Deflation Fixation: Why Even “Safe” Retirement Investors Are In Trouble

People who were smart (or lucky) enough to flee the stock market before the meltdown, into the relative safety of fixed-rate investments like bank CDs and money markets funds, may be better off than the rest of us, especially if they are in or near retirement. But they still have a big problem. 

In an op-ed in yesterday’s Financial Times, NYU economist Nouriel Roubini warns that with the economy grinding to a halt, we face marketplace inertia in the form of stagflation and deflation. This means interest rates at zero or sub zero. So those people who got out of stocks and into fixed-return investments stand to get nothing out of these zero percent financial instruments.

Since even conservative projections of retirement income always count on some modest growth, even the most careful investors are screwed, with nothing to live off but their capital. Of course, they are signifcantly less screwed than those of us who moved our retirement funds after they’d already lost significant value–in effect, closing the barn door after the horse was already out.

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