Older Investors Reel at Brink of Plunging Rates : Savings: Although rock-bottom interest rates benefit home buyers, they hurt retirees’ investments.

Back in the early 1980s, with interest rates in the stratosphere, Raymond Spivak looked forward to a carefree retirement on money saved during his 40 years as a garment salesman. In those days, money Spivak deposited in the bank was earning a lofty 15%.

Today, with rates at their lowest level in 28 years, the now-retired Spivak has found that he can no longer afford his comfortable vision. The 76-year-old Laguna Hills resident is working part-time as a product demonstrator in supermarkets and is trying not to worry about how he and his wife, Mary, will get by on sharply reduced income.

“It is very scary,” said Mary Spivak, 77. The couple no longer takes costly vacations, she said, and hunts for senior discounts on clothing and entertainment. Despite their thrifty ways, she said, the plunge in interest rates has forced the couple to dip into their savings to cover expenses.

What concerns the Spivaks, and other retirees, is that rates aren’t likely to rise any time soon. Indeed, Federal Reserve Chairman Alan Greenspan indicated Friday that the Fed may let rates decline further if the economy fails to respond to last month’s one percentage point cut in the discount rate to 3.5%.

While rock-bottom interest rates may be beneficial to people who plan to borrow money, such as first-time home buyers, they hurt retirees who rely on interest from their savings to supplement pensions or Social Security. With rates certain to remain low, these mainly more affluent retirees worry that they will use up the savings that separates them from the ranks of the elderly poor.

“It is a senior’s life’s blood to get good rates,” said former New York City school teacher Jeanette Lambert, who retired in 1972 to the sprawling Leisure World retirement village in Laguna Hills. Lambert, 75, has preserved her lifestyle by investing a large chunk of her savings in the fast-rising stock market. But she said that among her neighbors, who eschew risky stocks, “there are people who are suffering. . . . Some have borrowed from their children.”

While the steep drop in rates has touched everyone, economists say that retired people are most affected. Retirees are more dependent on income from their investments than wage earners. And unlike other demographic groups, retirees don’t benefit much from lower rates because they often don’t need to borrow money for new homes or cars.

Investment income is especially important to people who retired in the 1960s and the 1970s because their pensions were not indexed for inflation, said Lisa Chapman, a financial planner for the brokerage house PaineWebber. Even with today’s low inflation rates, these retirees depend on interest payments to maintain their living standards.

One 75-year-old woman who didn’t want her name used said she notices that fewer of her neighbors are visiting beauty shops around her Laguna Hills retirement community. When in the supermarket, she see that retired people are buying fewer fruits and vegetables to keep costs down. “We have our money in four CDs, and when they come due, I don’t know how we’ll manage,” the woman said.

Over the last 18 months, the Federal Reserve has ratcheted down interest rates, hoping to encourage a surge in consumer spending that would lead to economic recovery. But so far, the dramatic slide in rates--the bank prime lending rate to preferred customers has skidded to 6.5% from 10% in 1990--has failed to spark increased spending. And when it comes to the elderly, low rates have had the paradoxical effect of contributing to the economic malaise by discouraging spending.

“No particular (economic) medication is without side effects,” said Fabian Linden, an economist with the Conference Board, a New York-based research organization, who believes that low rates will ultimately get the economy moving. “So, yes, the elderly are paying a price.”

For Anne Miller of North Hollywood, the plunge in rates on her money market account means fewer “I-love-you presents” for her seven grandchildren. Miller is spending less on herself too. Rather than spend $75 on a oversized bed cushion she coveted, Miller decided to make do with throw pillows whenever she wants to read in bed.

“You would think that if the government wanted people to spend, it would raise rates, not lower them,” said Ruth Mandelate, 78, a former social worker in San Francisco who retired to Leisure World. She said her monthly dividend on her mutual funds has dropped by nearly 20%, and she is confused about what to do with $3,000 she keeps close at hand in a checking account. ‘My son says I can do better than that,” she said. “But how much better?”

For retirees, the slide in interest rates is a return to the low-inflation days of the 1950s and early 1960s. Rates on one-year certificates of deposit, a short-term investment popular with retirees, have skidded to 4.7% from 8.5% just 18 months ago. Last fall, Citibank shaved the rate it pays on interest-bearing checking accounts to 2%, the lowest rate ever.

But while rates have fallen to levels of 30 years ago, retirees complain, prices have not. “I just paid $12 for a small jar of rouge,” said an elderly woman as she waited for her ride from Laguna Hills Mall. “Everything is more expensive.”

Of course, not every retired person feels the effects of lower rates. Fern Benson, 74, never saved enough money in her years as a secretary with the Defense Department to have a portfolio of investments. The Lake Forest resident scrapes by on money she receives for house-sitting in affluent Newport Beach. “I suppose I’d be mad about interest rates if I had enough money for it to make a difference,” Bensen said. “I have a money market account, but there’s only a few thousand in it.”

Other retirees have investments that are less vulnerable to a sudden slide in rates. With his pension from Firestone Tire & Rubber, his life insurance annuity and his Social Security, James Ritchey isn’t too concerned that the rate on his individual retirement account, or IRA, has dropped by almost half. “We don’t depend on it,” said Ritchey, 75, who lives with his wife at Costa del Sol, a retirement community in Mission Viejo. “Of course, it’s nice to have extra money, but we’re comfortable without it.”

Jack Beebe, director of research at the Federal Reserve Bank of San Francisco, believes that Ritchey’s investments are typical. “Retired people tend to invest their savings in long-term instruments,” he said. “These people are getting the same rate today that they were getting a year ago.”

But even for retirees who consider themselves well-off, low rates can be worrisome. With a chunk of her savings in corporate bonds, retired dress designer Shelia Berlind feels somewhat protected from the drop in interest rates. But as the 77-year-old resident of Leisure World looks ahead to May, when a certificate of deposit comes due, she sees few good investment prospects. The two-year CD is now paying 8.5%, but Berlind doubts that she will get more than 5% if she rolls it over.

“These low rates are outrageous,” said Berlind, who with her deceased husband saved for over 30 years for retirement. “Our money should be worth more.”

Times staff writer Ajowa N. Ifateyo contributed to this story.