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(SmartMoney) – Low interest rates and a weak economy make it hard for retirees to turn their nest eggs into paychecks. Some strategies for coping and cashing in.
"Your check is in the mail."
American investors have seldom seemed more eager to hear those words — especially when it comes to locking in income for their older years. Ever since the 2008 crash, when Joe and Mary Mainstreet lost faith in the stock market, millions of people have poured their savings into investments that return some kind of regular paycheck, whether bonds, annuities or (for the bold) stocks that pay dividends. And the hunt for income has only become more intense as the enormous baby boomer demographic bulge reaches retirement age, with some 10,000 boomers turning 65 each day. Indeed, converting savings into a living has become "the holy grail of every working stiff," says Dan Culloton, associate director of fund analysis for Morningstar.
And yet, in one of the biggest frustrations facing retirees today, reeling in a check that's both reliable and big enough to pay the bills has begun to seem like a pipe dream. Increasingly, alarmed investors are finding that "guaranteed" payouts offer only penny-ante 1 and 2 percent returns — or involve unpalatable risks. It's hard to fathom, but not that long ago, a soon-to-be-retired couple could scoop up safe Treasury and corporate bonds that paid 7 or 8 percent; today it takes a gambler's heart and a taste for junk bonds to come close to that. Dividend stocks? On average, they pay barely half what they did in the 1990s. As for annuities, some widely advertised products pay nothing until the buyer turns 85. And as we all learned this summer, even Social Security, the once untouchable retirement backup plan, is now in play, a bargaining chip in the ongoing political wrangle over government spending.
Of course, retirement investments have always gone through cycles, and the conditions that are making things so harsh for the silver-haired crowd could change pretty quickly. But advisers say they can't remember a time that was quite so tough for cash flow hunters — and it only got tougher after this summer's market gyrations. After all, even the most prudent income-generator can't get far in retirement if his portfolio gets whacked. Instead, the pros say, a generation whose parents retired on a low-maintenance cushion of bonds and bank CDs needs a new playbook for today's reality.