Log In   ·   Become A Member

Retirement Income Strategies In A Low Interest Rate Environment

Rocco A. Carriero

It's no secret that generating income in retirement is not as easy as it used to be. We've experienced a dramatic decline in interest rates over the past 30 years. According to data published by the Federal Reserve Bank, a 10-year U.S. Treasury note (at constant maturity) yielded just under 11 percent in June 1983, 30 years ago. By June 1993, that same bond yielded 5.96 percent, and it kept trending lower to 3.33 percent ten years ago in June 2003.

Yet today's yield on the 10-year Treasury, in the 2 percent range, pales in comparison. In other words, an individual investing $100,000 in a U.S. Treasury note in April when interest rates were 1.76 percent would receive about $147 per month in interest income. That same investment would have earned in excess of $900 per month in 1983, more than five times the cash flow a 10-year Treasury note generates today.

Finding Higher Income

There are few signs that Federal Reserve policy or federal government actions will do much to alter the interest rate environment in any significant way in the near future. While it seems reasonable to expect interest rates to, at least gradually, move higher from today's historically low levels, the timing and severity of such a move is hard to predict.

Retirees or those entering retirement need to look at income strategies differently today. Some solutions could include:

A "Bucket" Approach

Consider setting aside 2 to 3 years' worth of income in cash or cash equivalent assets. This is money that will not earn much return (if any), but will be readily available to meet income needs over the near term without risk of loss. The rest of your assets could be invested within your risk tolerance in a well-diversified portfolio. Though no strategy is perfect, this balance can help a retiree meet short and long term expenses.

Seek Investments That Can Generate Higher Income

You likely have different goals for various investments, so while investing in some more conservative investments make sense, you may hope to generate more income in others. To generate income, there are a variety of options to consider, but investors should take great care in doing so. It's worthwhile to explore different ways to enhance yields you earn from your portfolio, but it should be accomplished by building a diversified mix of assets that are suitable for your risk tolerance. It's generally wise to avoid putting all or most of your money into a single investment to provide an income stream. A financial professional can help you understand and review all of your options and help you design an effective strategy for your circumstances and risk tolerance level.

Annuities

You may want to dedicate a portion of your assets to an annuity that can provide a stable stream of income independent of market conditions. Consistent with the market as a whole, annuity payout rates are lower today than they once were, so this may not solve all of your cash flow needs, but an annuity can help make sure that you have a sufficient income stream to pay essential living costs in retirement. Note that any guarantees, including income, are subject to the claims paying ability of the issuing company.

Cutting Back On Expenses

Finding ways to generate income is usually only part of the solution for investors. Many retirees today are experiencing a reality check about their lifestyles. In today's environment, it may be necessary to determine trade-offs you're willing to make to afford the essential and lifestyle expenses you need and want.

Planning for retirement is complicated so no matter how you choose to invest, do your homework to make sure you understand all of your options and the risks and opportunities associated with current market and economic conditions. Consider meeting with a financial professional that can help you define your risk tolerance and help you prepare for retirement based on your individual goals and circumstances.


Rocco is a Private Wealth Advisor with Ameriprise Financial Services, Inc. in Southampton, NY. He specializes in fee-based financial planning and asset management strategies and has been in practice for over 13 years. Advisors is licensed/registered to do business with U.S. residents only in the states of NY, NJ, TX, MA, PA, NC, NH, UT, NV, CA, NM, WA, VT, MS, MD, RI, FL, MO, SC, GA, MN, CT, AZ. Ameriprise Financial Services Inc., and its representatives do not provide tax or legal advice. Consumers should consult with their tax advisor or attorney regarding their specific situation. Brokerage, investment and financial advisory services are made available through Ameriprise Financial Services, Inc. Member FINRA and SIPC. www.roccocarriero.com


Be the first to comment on this article. (Just fill out the form below)
 

Submit Your Comment

Please note, you are not currently logged in. Your comment will be submitted as a guest.
To submit your comment as a member, please click here.
Your Name:
Location:*
Comments:*
* Comments will be reviewed and posted in a timely fashion
* All fields are required
Question:*
What color is the sky?
(For spam prevention, thanks)
 
 
 
http://www.hamptons.com/gallery/ads/2143.gif
http://www.hamptons.com/gallery/ads/1824.gif
Bridgehampton National Bank
For over 100 years Bridgehampton National Bank has been the East End's hometown bank. Many success stories...one bank, BNB!

Advertise on Hamptons.com - Have your business be seen by over 2 million viewers including NEW searches
Hamptons.com- Our exclusive online magazine has 2.6 million Page Views YTD for 2015. Contact us to join our elite group of clients that benefit from having a presence on the Hamptons award winning publication www.Hamptons.com

CP Complete- Landscape Design & Construction
Paul Guillo And Chris Hall Two Of The Most Respected Names In The Community Together, they are partners in CP Complete. They bring their years of experience and integrity to creating and renovating luxury backyards.

D+J Concepts is known for a high-end cutting edge approach to design.
D+J Concepts is known for a high-end cutting edge approach to design with a balance between functionality and imagination. We skillfully and tastefully transform ordinary spaces into classic modern styles, which are understated, and luxe. We’re known for our modern transitional style incorporating antiques and modern elements for an unexpected edge.

Hamptons luxury real estate specialist for 33 years, Andrea Ackerman offers outstanding expertise in the field.
Hamptons luxury real estate specialist for 33 years, Andrea Ackerman offers outstanding expertise in the field. Trusted, experienced and successful, Andrea has solidified herself as the go-to broker of the Hamptons and a wholehearted advocate for her clients. A pioneer in the real estate industry on the East End of Long Island, she is driven by her passion for the business. Andrea is based in the Bridgehampton office of Brown Harris Stevens as a licensed real estate associate broker and consultant. Formerly, a principal partner and Senior Director at Brown Harris Stevens, Andrea now assists in developing their corporate strategy for the Hamptons region, advising other brokers and sales associates, as well as being one of the top producers and listors.