Retirees are often on the hunt for higher yields from their investments. Since they no longer are working, they rely on the income that their investments generate to pay their living expenses. However, in this low-interest rate environment we live in, retirees have to seek out riskier investments more and more to get that income.
So last week the Federal Reserve announced a new round of QE (quantitative easing). Quantitative Easing is when the fed buys back bonds to get the economy moving. It also means that rates are under pressure to remain low. Low interest rates help businesses and home buyers borrowing money, and thus, improving the economy.
Some typical low risk investments that retirees have turned to in the past:
- Money Markets
All of these are at historic lows. As of this writing, bank money markets have disappeared like a magicians rabbit, and the 10 year treasury is less than 2%. Even with a reasonable sized portfolio you cannot live on these returns.
For example: a $1,000,000 portfolio, generating just 2% would yield a paltry $20,000!
So what is happening, retirees that traditionally placed the majority of their portfolio in low-risk investments are being almost forced into higher yielding and higher risk investments. This trend will continue for the next several years, as the Fed indicated last week to keep rates low through 2015.
What should a retiree seeking income do?
Well, that’s literally a million dollar question! I do have some ideas on how to create income, and do it without hiking the level of risk. Write to me at firstname.lastname@example.org, or call me at (859) 225-2596 so I can help you.