Three Steps for Planning Your Retirement When Interest Rates are Low

Three Steps for Planning Your Retirement When Interest Rates are Low

My wife’s grandmother tells of the days when her CDs earned double-digit interest. Those days are no more. So how can you plan for retirement with low interest rates?

Take a lesson from chess players: they follow a multi-pronged strategy to protect their king rather than just moving it forward. If you adopt a similar multi-pronged strategy to retirement, then interest rates matter less.

As you approach retirement, your risk level drops. This is because the possibility of recuperating from potential (and real) losses is gone.  In order to protect your assets, follow these 3 steps:

Step 1: Prepare a bond ladder

Many retirees use bonds to provide a low-to-moderate risk level and dependable returns. Work with a bond specialist to create an individualized bond ladder appropriate for your time frame. Since bonds and interest rates tend to move in opposite directions, having bonds that come due at different times helps take advantage of changing interest rates.

Step 2: Consider REITs

REITs, Real Estate Investment Trusts, are collective investments in real estate that are required to pay a minimum of 90% of their net income to shareholders, but many pay more. In addition, most pay dividends or distributions monthly. Ask your advisor if REITs have a place as an income generating investment in your portfolio.

Step 3: Review your budget

Since no one wants to outlive their money, periodically review your withdrawal level from your portfolio. If your investments aren’t making as much as you anticipated, lower your withdrawals. Over many years, careful monitoring and small adjustments to withdrawals could significantly impact your bottom line.

If you utilize a multi-pronged approach to your retirement, you should be able to have a dependable income, no matter how low interest rates fall.