Retirement planning is largely centered around, or even predicated on, interest rates. Unfortunately for many retirees (and would-be retirees), as the stock market has been volatile to say the least (e.g. “flash crashes” followed by near-historic gains), there has been just one constant – low interest rates. In fact, interest rates are so low that bond yields have dropped below 1950-levels (less than 2.6%), leaving many retirees and would-be retirees wondering how the difference can be made up.

The problem is that most retirement plans assume a return of at least 5 percent, a rate that was taken as a given even on savings accounts not but ten years ago. With current interest yields approximately half that, many retiree earnings are half what was planned for – a situation that is problematic to say the least. In addition, as interest rates decrease, so do bond values, an often overlooked fact of finance.

On the plus side, as long as interest rates are low, inflation too is low. However, prices are not low enough to negate the difference in interest earnings, which leaves the following options:

1. Stocks: First, consider putting your money in stocks instead of savings. While the risk is high and the market is low, if you buy during a flash crash, even a marginal improvement in the stock market (it will, after all, happen eventually) could net you an impressive return. Remember that fortunes are made during market downturns such as these; however, in order to do this successfully you need to make sure that you would have immediate access to your account so you can sell when the time is right. In addition, you would want to have at least five years until retirement (or enough funds that you can wait five years for a return).

2. Mutual Funds: Mutual funds can be another great way to diversify. Major mutual funds currently have returns between 3.2 percent and 4.4 percent. While some risk is involved, there is also a potential for solid gains as the market improves. Again, remember that you may have to wait some time before you have appreciable returns and you need to have the time (or the funds) to be able to wait in such a way.

3. Corporate Bonds: Corporate bonds may also be another option. Returns are currently around that of mutual funds but you may be able to receive an annual dividend in addition to your bond yield.

4. Guaranteed Annuities: Lastly, consider a guaranteed annuity. Many guaranteed annuities offer returns between 4.5 percent and 6 percent and many are willing to guarantee a return at that rate for the rest of your life, yours, or your spouse’s (whichever is longest), or for a set period (e.g. 30 years).

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