I recently visited with a retired couple who shared that many of their long term CD’s would be maturing this year and they were concerned about losing the on-going income which has been created by the current 5% interest rate.
Interest rates are projected to stay low through 2014. The best rates available on CDs are 1% or less. That means individuals who rely on their CD’s and Treasury notes to generate retirement income (or any kind of income) will continue to see returns that aren’t even keeping up with inflation.
What options are available? The basic strategies available when managing finances are: 1) spend less, 2) increase income or 3) a combination of 1 & 2. If you have already reduced your living expenses as much as possible, then your only remaining option may be to consider investments that will generate a higher rate of return.
Higher potential return means higher risk. To generate increased income, you may need to invest your money in financial products where the principal could diminish in value. If you have been using CDs, which are generally fully insured by the United States government, this may feel uncomfortable. Keep in mind that it is not necessary to take high levels of risk in order to generate greater income; you still have some fairly conservative options available. They are not, however, fully insured.
Reputable sources suggest some alternatives to CDs for those willing to take on modest investment risk, including:
- Dividend-paying stocks,
- Real Estate Investment Trusts (REITS), and
Before considering these investment options, be sure you are well-informed about the product and the risk generated by the choices. Annuities, for example, should be selected based on guaranteed returns; do not rely on estimated returns, which are best-case scenario projections which make the products more attractive.
It’s better for you to seek out a professional advisor rather than to become involved with someone who contacts you looking for a new customer. Visit your bank and see if they have an investment professional on staff, or if they would recommend someone. Look for professional certification: Certified Financial Planner or an Accredited Financial Counselor. Many times there is no cost for an initial consultation.
Watch for a post from Susan next week on how to choose a financial advisor. And keep in mind that in today’s economy an investment statement that you will receive an 8 or 9% rate of return at no risk might be too good to be true.
-Joyce Lash, Family Finance Specialist, email@example.com
Thank you Joyce for being our first “guest blogger!”
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