having a hard time delivering.

Additionally the amount of money that people not on pensions have to save prior to retiring is going way up as they count on dividends in the 1% range and not the 7% range, causing many to delay retirement or just put it off.

Consider this, the Government debt service is $169 Billion this year.  That is interest only, and that is at artifically low rates, rates the Government is keeping low as a means to stimulate the economy.  A side effect is if the interest doubles or triples or more, which eventually it will, the Government will be looking at upwards of $600 Billion in interest payments.  Or over 1/2 Trillion dollars a year, and that is just the interest payment, never mind principle payment.

The Government has every incentive to keep interest rates low, which hurts pension plans and retirees, which causes them to delay retirement or not to retire, which exacerbates the unemployment problem.

The Federal Government has a big footprint in the economy and right now it hurts.  Government debt and the Government’s attempts to deal with it and the recession are having horrible effects and it’s going to get worse.

This will cause people to take more risk at a time they should be dialing it back.