From Zero Interest Rate To Zero Retirement: How The Fed Doomed Elderly Americans To Endless Work

Tyler Durden's picture

Excerpted from PIMCO Viewpoints: What's Your Number at the Zero Bound?

The math of what happens when assumed rates of return go down, driven by a pro-active ZIRP from the Fed, is pretty straightforward. To make up for this, PIMCO notes that those approaching retirement have three choices: a) save more, b) work longer, or c) tighten their belts in retirement. Each of these are clear, individual family choices, but what happens when the whole of society is faced with the same dilemma? What works for one household can be grossly sub-optimal for society.

For now, let us assume that Americans would reject the idea of pre-commitment to significant future belt tightening. They may find that when they get to retirement they have little choice, but this is not something it seems they would rationally choose before having to do so.

If everyone saves more, we consume less, and therefore GDP growth slows down. Anemic growth leads to a Fed on hold for a prolonged period. If expectations for how long the Fed will be on hold are extended, low interest rates – particularly real ones – are the end result.

Given that the personal savings rate is a low 4.2%, significantly below the 6.9% average over the past 50 years, it is hard to argue that we are experiencing the paradox of thrift – at least not yet. We believe that there is a distinct wedge between households’ desired savings and actual savings driven by budget constraints. Less explored is the linkage between “working longer” and interest rates. The right side of Figure 1 shows a possible feedback loop for that cycle – which has the same end result as the Paradox of Thrift, but gets there through a different mechanism.

Here we see low rates leading to longer periods in the work force which would lead to a higher fraction of older Americans continuing employment. By construction, if labor force participation goes up, unless jobs go up proportionately, unemployment will rise. Given the Fed’s dual mandate – 1) fight inflation, 2) stimulate growth/lower unemployment – the central bank’s natural response will be to keep rates low, thus completing the circle.

The crux of the argument hinges on two things. First, if elderly labor force participation goes up and there is not an offsetting drop among other age groups, and second, whether there is empirical proof that low rates can be linked to higher labor force participation among older Americans. With respect to the first item, if there were a compensating drop in labor supply among other age cohorts, causing the unemployment rate to be unchanged, that would be unambiguously bad as these individuals are of prime working age. This would indicate serious structural issues and would likely be paired with slow economic growth. Figures 2 and 3 present support for the argument that low interest rates go hand-in-hand with high labor force participation among the elderly.

Figure 2 shows a 50-year history of 10-year Treasury yields versus labor force participation for those Americans over age 65. The axis for labor force participation is inverted to highlight the relationship. Over a long period, as yields rise, participation falls, and vice versa

Figure 3 regresses participation on the level of the 10-year rate and its squared value, as the relationship is distinctly non-linear. Elderly labor force participation displays a “convexity” of sorts – the lower rates go, the greater the inertia of the elderly to stay in the workforce. Note the relationship is not perfect, and critics of this argument can point to structural issues in social programs that can give explanation to the time series relationship. It makes sense that elderly participation fell in the 1960s given the passage of Medicare under the Johnson Administration and fell further still given more generous benefits granted in Social Security during the Nixon years. Increases in the Social Security normal retirement age phased in after reform legislation in 1983 induced gradual lengthening of working careers.

Intuitively, low rates leading to longer work lives just makes sense – especially in an era where fewer retirees will draw defined benefit pensions. For those relying more and more on IRAs and 401(k) plans for retirement, the income produced is simply a product of portfolio yield and account balances. They alone bear the risk of market volatility and their own mortality. If anything, we would expect this to tie labor force participation more strongly to yield levels.

This is why some of us are wondering if the Fed is spinning its wheels by sticking to the old model of trying to stimulate growth. Maybe instead of pushing harder on the credit demand side of the ledger by doggedly keeping rates low, central bank policymakers might benefit by looking at other parts of the equation. Specifically, those parts of the puzzle that become more important as America ages.

Work a little longer. Save a little more. Get by with a little less. It’s like each of our numbers is tied to a hot air balloon that seems to rise higher as we get a little closer. Given our outlook for growth and the Fed’s renewed commitment to keeping rates at ”exceptionally low levels” at least through mid-2015, it could be quite a while before those numbers are within reach.

