Last Updated Oct 25, 2011 8:29 PM EDT
Let me be clear: You should indeed be scared by some of these stories. But instead of letting your fear paralyze you, I hope these stories motivate you to take action and fight back.
Let's take a look at some of the most bloodcurdling stories about retirement. Then I'll introduce some strategies that will help you rest in peace during your retirement years. While there are no guarantees in life, you'll feel better knowing you're doing the best you can do in light of these trying times.
Scary Story #1: Interest Rates Have Departed to the Underworld
Interest rates on savings accounts, money market funds, and CDs - normally safe havens for income-seeking retirees - have nearly vanished.
If you're trying to suck more than a few drops of blood from your retirement savings, you might need to consider mutual funds that focus on longer-term bonds, dividend-paying stocks, or real estate investment trusts (REITs). You'll be taking some risk that the value of your investment might drop, but your dividend payoff significantly beats the rates on savings accounts and CDs. Here are some current yields from popular Vanguard funds, as reported by Morningstar:
- Vanguard Intermediate-Term Bond Index (VBILX): 3.71 percent
- Vanguard Long-Term Bond Fund (VBLTX): 4.21 percent
- Vanguard Wellesley fund (VWINX): 3.77 percent
- Vanguard Wellington fund (VWELX): 3.1 percent
- Vanguard Equity income fund (VEIPX): 3.06 percent
- Vanguard REIT Index (VGSIX): 3.77 percent
On the other hand, we could have a long period of low interest rates -- that happened before in the 1930s. If you believe that will happen, you should be more willing to invest now in longer-term bonds or immediate annuities.
If you're a buy-and-hold investor who's focused on generating income, then you can think that you're buying a stream of income with your investments; if you're ok with the current price, then you won't have buyer's remorse if interest rates rise and the value of your investments drop. You'll still have your stream of income.
There's no doubt that decreasing interest rates have increased the price of retirement. So another option to consider is working longer, perhaps part time at your current job or at a job in an industry you might enjoy even more.
Click on the button after the link below to see the next scary retirement story.
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