Historically low interest rates that have dramatically affected how pre-retirees manage their portfolios are expected to go up over the next five years, according to the latest projections from the Congressional Budget Office.
Between 2014 and 2019, the CBO expects the interest rate on three-month Treasury bills to rise to 3.5 percent, from where it is now, at 0.1 percent.
The 10-year Treasury rate is expected to rise to 4.7 percent, from 2.8 percent. Both rates are then projected to stabilize through 2024.
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CBO expects continued slack in the labor market, and low inflation during the next few years.
The Federal Reserve has stated that it expects to keep its target for the federal funds rate near zero so long as the labor market continues to remain weak.
The projected rise in the 10-year Treasury will affect the government's borrowing costs, and potentially add to the deficit. CBO projects that the average rate on debt held by the public will rise from 1.8 percent this year to 3.9 percent a decade from now.
The latest interest rate projections are lower than the projections the CBO made earlier in the year. The new estimations were based in part by considering the effect of an aging population on the country's savings rate. As boomers retire, a smaller number of workers will be saving relative to the number of retirees drawing on their savings.
That will decrease the amount of money available to be invested, which in part will keep rates lower than previously projected, according to the CBO.
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Nick Thornton
Nick Thornton is a financial writer covering retirement and health care issues for BenefitsPRO and ALM Media. He greatly enjoys learning from the vast minds in the legal, academic, advisory and money management communities when covering the retirement space. He's also written on international marketing trends, financial institution risk management, defense and energy issues, the restaurant industry in New York City, surfing, cigars, rum, travel, and fishing. When not writing, he's pushing into some land or water.
