INTEREST-RATE DECLINE LOWERS RETIREE'S STANDARD OF LIVING

                         Roanoke Times
                 Copyright (c) 1995, Landmark Communications, Inc.

DATE: SUNDAY, January 26, 1992                   TAG: 9201280446
SECTION: ECONOMY                    PAGE: 11   EDITION: METRO 
SOURCE: MAG POFF BUSINESS WRITER
DATELINE:                                 LENGTH: Medium
INTEREST-RATE DECLINE LOWERS RETIREE'S STANDARD OF LIVING
One of Doella McManaway's bank certificates matured in mid-December. When she renewed it at today's interest rates, her income fell $40 a month.
Multiply that by the six to eight certificates that constitute the Roanoke woman's savings and it's obvious that plummeting interest rates drag sharply on her standard of living.
McManaway, who is retired and in her 70s, has other sources of pension income. But without income from savings certificates, she said, "I couldn't live in this house and keep my quality of living up." Her home is on Thorndale Road Southwest, not far from Towers Shopping Center.
McManaway said many friends, with whom she plays bridge, are really suffering because of their declining incomes.
She hasn't been seriously hurt so far but, she said, "it's just cut me down. I feel very limited compared to what I did."
Lower interest rates paid on savings are, for many people, among the most visible signs of recession. The economic slowdown has effectively held down inflation in the cost of most consumer goods. But it also means a lack of demand for borrowing by businesses and individuals, meaning lower income for banks, which in turn pay lower rates on savings.
Today's economy, in fact, has driven McManaway into a less conservative investment program. As some insured bank certificates have come due, she has shifted "right much" of her money into municipal bonds.
McManaway feels "yes and no" about how comfortably her alternate investment fits.
On one hand, she likes the return and the income tax shelter provided by bonds backed by local governments.
But, unlike bank certificates that come due regularly, money invested in a bond is for 10 to 20 years. "I'd rather not have it tied up in them," McManaway said.
The crunch hits especially hard at retirees who otherwise live on a fixed income.
Kevin McCullough, a staff member of the League of Older Americans in Roanoke, said people working there are "panicking because our annuities are dropping so much."
It may be a long time before economic recovery triggers another climb in interest rates.
Christine Chmura, an economist with Crestar Financial Corp., said the bank is not predicting an upturn before autumn.
The Federal Reserve tries to stimulate the economy by forcing interest rates down, she explained.
As the economy heats up again, Chmura said, the nation's central bank will push up the rates in an attempt to control inflation.
Chmura agreed that savers like McManaway are hurt by the decline in the interest rate market. "That's tough when you live on a fixed income," she said.
On the other hand, Chmura said, families are better able to handle their bills when the interest charges are lower.
Adjustable rate mortgages and home equity lines carry lower monthly payments, she said, giving families more money to spend. And many people who financed their homes in higher markets are rushing to refinance those mortgages at today's more favorable rates.
So interest rates cut both ways, Chmura said, helping some people while hurting others.
The same will be true when the rates rise. That will hurt those families who fail to take advantage of today's opportunity to lower their burden of debt.

by Archana Subramaniam by CNB