federal reserve

6 ways the Federal Reserve and its low interest rates are hurting retirees

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No. 5: Making safe havens unsafe
No. 5: Making safe havens unsafe © Stephen Mcsweeny/Shutterstock.com

No. 5: Making safe havens unsafe

Many retirees are risk-averse and park a good percentage of their cash in "safe havens," such as savings accounts and CDs. Low returns are forcing many of these older Americans to wade into the more turbulent waters of the stock market, Scott says.

Other retirees are buying bonds with the belief they are safer than stocks. That means Fed policy may be creating a bubble in the bond market that will burst once rates return to normal.

"For 30-plus years, bonds have been safe, and this seems ingrained in the minds of people," Scott says. "But with a rise in rates, these safe assets will lose value."

When interest rates rise, bond prices fall. Investors purchasing new bonds with higher yields will shun existing low-yielding bonds.

Kubik urges investors to consult with a financial adviser and create a plan for dealing with the eventual arrival of higher rates.

"The most important thing investors can do right now is ensure that they are properly positioned for the impending rising interest rate environment," he says.

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