On March 2nd, Chairman Bernanke testified to Congress and faced pointed questions about the effect of ZIRP and TWIST on retiree finances. He claimed that "something less than 10 percent of all savings by retirees is in the form of fixed-interest instruments like CDs." He said most of the savings were in assets like stocks (and housing) which depend on a strong economy…. The Chairman got it wrong. Oops.

In a just-released Federal Reserve study (which I cited in a previous post) on page 27, table 6 shows the median values of family financial assets in 2007. According to this table, the median value of CDs for retired families is $31.4K and the value of bonds is $83.3K. The value of stocks is only $30.1K (and that's from before the most recent big market decline). The table also shows a value of $81.9K for pooled investment funds and $52.4K for retirement accounts. (It's unclear what those accounts hold.) This Federal Reserve study shows that bank CDs comprise a significant portion of the financial holdings of retirees. The study also shows that retirees have seen a large decline in income from 2007 to 2010.

The Fed report is here … there's tons of data here for wonks, including portfolio allocations based on years of education. I submit (without any supporting evidence) that the propensity to consume by retirees is strongly linked to the nominal level of interest rates. I further submit (without any supporting evidence) that retiree consumption habits correlate with other stuff including corporate earnings and afternoon coffee sales at McDonalds restaurants.


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