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hedgeless_horseman's picture



My 74 year old parents just refi'd their $130k track house to a $350 lower payment last month.  I asked mom what the interest rate or term is on the new note, and she did not know.  All she knows is that it is a fixed rate and the "rent" will never go up. 

They live on social security and have less than $25,000 in savings, but enough tangible items.

They don't work, they just garden all day, watch television every night, and go to the doctor every 90 days so he can tell them they are not dead, yet.

Thanks, Ben!

gmak's picture

I dont mean to be disrespectful, but why on earth do they still have debt at age 74? Their house should have been paid off 10 years ago. 

hedgeless_horseman's picture



Bankruptcy in the early 80s and cash-out refis in the 90s and 00s is how.  My cousin's husband was a mortgage broker, now he drives a fracking truck.

For the banks, the housing boom was never really about the asset, but rather about the transaction and interest payments.

I think we would all be shocked to learn how many of their generation are in the exact same leaky piece-of-shit boat.

In the end after they are dead, and the bank gets it, that house will be worth little or nothing, which is fine.  The big thing for me was to never expect to get an inheritance.

duo's picture

There are millions of inheritances being spent by seniors trying to stay afloat.  Some of this is multi-generation savings that ZIRP is destrying.  I have a neighbor down the street that did the right thing, saved a few million dollars, and at 0.25% doesn't have the money to do much more than watch TV.  Five years ago he bought a new car every year and had all sorts of upgrades being done on his house.  Now, nothing but TV.

francis_sawyer's picture

Carousel at 30 bitchez!...

MachoMan's picture

rent houses - ~10%

farm land - ~3-15%

He can find something better than .25%...  and it might even be a bit more tangible and/or provide more utility than a government note.

The Alarmist's picture

"I dont mean to be disrespectful, but why on earth do they still have debt at age 74? Their house should have been paid off 10 years ago. "

It's the American way, my friend. The one-way transfer of property rights to our ruling classes.

MachoMan's picture

Why not?  Head into the great abyss with a giant tab...  they gonna garnish your bones?  I'm pretty sure the worms will beat them to it.

LetThemEatRand's picture

"did the right thing, saved a few million dollars"

I know what you're trying to say, but I can't help but point out that the large majority of people could not accumulate a "few million" dollars if they saved 100% of their income during their entire lifetimes, much less do so and buy a new car every year and fix up the homestead to boot.  Yet that is pretty much a baseline to be able to retire without a pension if you intend to live a while and use the hospital from time to time.

duo's picture

Those people born during the Depression tended to avoid debt and buying things they hadn't saved for.

MachoMan's picture

Actually, not at all...  the people who tend to avoid debt and buying things they haven't saved for are the ones that were burned during the depression...  children remember it more as that bad time where people had dirt on their faces and were hungry a lot...  that bad time that has nothing to do with the present...  now gimme my reverse mortgage mr bionic man, pappa wants a new scooter to ride around walmart

css1971's picture

Saving $200 per month ($2400pa) for 45 years with 10% interest/dividend/capital gain would just about do it. That's projecting the starting buying power into the future. Anything which reduces the % needs to be eliminated, particularly fund fees for example. By the end of the time you're earning the future equivalent of $150k pa.

The best thing you can do for your kids today is give them a 20 year head start. Compounding does the rest.

10% pa is ambitious but not impossible and I appreciate there are a lot of people who can't afford to save $2400 pa. There are a lot who could but don't.

LetThemEatRand's picture

If you save $2400/year for 45 years, you have saved only $108,000.  Current interest rates are effectively zero.  So you are advocating an aggressive equity position to turn that $100K of investment into millions, which assumes year-by-year wise investments in a market that will continue to go up on average 10% a year for the next 45 years.   Seems more likely to me that the person is going to be hit by lightning while winning the lotto. 

NotApplicable's picture

You sound like the rest of those insurance salesman who never heard of the power of the Federal Reserve nor bother to consider "saving" in light of purchasing power.

