A retired reader in Painesville, Ohio, echoed what a lot of seniors are feeling when they read about historically low inflation but struggle nonetheless to keep up with the costs of real, daily living.
"My guess is that inflation is running at between 4 and 6 percent a year on most things consumers have to buy," the reader complained, scoffing at "official" estimates around half that.
This year's cost-of-living adjustment for Social Security income was 3.3 percent, which is based on the Consumer Price Index. But with Medicare cost increases above 5 percent and gas prices continuing to soar, seniors living on those cost-of-living adjustments are feeling the squeeze.
Even if they have modest portfolios to help pay for the extras, yields on fixed-income investments remain stubbornly low.
So what's a retired investor to do? Crank up the risk on their portfolios and plow into what some say is an overvalued stock market? Dial down the quality level of their bonds in search of yield?
"There is no silver bullet," said John Skjervem, chief investment officer for the personal financial services business at Northern Trust Corp. "There is no one asset class that will solve the problem" of low or negative spreads between real costs and yields on low-risk investments.
That said, here are three things to consider:
Put to rest the notion that if you're 65, your portfolio should be invested 65 percent in bonds, experts said.
"With nominal yields so low, fixed income has not been a particularly attractive place to be for some time, particularly for people whose income needs to support their lifestyle 10 to 15 years out," Skjervem said.
They can consider corporate instruments that can be converted to stocks, high-dividend equities, preferred stocks and real estate mutual funds that can invest worldwide to avoid geographic downturns.
Retirees often feel a loss of control over their investments when they are forced to draw down assets to cover expenses during a market trough.
Developing a system for managing retirement income, whether you do it yourself or with an adviser, can help mitigate that stress, experts said.
A simple way to begin structuring your own retirement income stream that is somewhat shielded from market swings is to put funds for a year's worth of expenses into a non-risk-bearing account, then funds for a year or two more into laddered-maturity certificates of deposit, said Sheryl Garrett, a certified financial planner, author and founder of a national network of planners.
Stop playing the debt spread.
More retirees are keeping their home mortgages for the tax deduction rather than paying them off.
Garrett said that, depending on homeowners' other investments, this may not make sense.
Investors heavily weighted in fixed-income investments will likely see a negligible spread between what they're earning in their portfolios and what they're paying in interest, she said, and the psychological boost of paying off a mortgage can ease stress.
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