Keeping the cash flowing as you age

Six months of aggressive interest-rate cuts by the Federal Reserve may be good for the economy, but it's bad news for many seniors who rely on fixed-income investments.

As costs for such things as heat and healthcare have continued to rise, the income you can get on safe, fixed-rate instruments has been slashed in half. That can leave you feeling poor and worried about the ability of your nest egg to last as long as you will.

But don't panic. Financial planners say that today's investment landscape, though dreary, has some bright spots. Moreover, with wise planning, you can put yourself in a position to weather any environment.

"You look at what you can control," said Stuart Ritter, certified financial planner with mutual fund giant T. Rowe Price. "You can't control the stock market. You can't control interest rates. What you can control is how much you save, how much you spend and how you invest."

Here are some strategies:

Keep working

If you're at or near retirement age but haven't yet retired, you might want to consider waiting a while. Or if you don't like your current job, Ritter suggests, you might consider a paid part-time position.

This would boost your retirement prospects in three ways:

You don't deplete your assets right away, leaving them to (presumably) grow. By working, you may also be able to add to savings, increasing the size of your nest egg regardless of what happens to investment returns. And by working longer, you retire later, shortening the number of years that you'll need to finance retirement on savings and pensions alone.

"It doesn't have to be all or nothing," Ritter said. "Delaying retirement can be a very powerful response."

Insure some income

You might want to convert part of your portfolio into a regular stream of income by buying an immediate annuity, said Brad Levin, a certified financial planner with Legacy Wealth Advisors in Encino.

An immediate annuity works like this: You give a financial company, say, $100,000. The company, often an insurance firm, promises to give you a fixed monthly payment in return. The payments start immediately -- thus the name -- and are guaranteed by the company to last as long as you do.

The size of the monthly payment depends on your age and the prevailing interest rates at the time you buy the annuity. Compared with other investing options available now, what you can get from an immediate annuity appears fairly generous. As of last week, a 65-year-old man buying a $100,000 immediate annuity could lock in a $650 monthly payment for the rest of his life, Levin said. A woman would get a little less -- about $621 a month -- because women on average live longer than men.

A 75-year-old man would receive $783 a month; a 75-year-old woman would get $754 a month. (Older people get higher payments than younger people because older folks, well, are likely to collect those monthly payments for fewer months than younger folks are.)

If this sounds too good, there is a catch: Although the 65-year-old man's payments add up to $7,800 a year, he's not really getting a 7.8% yield on his $100,000 investment. That's because with an immediate annuity, the payment you receive can be thought of as partly a return on your investment and partly a return of your investment. Unlike a bond, which returns your principal when the bond matures, an immediate annuity doesn't give you back your principal when you die.

The benefit of an immediate annuity is that it gives you a steady income stream that can't run out during your lifetime. But there also will be nothing left for your heirs from that investment.

Then, too, the monthly payments are generally not adjusted for inflation. That means the $650 a month that looks generous today probably won't look quite as generous 20 years from now. That's why Levin doesn't recommend putting all your assets in immediate annuities. He suggests buying an annuity that will generate just enough income to pay for some of your necessities during retirement and investing the rest of your assets more aggressively to generate the growth you'll need to finance your later retirement years.

An important note: Immediate annuities shouldn't be confused with variable annuities, a complicated investment product that many financial planners don't recommend because of high fees and other problems.

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