As for 10%, I'd say it's wholly ludicrous rather than merely ambitious.

Simply put, your story would make a nice side-show at the Bernanke Carnival. Anybody who thinks you can save wealth via dollars isn't really thinking.

slaughterer's picture

My father was living off the dividends of BAC/C until 2007--he died in April 2008, before he could see his way of providing for himself get swallowed into the abyss. 

Popo's picture

Oh please, you don't sound disrespectful, you just sound 22.  Slightly more than half of all Americans own their home.  This whole "supposed to own" thing is a convenient policy canard.   On top of that, how many people do you know who own properties and rent them out?  That business wouldn't exist if there weren't millions of renters out there.

I know dozens and dozens of people who rent, and so do you.  Are you "supposed" to buy an artificially inflated asset?   Is now a "good time to buy"?   Are we "supposed" to be debt serfs?

And how many men do you know who lost their houses to their wives in divorce?   I have two close friends who *did* own their house.  Now their renting in their 50's with their 2nd wives.   They have no intention of buying another house to give away.   I have another friend who bankrupted himself paying for healthcare due to an illness that nearly killed him.  Now he's a shadow of his former self and deeply in debt.

"Supposed to"?

Life doesn't always work as planned...

derek_vineyard's picture

interest rates near zero.....retirement rate nearing zero........betcha VIX is soon to follow......boy I love an engineered depression

q99x2's picture

That's why I'm waiting to find a wife with 2 houses before I re-marry. One for me and one for her.

LetThemEatRand's picture

"Life doesn't always work as planned..."

Sure it does.  It's all there laid out perfectly in the holy Rand works.  You just need to take personal responsibility and be productive.  For example, take responsibility for your own cancer when you find out that the health insurance you paid for has a life-time maximum that gets used up in a few months.   Shared risk and pooling of resources is for marxists..

ATM's picture

Do you mean forced risk sharing, like we are experiencing witht he risk assets that the Fed is "buying"? Or do you mean shared risk where I am forced to buy a government phantom of a pension in social security? 

seems that when your beloved government becomes involved the risk is shared and the rewards disappear. Funny, I thought bureaucrats were the ones we are suppoed to have Hope in and believe. I guess they just don't get enough money fromt hose greedy people who hope to take care of themselves. 

Jack Burton's picture

MS RAND, for all here shooting off of her big mouth, took full advantage of shared risk when she took Social Security and Medicare when she became older. No hesitation on her part when she needed it. Personal responsibility? It was all in her mind, in reality her writtings are a giant hoax in service of a thieving elite 1%. Many of whom didn't work for their wealth, but got it handed to them in inheritance. Of course Ms. Rand lived in her own mind, a tool of the rich and the connected elite classes.

If this bitch meant what she wrote, why sponge off of government in the end. This PROVES her to be a liar and a fraud. Just another liar tool of an elite that knows it can Bull Shit the American people into anything that screws their own self interests.

LMAOLORI's picture



How is getting back YOUR OWN MONEY that you were forced to pay into Social Security sponging off the government?


Ron Paul, Social Security opponent, acknowledges he receives benefits 


Ron Paul Admits He's On Social Security, Even Though He Believes It's Unconstitutional

Never voted to spend one penny of Social Security money

snip Q: You said in 1988 that you would abolish Social Security. You’re OK with Social Security now?

A: I think we need to offer the kids the chance to get out. But right now, if we don’t save the money, we can’t take care of the other. I never voted to spend one penny of Social Security money. So I’m the one that has saved it.

Jack Burton's picture

Popo, I appreciate your comments. Yes indeed, life happens and it often happens to kick the shit out of well layed plans. Divorce is happening to nearly every second couple, should a home and children be in the picture, the man will be out on his ass. Should he remarry, the family will most likely be renters for life. I agree, nobody SHOULD own their home by retirement age. Just think, buy a home, most people need a 30 mortgage to swing it, say you buy at 40, which is not all that old in the modern era of late development. You still might not get it payed off at age 70!

