Pandemics Are The Retiree's Ultimate Enemy

The Annuity Man

Allison Bell's recent article in ThinkAdvisor gave in-depth factual reasons and historical data that show why pandemics are the retiree's ultimate enemy.  Researchers went through over 700 years of records and found very bad news for fixed income investors.

Below are some tidbits from Allison's article.

"COVID-19 is everyone’s enemy because it kills and frightens people, and because it has forced communities around the world to try to defend themselves by “sheltering in place.”

COVID-19 is the retiree’s enemy because the fatality right for older people who are hospitalized with the disease is very hard.

And COVID-19 could be the retiree’s enemy because it could be terrible for fixed annuity issuers, annuity benefits guarantee providers, bond fund managers, and anyone counting on income from a portfolio of bonds or other fixed-income investments."

Then she shifts to the research and history.  A few excerpts are below.

"Past performance is no guarantee of future results.  Jordà and his colleagues note that the effects of COVID-19 could turn out to be different from the effects of earlier pandemics, both because the economy is different and because COVID-19 seems to deadlier to people who are already retired.  Many of the earlier pandemics were more dangerous to working-age people, or about as dangerous to working-age people as to older people.

Pandemics seem to lower interest rates for about 40 years after the pandemics strike.  Jordà and his colleagues found that underlying interest rates following pandemics in Europe held steady for a few years after the pandemics, then fell by about 0.5 percentage points to 2.5 percentage points below the expected, inflation-adjusted interest rates by a point about 20 years after the pandemics.

Average interest rates were still about 0.5 percentage points below the expected, inflation-adjusted rates 40 years after a pandemic ended.

"These results are staggering and speak of the disproportionate effects on the labor force relative to land (and later capital) that pandemics had throughout centuries,” the researchers write."

This article is definitely worth your time to read.  No excuses!

Stan The Annuity Man