Seniors and the Need for Income

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Seniors have had a difficult time during the pandemic as they are the most vulnerable demographic group and often suffered the worst effects. The fear of getting sick and the resulting isolation to avoid exposure has had a dramatic impact on their well being and quality of life.

Making matters worse, the traditional source of income for many retired Seniors, interest from Bonds and Bank accounts, virtually disappeared when the Federal Reserve embarked on its aggressive low interest rate program. Currently, the Fed Funds rate is near zero, so money markets funds and bank accounts provide little income. In addition, the Fed’s accommodative policy of buying approximately $120B in longer dated bonds each month has kept those rates historically low as well.

The Fed’s actions were justified to support a faltering economy, but Seniors are experiencing collateral damage. As a group, they are turning to other sources of income to supplement their retirements such as lower quality bonds or dividend paying stocks. Although these investments provide greater income, Seniors are taking on more risk than would be advisable given their age group. In the event of a market downturn, losses could be devastating and threaten the ability to maintain their way of life.

In the past year, Congress has approved direct payments to stimulate the economy, extend unemployment benefits and in some cases, paid off debts on a tax-free basis. There is discussion underway to forgive student debt up to $50K and extend childcare credits. Except for direct payments, the remaining measures do little to benefit Seniors.

I suggest that Congress consider a direct measure to help Seniors during this period of crisis by providing relief by waiving taxes on Traditional IRA withdrawals, albeit with a defined maximum. Withdrawals would supplement incomes diminished by the low interest rate environment and discourage people from taking on excessive risks just to make ends meet. An added benefit to such a measure would be little immediate impact on the deficit since taxes on these funds would normally be paid over decades.