I recall a time many moons ago when I was first in the investment business. During the end of the 1980s, interest rates had been falling precipitously. First-time home buyers, businesses looking for capital and anyone looking to sell a home were all elated. As interest rates fell, money became cheaper and home sales improved.

I learned then that for every winner in the interest rate game, there are those who feel the financial rug has just been pulled out from under them.

I was working at a brokerage firm and a woman called. I was still in college and answered the phone because everyone else was busy. The woman told me that she had a number of certificates of deposit and one was about to mature. The interest rate on her CD was 14 percent.

“I need to renew my CD and want one paying 14 percent,” she told me. I looked at the rates on what was then a green computer screen and tried to explain to her that CD rates were in the 7 percent range, and we did not have any 14 percent CDs without paying more than $1,000 for them.

“But I need the 14 percent return. I depend on that for my living expenses. Please put someone on the phone who can get me some 14 percent CDs,” she pleaded.

I got her someone who explained the situation and I could hear the woman’s frustration and the sadness just from listening to the broker’s responses. She bought a CD at half the rate she had been used to receiving and we all went on with our day. It’s been years since that conversation took place and yet I still remember it. Her pain of having to face a much lower return on her money resonated with me then and continues to today.

The same situation exists in today’s credit markets. What is a person on a fixed income to do when they get used to and adjust their living to reflect at 4 to 5 percent income return only to have the world change and they have to readjust to living on CD and Treasury returns of less than 2 percent or even 1 percent. Given even modest inflation, what is an older person who no longer works and is dependent on investment returns to do?

The first thing is not to panic. My most important mantra is: if you are diversified, if you understand what you are invested in, if you have chosen to work with an investment professional and you trust they have your best interests at heart (which just about all do), if you have planned realistically and allowed for a changing market environment, which we all know will happen over the course of one’s retirement years, the important thing is not to panic. There are answers and they may require some work but there are answers that you can develop into an investment portfolio that when balanced against your other investments can help to provide you with what you are looking for.

Here’s a few things to consider:

1. Diversify your fixed income holdings with high-yield bonds, some corporate bonds that are paying a higher return and mortgage-backed bonds, which again pay a higher yield. These investment alternatives will give your overall portfolio a fatter interest payment than a one year CD and they should not be a scary or risky addition to your portfolio provided they are a part of the portfolio and not your entire fixed income portfolio.

2. Consider venturing into dividend paying stocks. Please keep in mind that the companies that pay dividends are usually mature companies that have the predictable cash flow to pay regular dividends. They are another alternative to getting two to three times the return of a CD and they allow for some capital appreciation as well. Granted stock prices can go down as easily as they can go up but if you buy for the long haul, if the company has been around forever and has a very strong history of dividend increases and reliable payment over many years, and you keep your eye on the reason you purchased the stock, making sure you look at your overall portfolio during the course of a year, that should keep you on course with your goals.

3. Lastly, it may be well worth your time to look into annuities. They pay good rates of return, some allow for growth of your initial investment and they are secure and predictable payment vehicles. Do not attempt to purchase this kind of investment without first finding an insurance or investment professional who really understands the nuances of this kind of investment. A good professional who does not specialize in these will tell you so and will refer you to someone who does. Annuities are worth investigating but be sure you are dealing with someone who is an expert.

Extraordinary times call for extra work. If you are nearing retirement or in retirement, these times can be scary. There is a lot of uncertainty out there. Use my mantras or come up with your own. Either way, while you may not fulfill your dream of making your grandchildren millionaires from what you leave them, you can find ways to live your life with the comfort you dreamed of when you were younger.



Karen Paul is a financial planner who writes regularly for the Rutland Herald and the Times Argus.