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6 Scary Retirement Stories

Reading the recent headlines, there's plenty to be spooked about if you're approaching your retirement years or are already in retirement. If you want to exorcise your retirement demons, however, don't turn your head away. It's best to face your fears head on by informing yourself about the facts and arming yourself with strategies to survive and maybe even make these ghoulish apparitions disappear.

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
Many people are afraid now to invest in annuities or longer-term bonds, fearing that interest rates will increase in the near future. If you really believe that will happen, you should stick with cash investments now and accept minuscule interest earnings until long-term interest rates rise. To get every last drop of blood from a CD, it still pays to shop as advocated by Allan Roth.

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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Next page: Hair-Raising Stock Market Volatility
Scary Story #2: Hair-Raising Stock Market Volatility

Gyrations in the stock market can scare the daylights out of anybody with substantial retirement savings, because you run the risk of large amounts of your retirement savings being sliced and diced from your portfolio.

But there are steps you can take to protect yourself. For instance, you can control your exposure to stock market risk by selecting a prudent allocation of your assets between stocks and bonds, and you can stay the course through downturns. The worst thing you can do is panic and sell when you're frightened by stock market seizures, as written about so often by Allan.

By the fall of 2010, many balanced portfolios had recovered to their pre-crash levels, and although they were tested again this summer by the latest downturn, these portfolios are still above water. And recent evidence shows that investors who stayed the course during the 2008 - 2009 downturn are now sporting the largest average account balances.

For buy-and-hold investors who focus on income, a balanced mutual fund can deliver a stream of income with tolerable fluctuations, potential for modest growth, and protection against severe market downturns.

Another strategy to consider when you approach your retirement years and need reliable income is an immediate fixed or inflation-adjusted annuity; these deliver a retirement income that's immune to stock market fluctuations.

Next page: Blood-Curdling High Unemployment

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Scary Story #3: Blood-Curdling High Unemployment

It's a chilling thought, but many boomers will need to work during their retirement years to help make ends meet, due to inadequate retirement savings or to obtain affordable medical insurance. But will they find the work they need? Unemployment in the general population is currently at a frightful 9.1 percent. The outlook is a little better for workers age 55 and over -- the unemployment rate for that age bracket is 6.7 percent.

The problem? Many middle-management jobs that provided steady employment for years have simply vanished, possibly never to return. So it may be tough to find work that provides the income and benefits you need, gives you meaning and purpose, and possibly allows time to pursue other interests. You'll need to be creative and resilient. Some possibilities include:

  • Going back to school or retraining to obtain skills and credentials in careers that are in demand.
  • Starting your own business.
  • Accepting work that is "beneath you," given your prior work experience.
Regarding this latter idea, a recent CBS MoneyWatch post titled 5 Hot Jobs for Retirees listed mostly lower-paid jobs in health care, retail, government jobs in the Department of Veteran Affairs and Transportation Security Authority, computer data entry, and temp agencies. The post was blasted in the comments section -- many readers were offended that the only "hot" jobs for older workers were lower-paid and menial. While I understand the frustrations expressed by readers, if you have inadequate retirement savings and don't have the skills or experience for a high-paying job, your options are definitely limited and you may need to take whatever work you can get. A more accurate title for that post might have been "5 Jobs Retirees Might Have to Take."

Of course, some people manage to find a way to be happy with work that is "beneath" them; my recent post provides one example. On the other hand, if you don't like working at just any job, your only other alternative is to drastically slash your living expenses. It's your choice.

Next page: The Looming Threat of Alzheimer's and Dementia

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Scary Story #4: The Looming Threat of Alzheimer's and Dementia
Here's a statistic that may just sent chills down your spine: The Alzheimer's Association reports that nearly half of all Americans age 85 or older have some form of dementia. At this time, there's no known cure for any form of dementia, including Alzheimer's, although millions are being spent on research to find effective treatments.

There are, however, lifestyle choices you can make that could help delay, mitigate, or even prevent the possible onset of dementia, including these:

  • Get proper nutrition and exercise. Your brain is flesh and blood, so what's good for your body is also good for your brain.
  • Develop a robust social life. Form enjoyable connections with people of all ages and walks of life.
  • Have purpose in life. Create powerful reasons for getting up in the morning.
  • Stretch and stress your mind and body. Require your brain to learn and make new connections. The same goes for your body, too: The old saying "use it or lose it" is all too true when it comes to physical activity. Examples of brain and body activities that will help keep you young include playing a musical instrument, learning a foreign language, and ballroom dancing.
You'll also want to have a strategy in place to pay for the potentially ruinous cost of long-term care in case you fall victim to dementia in spite of your best efforts. This is one of the most vexing issues you'll face, so take the time to learn about the various strategies you can employ to both reduce the odds of needing expensive long-term care or pay for care in the event you'll need it.

Next page: Potential Cuts in Medicare Benefits

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Scary Story #5: Potential Cuts in Medicare Benefits

Once you reach age 65, Medicare pays for a substantial portion of your medical expenses. But Medicare's on the debt super committee's chopping block. Will we soon be on our own to pay for expensive medical bills?

Radical changes to Medicare benefits, such as moving to a voucher program as proposed by Rep. Paul Ryan (R-Wis), have not attracted many supporters. And even Ryan's proposal grandfathered people age 55 and older into the current form of Medicare.

It's inevitable, however, that some measures will be taken to reduce Medicare's high costs. One possibility is to move in the direction of consumer-directed health plans (CDHP) - similar to medical plans currently being adopted by employers as cost-cutting measures. These plans have higher deductibles and offer incentives to take care of your health.

Despite the fear that Medicare benefits could be cut, I'm not cowering in fear. Instead, I'm doing everything in my power to improve my health to reduce the odds that I'll need expensive medical care in my retirement years. I'm also taking steps to become an informed medical consumer, and to learn about alternative forms of treatment for ailments relevant to me.

Next page: The Specter of Slashes in Social Security

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Scary Story #6: The Specter of Slashes in Social Security

With the decline of traditional pensions and inadequate retirement savings, more boomers will be relying on Social Security to provide retirement security. But just as this valuable benefit is taking on more importance in your retirement years, it's also on the debt super committee's chopping block in an effort to reduce the federal deficit. Extremist politicians, such as Rick Perry, are even calling Social Security a "monstrous lie" and a ponzi scheme.

You might rest easier if you learn about the changes to Social Security that lawmakers are considering. Most proposals have threshold ages in the early to late fifties; if you're above the threshold age, you'll be exempt from the changes. And the proposed changes will be phased in gradually for people currently below the threshold ages.

The only proposed change that might have you shaking in your shoes if you're a current retiree or close to retirement: a slowdown in future cost-of-living adjustments (COLA). While this isn't good news, it won't be an immediate cut in your benefits. Many people may have time to adjust their spending habits.

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No matter how worried you may be, don't let these stories scare you half to death. Knowledge is power, and taking action will help you arm yourself against the potential threats in your future.

The devil's in the details when it comes to planning your retirement. Maybe it's time to arm yourself with the information that will help you survive. Check out my latest creation - an innovative online retirement planning guide Money for Life. I've organized a rich - yet free -- collection of more than 150 blog posts, articles, research reports and video clips on the most important retirement planning decisions regarding money, health and lifestyle.