Roanoke Times
Copyright (c) 1995, Landmark Communications, Inc.
DATE: SUNDAY, February 16, 1992 TAG: 9202140015
SECTION: BUSINESS PAGE: B-1 EDITION: METRO
SOURCE: By CATHERINE WILSON
DATELINE: MIAMI LENGTH: Long
STUNNED RETIREES ADJUST TO FALLING INVESTMENT INCOME
The sticker shock of years past has turned into interest shock for retirees holding certificates of deposits.Retirees have grumbled, looked around at the alternatives and called their investment counselors in droves in recent weeks.
Shearson Lehman Bros. put out a booklet titled "Curing the CD Rate Blues," but Bill Addiss, the company's national sales manager for fixed-income accounts, said it "should be subtitled `How to Minimize Rate Shock.' "
People got accustomed to double-digit interest rates but with many CDs drooping below 4 percent, their investment income has dropped, sometimes by more than half.
Howard Miller, 77, of St. Petersburg, Fla., like many counterparts across the nation, is switching from CDs to Ginnie Mae securities, but he estimates he still will lose $8,000 income this year on the investments. His other primary source of income is $7,300 from Social Security.
"I'll tell you I am on a fixed income. I have no pension plan," he said. "I was self-employed in Ohio in the restaurant business for 27 years, so all I have is my Social Security, and it's tough."
Miller has cut out trips to see his children in Ohio and might have to consider moving out of his waterfront condominium.
"I could survive for two years, but after that . . .," he said, his voice trailing off.
Although inflation is down, rising health care costs and higher property taxes coupled with the falling income are causing an unanticipated financial pinch.
A Florida study found in 1990 that Social Security was the main source of income for 44 percent of those 60 and over. And 31 percent of those retirees reported income under $10,000.
With the drop in interest income, "you'll see a real cutting back on any discretionary use of income, and people will just pull in their sails a little bit," said Max Rothman, executive director of the Southeast Florida Center on Aging at Florida International University in Miami. "Depending on where they are on the economic ladder, that may or may not be critical."
Craig Hoogstra, director of financial services for the American Association of Retired Persons in Washington, said some of the group's 33 million members are "at the very minimum very unhappy" about their lost investment income.
Nationally one-fifth of people 65 and over live below the poverty line, but with little to invest they see little consequence from the interest rate changes, he said.
Hardest hit are those who relied on interest from their savings, money markets, CDs and Treasury bills. Those people need interest income not to increase their wealth but to meet day-to-day expenses, Hoogstra said.
"A lot of people I would consider to be surviving. They're not wealthy or they're not indigent," said Rothman. "They're able to make it, and this will simply make it a little more difficult."
Some AARP members have responded to their financial difficulties by boosting holdings in the organization's Ginnie Mae and U.S. Treasury Fund, which is federally insured but the principal is not protected, Hoogstra said. The number of new accounts went up 22 percent last year for a total investment of $3.7 billion.
"That's where our members have voted with their pocketbooks," he said.
The guiding rule for many is to keep their principal intact, no matter what.
"You never know how long you're going to live, but you hope your dollars are going to last until they put you into the ground," said John Thompson of Ventura, Calif., retired co-owner of an oil field service company.
Shearson's Addiss isn't so concerned about the investments themselves as attitudes toward investing.
"The issue is getting investors to understand the difference between savings dollars and investing dollars," he said. "Those lines of demarcation were lost in the '80s. It's not so much something new as back to the basics."
A common fear is that scam artists will target the elderly as unsophisticated investors who are seeking better rates than banks are offering.
"All they see is those big percentage returns, and some unfortunate, unsophisticated people are going to get hurt with that stuff," said Seymour Freed, a retired dentist in West Palm Beach.
He expects his investment income to drop from $80,000 last year possibly to $65,000 this year. He usually takes a long cruise each year but hasn't planned one this year.
"I have to be extremely careful in everything I do, in other words watch my marketing, food, clothes, the whole nine yards," said Lea Downer, a postmaster's widow in Hampton, N.H. "I have to think about what's going to happen tomorrow and next week."
She's already shifted money from CDs to government securities but, like many survivors of the Great Depression, she's unwilling to turn to the stock market.
"I don't want to fool around with stock because of the way the country is going right now," said Downer. "I'm not seeing that we're coming out of a recession."