Neil Silverman, a Framingham engineer, diligently saved for decades, accumulating a nest egg worth more than $1 million.
But when Silverman reached retirement age, he encountered an unexpected hurdle: interest rates so low that his savings are generating little income. Even $1 million in the bank at 1 percent interest yields just $10,000 a year — not much to live on.
So at 69, Silverman says, "I'm the proverbial retiree next door and I can't afford to retire."
Just when you thought rates on popular savings vehicles couldn't possibly go lower, they do. The average interest on a savings account is 0.08 percent a year, down one-third from last year, according to the Federal Deposit Insurance Corp. That means $10,000 would generate just $8 a year in interest.
Rates for those willing to lock up their savings for years are just as paltry. The average yield for five-year CDs dropped below 1 percent for the first time on record last month, down from more than 4 percent in early 2007 and down roughly one-third from last fall, according to survey by Bankrate.com , a financial news site.
Ultra-low rates are a by-product of the Federal Reserve's efforts to revive the economy by making it cheaper for Americans to borrow money for everything from purchasing a home to investing in a new business. But what has been good for borrowers has been bad for savers, especially seniors who depend on interest from savings to supplement their income.
Rates have continued to fall since the Fed pledged last month to keep interest rates down through 2015 to try to boost the economy. Analysts predict rates will remain on a downward trend in coming months.
"The outlook for savers is very bleak," said Bankrate.com analyst Greg McBride. "It's going to be a slow drip, drip, drip."
Bank of America, the biggest bank in Massachusetts, is now offering just 0.01 percent interest a year on its regular savings account, down from 0.05 percent earlier this year. And rivals are not offering much better rates. Even Internet banks typically offer no more than 1 percent interest.
The low rates have forced a growing number of seniors to keep working, invest in riskier securities, or cut back on vacations, gifts, and other expenses. A national survey released last month found that 42 percent of the retirees polled have had to curb spending, partly because their savings yield so little.
"It is unfair that, after a lifetime of saving, they are getting no reward for that saving," said Laura Varas, a principal with Hearts & Wallets in Hingham, which conducted the survey.
Varas said the low rates also discourage younger workers from saving to buy a home or to fund retirement. But she said the impact is particularly severe on the millions of middle-class seniors who were counting on savings to supplement their Social Security and pension checks.
The central bank's efforts to reduce interest rates have already sparked some grumbling by seniors. Even the Fed's chairman, Ben Bernanke, acknowledged the toll rock-bottom rates are taking on savings accounts but said in the long term they could help buoy the value of other assets — such as homes and businesses — and ultimately create jobs.
"While low interest rates do impose some costs, Americans will ultimately benefit most from the healthy and growing economy that low interest rates help promote," Bernanke said last month.
Meanwhile, many seniors have been forced to find creative ways to boost their income.
Many, for instance, have scoured the Internet for credit unions and banks that offer CD specials or higher rates for savings deposits. But the promotions often carry caveats or expire after a few months, forcing savers to frequently move their money to maintain the highest rates, said Ken Tumin. He is cofounder of a site called DepositAccounts.com, which tracks the best rates.
And, Tumin said, the deals are less spectacular than they once were because banks are not hungry for deposits, in part because people traded stocks for the safety of bank accounts after the financial crisis.
Bob Marcotte, a 62-year-old retired telephone company manager, said he moves money around about twice a month to try to take advantage of such promotions. For instance, he just signed up for a 4 percent one-year rate at a credit union — but the CD was limited to $4,000.
Marcotte, who has most of his savings in bank deposits, estimates he is earning nearly 3 percent a year on interest overall — largely because he locked in higher CD rates several years ago. But his income keeps declining as the old CDs expire because the new ones pay less.
If he were still working, Marcotte said, he would not retire for fear of eventually exhausting his savings. "Why take the risk with these low savings rates?"
Seniors do not have many alternatives. Money market mutual funds, which traditionally offered better yields than bank accounts, currently return just 0.06 percent a year, on average, according to Crane Data of Westborough.
Some advisers recommend that seniors invest a portion of their savings in bonds, dividend-paying stocks, and other investments. But bond yields have plunged along with interest rates. And many seniors are wary of stocks, since they do not have decades to recover from market drops.
"The stock market is pretty volatile," said Kathleen Dollard, a certified financial planner at Nashoba Financial Planning in Boxborough. "Most of my clients have to be pretty conservative."
Dollard said the problem is compounded by the fact that many seniors have watched their home values plummet in recent years, erasing another key part of their net worth.
Silverman, the engineer who works at MIT Lincoln Laboratory, said he could easily retire if CDs paid 5 or 6 percent annually. But that doesn't appear likely anytime soon. His best alternative?
"I am going to keep working," he said.