From a Barrons column titled "Deflation also hits investors." (link).
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Consider a widow left with $500,000. She might have earned $20,000 from 4% certificates of deposit issued last year by troubled (but federally insured) banks. When they mature, she'll be lucky to get 1%. That translates to a $15,000 income cut, which likely translates to some serious belt-tightening.
At a 4% yield, she could have drawn down her nest egg by $35,375 a year for 20 years. At a 1% yield, her annual draw would have to shrink by nearly $8,000 a year, to $27,433. If she maintained her $35,000 rate of withdrawal, her nest egg would be depleted five years earlier if she earned 1% instead of 4%.
The impact isn't restricted to retirees. ...
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If you are reading this blog, odds are that you are sophisticated enough to find alternatives to bank CDs. The article covers some of them, and still reaches the conclusion that "there's no easy way out." If a person goes for more risk, they are risking principal. If they go for longer maturities, there is the rate change risk, inflation risk. If they stay in short term, safe investments, the yield is next to nothing.
A large group of Americans do have the bulk of their money in bank CDs. The economic effects of the lower yields, lower retirement income, are going to be felt. Folks that depend on interest income have a lot less to spend. A lot of those folks give some of their money across the generations, so it has a wide ripple effect.
As for the stock market, I got shaken out of IWM by the intra-day sell off. Flat isn't the worst place to be. It gives a person a perspective, and a clarity that often can get clouded when a person has open trading positions.
Flat
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