One aspect of the new economy that is a double-edged sword for retirees is rising interest rates.

On the one hand, retirees should be happy about the rise because it can make fixed-income investing more profitable as long as their holdings are structured so they don’t need to sell their longer-term bonds.

“But now the bonds will generate more income over their lifetime, and that income will totally make up for the temporary loss of income this year,” he said, adding that I Series bonds, for example, are an easy way to profit from higher interest rates. While there’s a $10,000 limit per person per year, a married couple can put in $20,000. But a trust can also put in $10,000, as can a business.

On the other hand, retirees who were planning on moving and taking out a low-interest mortgage may have to rethink part of that plan.

Strategies For Sidestepping Losses
Anthea Perkinson, a CFP and EA along with founding Principal Monterey Associates in Pelham, NY, said many retirees are being forced to realize losses in their IRA portfolios because of required minimum distributions.

“Those people are pretty uptight this year,” she said. “For them, where we can, what we’re doing is taking the RMD but moving the shares, not selling them.”

Clients who don’t need the money to live on right now can take those shares of stocks and mutual funds and move them from the IRA to a taxable account, she said.

“We’re doing right by the IRS, but the client hasn’t sold the shares,” she said. “They’ll pay the tax, of course, but the value of those equities can bounce back before being sold.”

Lucas Minton, with Minton Wealth Strategies in Cabot, Arkansas, said he also beats a drum of sidestepping these losses when at all possible.

“Maintain your equity positions. Don’t sell at a loss. Don’t sit on cash,” he said. “We need to have you in something. But above all, don’t take on more risk to support an income level. If you have to, lower your income.”

On the investment side, he suggests keeping most clients in a balanced portfolio, and if he’s going to tip one way, it’s going to be toward blue chips.

“We’re in a hard place right now. I’m not anti-growth stock, just contrarian by nature. That carries across to planning and management,” he said. “I’ve had plenty of growth stocks in portfolios. But now I beat the drum that the blue chips are when you want to be. The stock might be down, but you’ll still make income.”

Going even further, Tonny Navarro, a CFA at The Erdmann Group, a Merrill Private Wealth Management team in Greenwich, Conn., said his group has been completely rethinking the 60/40 or 70/30 model for their clients who typically are multigenerational families with $50 million in assets or more.

“Today as we’re reviewing the street, recession is inevitable. We need economic retraction,” he said. The question is when. “Are we going to get the recession next year? Until we get better visibility, for the next three to six months most likely we’re remain range-bound.”