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How the European Debt Crisis May Affect Retirees

If you’re a retiree in America, you might think the European debt crisis is far away—and has little to do with you. You would be wrong. If the European economy collapses, it’s entirely possible that it could have a ripple effect felt in markets throughout the world. Here are just a few of the theoretical ways the European debt crisis may have an impact on retirees.

It could hit your retirement

Let’s face it—our global marketplace is intertwined. Wall Street is paying attention to the financial situation in Europe, and if the market crashes there, it’s entirely likely that investor confidence in the US and other countries and regions of the world would be strongly affected as well.

Euros

The European debt crisis could have an impact on all areas of the American economy—including retirement funds and savings account interest rates.

It could be harder for companies and individuals to get a loan

Many North American banks have strong ties to European financial institutions. This means that if the European economy fails, many American banks may suffer financially as well. As a result, American banks may be less willing to make domestic loans—and may make the requirements for taking one out more stringent. This could apply to individuals as well as to companies—and when lending to companies is curtailed, the economy could grind to a halt.

The conversion rate could improve for Americans

The Euro has risen as high as $1.50 to the dollar in the past—making European goods and vacations much more expensive, and discouraging North American tourism. If the European economy is struggling, the Euro could go down considerably in value—making European products and travel much less expensive. While it may be cheaper to travel in Europe, however, tourism still may not thrive—because of societal upheaval that could discourage tourism.

The interest rate on your savings account could go down

The typical European approach to debt control involves austerity measures—which could drive interest rates down not just in Europe, but in America as well. This could have a negative impact on retirees who want to get more interest from their savings and other accounts.

Demand for US goods and services could go down in Europe

The debt crisis in Europe will doubtless mean that Europeans will not be able to afford to buy American goods and services as they would have in the past. This could be a result of the decline of the Euro’s value relative to the dollar as well as less spending money in individual European households and on the part of the government as a whole. Europe is presently an important importer of American products—and a reduction in that demand would have to affect the US economy.

The US economy could stagnate

The European debt crisis could have a strong impact on American savings—reducing interest and making investment markets less stable and profitable. This means American consumers may see their own savings reduced or even eliminated as a result of European stagnation. This means Americans would have less discretionary money to spend—and will be more likely to save than to spend when they do have extra funds. A reduction in domestic spending could spell further bad news for the US economy.

The European debt crisis could have an impact on all areas of the American economy—including retirement funds and savings account interest rates, as well as job creation and exchange rates. If you’re concerned about the European debt crisis, it may be a good idea to talk to your financial advisor—and find out how you can do your best to insulate yourself from the damage that might be caused by continued economic difficulties in Europe.