I respect the young see the world through eyes that haven't yet been met with all the bumps in life. Divorce, job loss, illness, accident, arrest for petty drug offense, you name it. I know so very many people who got caught up in one or the other and though they may be in their 50's find themselves little better fixed up than their 20 something kids.

My daughter is now 27, she has already had a divorce, to a combat soldier who got badly beat up in Iraq and has mental and alcohol problems now as a disabled verteran. They surely never planned on that! But now she is remarried and they do own a starter home and are fighting the battle most young people have to. He had a construction job, now gone with the crash, lucky his father has created a fairly successful small business and he has been able to move in as a bottom rung manager of new stores. Yet his pay is low, small business doesn't pay those Goldman Sachs salaries! She has a college degree which did not tanslate into high paying job, so works for a lawyer as a legal secretaru/law clerk. Again we are talking $12 an hour. They have a new baby, they can not afford to save! Maybe a decade before they can even think of saving.

This economy and the constant threat of medical problems blowing up your savings plans. Divorce, job loss, a host of threats.

No, a person should NOT always be well set by retirement age. You do after all have to live till you get that old, and that is fraught with danger and expenses.

As a side note, I bailed out of markets before the crash of 2008, I was set to earn a nice interest income off of T-Bills, Laddered bank CD's, savings bonds, etc. Well Bernanke has stolen every last dime of my interest income so banks and the government can use my money for free. Hundreds of billions of interest income has been stolen from savers to bail out the speculators. That is a crime, but something an honest working citizen saver can do nothing about. Bernanke is a thief in pay of the Banker Class. A fucking crook!

FreedomGuy's picture

Retirement is actually a modern concept that came to life in the last century. Essentially retirement was living with or near your children. They might inherit your house and you would help take care of kids and small things in the home. You would pass on the wisdom of your lifetime to your kids.

There is no inherent right to retirement. Social Security tries to guarantee it but it is a ponzi and all real money has been stolen and given to others.

css1971's picture

You have any idea what money is?

Oh regional Indian's picture

The old greeters in WALMART always made me feel terrible.

No dignity in doing that at that age. It's a time for quitening, contemplation.... not standing on your feet for hours a day with a smile on your face.

Must be especially galling when a welfare queen and her brood walk in. Very sad.

I heard a brilliant balck woman on KPFA, many moons ago say " You Can jude the state of a nation by who it pays the most money to and how it treats it's elders"...


Telling eh? Between the NFL and Corporate CEO's and Old Age homes and once a year Mother's day card/visit for the one who is keepiing your inheritance at bay, dammit.


Oh regional Indian's picture

Funny, I'm back in India and the Aggressive Hospitality culture is alive and well here.

And walmart is on it's way too, with a recent ruling allowing FDI in BigBox retail.



slaughterer's picture

Worse than the WALMARt greeters are the Publix baggers in FL.  But some of them like being out in the work world, chatting, joking, playing games with the management--keeps them alive.  I have an ambivalent relation to senior employment--increasing heavily in the last year in FL.  

silverserfer's picture

If you dont want to feel akward ORI, dont shop at wallmart!

Oh regional Indian's picture

Thanks Silver, I actually don't. 

But in my student days in the US, I knew or felt little like I know and feel now. BigBox was like a wonderland.


Binko's picture

There is always dignity in performing honest labor. 

Parrotile's picture

True, but the evidence we have before us indicates clearly that there's far, far more income to be made from dishonesty and Institutionalised theft . . . . . .

Landotfree's picture


From Zero Interest Rate To Zero Retirement: How The Fed Doomed Elderly Americans To Endless Work


This is a stupid title.  The Fed can't stop the system from collapsing.   You should be blaming yourself for attaching interest to your medium of exchange.

This is why some of us are wondering if the Fed is spinning its wheels by sticking to the old model of trying to stimulate growth.

The Fed's job is very simple, extend the time till the collapse as long as possible.  That's it, the collapse was always coming, nothing the Fed can do about it than to try convince the lemmings into thinking the helicopters are coming... .thereby delaying the given as long as possible.

