Retirees seeking ways to bolster low returns

Dollars & Sense

November 30, 2003|By KNIGHT RIDDER/TRIBUNE

Lewis Thayer became frustrated by the low returns he was earning on certificates of deposit at his bank. So the media retiree began temporarily parking his money in a savings account. He's still weighing his next move.

"Whatever income I'm getting, it's from money sitting in a bank," he said. "I know it's not good. I've got to do something to bring it up."

The Dow Jones industrial average may be flirting with 10,000 again, but the drought continues for income investors, leaving folks who depend on interest checks from bank investments or bonds to choose one of three risks in an attempt to wring a better return in a low-interest climate.

Retirees must accept sub-par earnings or chase higher yields by tying up their money long-term or by buying risky investments, putting their principal at risk in the process.

Experts counsel investors to bide their time, even if it means giving up some income for now.

"There's a good chance in the next year or two that interest rates will be significantly higher," one adviser noted.

For retirees who cannot wait, experts suggest investing in securities such as municipal bonds or mortgage-backed securities, which are less vulnerable to the other perils.

Thayer, 76, cannot afford to be patient. Prices keep climbing even if CD rates do not. Prices rose 2.3 percent in the past 12 months, according to the U.S. Bureau of Labor Statistics, roughly twice the average one-year CD rate of 1.08 percent in late October.

To overcome inflationary risk, investors can choose higher-paying, long-term instruments, such as annuities. But those rates are also low by historical standards.

"I know what it is like for someone to lock in a 4 percent rate," said Hersh Stern, publisher of the Annuity Shopper and WebAnnuities.com, which specialize in immediate annuities. "It stinks."

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