If low interest rates have posed a challenge for seniors, why then have they done relatively well in terms of consumption and income? I can think of at least four reasons:
- The disappointingly slow wage and employment growth of the past decade has had less impact on seniors than on younger folks.
- Seniors’ social-security income rises with inflation, maintaining their purchasing power. It doesn’t, however, decline when prices fall — a feature from which they profited (modestly) last year.
- Many seniors own annuities or bonds that provide them with fixed payments. Because inflation has been surprisingly low, they’ve gotten more purchasing power from these fixed payments than they could have expected.
- Seniors hold more assets like stocks, bonds, and homes than do younger folks. All of these assets have appreciated a lot over the past seven years, providing seniors with a source of spending money that offsets some of the effect of low interest rates.
That is from Narayana Kocherlakota, there is more at the link. I am pleased to see a commentator make progress on this all-important problem.
Do you know what? Most other government programs favor seniors too.