Today’s low interest rates are great for those who want to borrow money, but they’re tough on investors who rely on cash flow from their portfolios. With rates on money market funds and certificates of deposit at 40-year lows, many have trouble finding relatively low-risk investment vehicles that can deliver income on which they can live.

An alternative would be for them to augment the lower returns by drawing on their capital. But doing so exposes a 60-year-old retiree to the danger that the money will disappear before the retiree does. As Ernie Ankrim, chief portfolio strategist at Russell Investment Group, puts it, “At that age, you have to invest knowing that you could have another 25 to 30 years to live. After all, it’s better to have money left over when you die than to run out of money while you are still alive.”

What to do, then?

Here are five steps you can take to try to boost your income in retirement.

• Avoid putting too much of your cash in money market funds. Stash some money in a money market fund for emergencies—say, enough to survive for six months to a year—but remember the yields on most money market funds are so low that your investment may lose real value because it risks not keeping pace with inflation. Although these funds seek to preserve the value of your investment at $1.00 per share, it is possible to lose money by investing in these funds. Your investment is not insured or guaranteed by the FDIC.

• Construst a diversified portfolio on which you can draw for a regular income. By putting together a mixed portfolio of stocks, bonds and perhaps real estate securities, your portfolio may have greater potential to gain in value over the years, providing you with income on which you can draw. Of course, the returns in the portfolio will be better in some years than others. Some years may be negative. No investment strategy can guarantee against a profit or protect against a loss in a declining market. Even though no one can predict what the markets will do, the result could be a higher return than the money market or CDs. Ideally, explains Russell’s Ankrim, you should have been adjusting your portfolio to include more bonds than stocks as you approach retirement. The portfolio should not necessarily change when you retire, even though you may switch from investing in it to drawing on it.

• Ensure your portfolio includes stocks. Some income-oriented investors may want to avoid stocks based on their risk tolerance and possibly also because of the sharp reversals they may have faced in the recent bear market. True, stocks are volatile and they do risk equities losing value, but over periods of 10 years stocks historically have gained, measured by the performance of the S&P 500 index since 1940. It may be worth risking they will do so again, even though the value of your stock may fluctuate widely with market changes. Otherwise you may not have enough firepower to stave off the ravages of inflation over the next couple of decades of your life.

• Invest in stocks that pay dividends. New laws reducing the tax on dividends mean it may pay to invest either directly in dividend-paying stocks or to look for a mutual fund that does so.

• Invest the bulk of your portfolio in bonds. Although many predict interest rates will rise, causing bond prices to fall as a result, remember most bonds are still required to pay interest. The yield can help offset the capital loss. Bond investors should carefully consider risks such as interest rate risk, credit risk, securities lending, repurchase and reverse repurchase transaction risk. High yield bonds are subject to additional risks and increased volatility.
  

Nothing is certain, but take these steps and you stand a better chance of beating inflation and having enough to live on for the rest of your life. IBI