Of course the Fed could drive up the overnight rates drastically and it would be curtains out very quickly.   It's over guys.  You guys remind of the thief that triggers the alarm while breaking into a house and getting caught.   The whole time while you are in jail, instead of thinking you should have never broke into the house to start with you focus on how you could have avoided the alarm trigger.   

You attach interest to your medium of exchange and build a system which is based on interest, eventually you will hit max potential then it's all downhill until you hit max. bottom.  


The universe could give a rat's ass about those retired people, those retired people are part of a ponzi system... they should be looking into the mirror because crying at this point isn't going to change a thing.   The system will collapse and there is nothing anyone can do about it.  Those parents of yours are part of the problem, involved in a system which is unsustainable, then when basic Math catches up to them... they cry.   Well, continue to cry the Universe don't give a crap.

Marley's picture

That'll do pig, that'll do.

Landotfree's picture

Calling me names will not change the eventual outcome, that was set in stone before either of us were born.   

Like watching an asteroid coming from a distance.   

Eventually the tanks and weapons will be used to liquidate the unfunded liabilities.

centerline's picture

lol - beat me to the "unfunded liabilities" thing.  Is about as accurate a term as could be applied in a modern economic sense.  Very politically correct.  Scary.

Landotfree's picture

It's kind of funny and kind of sad at the same time.   Once the system is unable to natural expand at and exponential rate, the liabilities become unfunded.   

The only real choice really at that point is how many of the unfunded liabilities have to go and the how they are liquidated.   It's all a balance sheet.  

Last time the Germany got tired of waiting and to be honest the world was begging for it... although everyone wants to deny it.

Unless the lemmings start supplying the unsustainable, the collapse will be starting again in due course.

Jean Valjean's picture

I was thinking the title was bad for a different reason.

Really, all that generation did was make the wrong investments.

If they had converted all their savings into coins in 1964, they'd be just fine right now.

Landotfree's picture

Wouldn't matter, humans would take the coin, lend them to each other and attach interest to it... been there done that.   

Of course, the liquidation would have had to be starting in 1964 as if you have no credit system how are you going to supply the unfunded liabilities?  They would have had to be liquidated or at least a good portion of them.

centerline's picture

Is right on though.  Expecting the Fed and politicians to save us is just stupid.  They can't.  And aren't trying to either.  They are simply manuevering for the next act... an inevtible transition to whatever is coming next... which most likely involves the liquidation of so many "unfunded liabilities."  Indirectly or directly.

Landotfree's picture

Correct.  Nothing anyone can do, really.   I just hope nukes are not used to liquidate the unfunded liabilities, however that maybe the most humane way.  I don't know.

centerline's picture

I hope not.  I could see something limited coming for shock and awe.  But, in general it would contaminate the environment.  The sociopaths that own us want to survive, so I think a full on nuclear event is not likely... unless control is lost.

Landotfree's picture

Hard to know.   Of course, if we knew all the details it wouldn't make for as good of entertainment.   

I am still going for starvation and disease as the number #1/2 killers but tanks could be a good bet too.

Mountainview's picture

Their only objective is reelection. The FED is running out of tools. Congress is a joke and even changing the whole bunch wouldn't help much...Doom is on the elderly and the young...

Tompooz's picture

Something "small" that would limit the pollution (halflife 20 years) to the Northern hemisphere with the worst fallout over a near-uninhabited area.


csmith's picture

"...involves the liquidation of so many unfunded liabilities."


Which goes as follows:

Oh...your promise to pay me $100 is substituted with a promise to pay me $92 or $93. OK then. 


What's the big deal? Let's get on with it.

centerline's picture

All just depends the maximum condition.  Social complexity, limits of creative accounting (exotic financial instruments, shadow banking, etc.), resource constraints, and so forth.

Seems that this time we have hit on all cylinders.  Almost.  Nonetheless, collapse of some sort is inevitable.  And a new cycle will begin.


Jason T's picture

So many folks, even the elderly are in debt.. these low rates are helping those with debt .. it's ass backwards though.  

The sacred puritain values of thrift, hard work and savings are being turned into, get into debt, get Gov't help and supporting ZIRP to help with debt service payments.