It's the down side of the low interest rates - you won't get much from your investments. You're lucky to earn a half percent on a checking account. And certificates of deposit don't offer much more.
It's making it tough for retirees on a fixed income to make ends meet. Local 12's Paula Toti joins us to explain how you can squeeze out a little more interest in our new economy.
There's not a magic bullet if you don't want to risk your principal and are living off your interest. This describes many CD buyers, but a one year CD is paying about one and a half percent. The government says inflation isn't a problem so seniors aren't getting a raise in Social Security.
Bob Wiggins is a senior who volunteers for Pro Seniors and speaks on Medicare. He says the big expenses like medical are rising, and most can no longer live off the interest on their investments. "Absolutely not and that's one of the challenges now especially for seniors."
Investment advisors say going for longer maturities on CD's will provide higher interest. Bankrate.com is showing a 5 year CD at 2.97 percent. Still not a lot.
So if you have money to invest think of a ladder-laddering your money. "Stagger maturities so you have one CD due in 3 months, another in six months another in 9 months."
A study just released by Morgan Stanley Smith Barney predicts the Federal Reserve will keep interest rates about where they are until there's more confidence in the economy. Then in the middle of next year. "We'd expect to see rates begin to rise in the second half of next year."
In the meantime Bob says budget. "You really have to change your attitude, we clip coupons and don't eat out as much. Do a lot of cooking at home." And when the government says inflation isn't an issue, Bob says, look no further than your gas tank. Seniors are also turning to bonds to get more interest. Government bonds and municipal bonds.
If you're willing to go out long term, a 30 year government treasury is about 4 1/4 percent. But municipal bonds are at about 4 1/2 percent. Municipals had been considered investments for higher income people because they can be state and federal tax free, but with the current high rates they can be for anyone.
There are risks. With any bond, if you sell before maturity, you may not get all your money back if interest rates rise. And a warning with any bonds-don't go for lower quality, a lower rating to increase the yield. It's risky.
One more idea for you, corporate bonds often pay a higher rate of interest than CD's and government bonds. However, make sure you fully understand the investment or work with an advisor because there's risk involved.
