How Fed Policy Has Devastated Three Generations of RetireesDennis Miller, Senior Editor Over the past few years, the Federal Reserve has moved from simple interest rate manipulation to wholesale market interference with the goal of maintaining bank solvency and equity prices. This steamroller-style interference in the markets has had massive consequences. And not just for the Baby Boomers who are now hitting retirement age, but also for their children and childrens childrenthree American generations whose retirement hopes have been left to swing in the wind on a string of broken promises. Baby Boomers Get Their Risk On The Baby Boomer generation (born 1946 1964) is quite used to adjusting to ever-changing conditions when it comes to retirement. For decades, receiving a pension was what one looked forward to for their old age. But as you can see in the chart below, at least in the private sector that idea has become as extinct as a T-rex. The markets frequent large corrections have had a sobering effect on Boomers investment behavior. In an attempt to avoid the swings while still making money to live off, Boomers have flooded the bond market with money and significantly reduced their stock market exposure. Its true that since the bursting of the housing bubble in 2007, major indexes have recovered to a point where anyone who stayed put after the crash should have been made whole again. Yet the actual market participation by the Boomers has been considerably lowerthrice bitten, twice shymeaning many missed out on the equity markets recovery. Instead, hundreds of billions of dollars flowed into the bond markets over the past five years, as evidenced by the $50 billion upswing in bond ETF assets in 2012, and the $125 billion in bond-based mutual fund net inflows over the same period. Boomers have suffered more losses and settled for lower income than ever before. The double whammy took a serious toll on the retirement dreams of many. But that was OK, because there was always Social Security as a backstop. Its become increasingly obvious, though, that Social Security is not keeping up with the times. Heres a chart of official consumer inflation vs. the real numbers calculated by economist John Williams of ShadowStats (he uses the US governments unadulterated accounting methods of the 1980s). While the official number is 2%, real inflation is in the 9% range. Between the downfall of the pension, Boomers eschewing of the stock market, and the governments zero interest rate policy, for many Americans retiring in their sixties has become little more than wishful thinkingand a financially comfortable retirement now requires taking significantly more risk than most are willing or able to handle. Generation X Strikes Out Traditionally, the 45-55 age group has been the most fervent retirement savers, but that has changed drastically in the last 25 years. As you can see in this chart, the most rapid declines in participation rate for the black line (age 45-54) coincide with major dips in the market, such as in 2001 and 2007. According to the Pew Research Center, Gen-Xers and Baby Boomers alike have much lower asset-to-debt ratios than older groups. Whereas War and Depression babies got rid of debt over the past 20 years, Boomers and Gen-Xers were adding to their load: That situation deteriorated further in the last six years; while all groups lost money in the Great Recession, the Gen-Xers were the hardest-hit. As Early and Late Boomers struggled with asset depreciation of 28% and 25%, respectively, Gen-Xers lost almost half (45%) of their already smaller wealth. They also lost 27% of home equity during the crisis, the largest percentage loss of the groups studied by Pew. The effects of a prolonged period of low interest rates on current and near-term retirees are obvious. But the long-term effects on those now in their early years of working and saving may be much greater. As powerful a tool as long-term compounding is, though, nothing can cut the legs out from under it more than saving less early on or earning less in the first few years. Any small change to the input has a drastic effect on what comes out the far end. The Millennialsthose born between 1981 and 2000are suffering from both right now. Its no secret that interest rates are low, and there is little that their generation, whose oldest members are now in their early thirties, can do about it. Shrinking interest rates are wreaking real havoc on the Boomers children, extending the time to retirement for that generation by nearly a decade. Why would any politician pass legislation to change Social Security eligibility, a measure that usually doesnt bode well for reelection, if they can simply rely on fiscal policy to accomplish the same net effect? To make matters worse, the years of financial turmoil, a tough post-college job market, high levels of student loans, and numerous other factors have kept most Millennials out of the stock markets. Millennials are far less likely to open a retirement savings account than previous generations. According to a recent Wells Fargo survey, In companies that do not automatically enroll eligible employees, just 13.4% of Millennials participate in the plan. This is worse even than the number EBRI collected in the graph presented earlier, which still pegged retirement plan participation rates at all-time lows for the 20-something set. Only a small percentage of Millennials are taking even the most basic step toward taking charge of their own retirement. With their parents and grandparents showing them the failure of the pension system and Social Security first-hand, one would think the opposite might be true. But the numbers clearly show that Millennials are less interested in saving for their future retirement than their parents were. Having seen it happen to their own grandparents, maybe they are just resigned to the idea that theyll have to work well into their golden years anyway. And who could blame their generation for not trusting the stock markets with their capital after seeing what happened to their parents nest eggs so many times during their own childhoods? The youngest working generation is eschewing investment, at what might be a great cost down the road. Adapt to Survive Multiple years of shrinking interest rates, thanks to heavy bond buying by the Federal Reserve in its Quantitative Easing program, have taken an immense toll on generations of savers. The increased risk that current and future retirees have to take on to meet their income needs has left many shaken and financially insecure. As a result, many are now looking to new strategies to make up for the shortfall the Feds zero interest rate policy has createdshifting their focus from bonds to dividend-paying stocks and adapting as they go along. The tremendous challenges American savers and income investors are facingand the best investment strategies to ensure a comfortable retirementwill be discussed in Americas Broken Promise, a must-watch online event hosted by Casey Research. Join FOX Business News host John Stossel, former US Comptroller General David M. Walker, and investment experts Jeff White, Dennis Miller, and David Galland in this crucial and timely discussion. Registration is freeclick here to save your seat. 