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By Christine Benz | 06-13-2013 12:00 PM

Rethinking Retirement Strategies in the Low-Yield World

T. Rowe Price senior financial planner Christine Fahlund discusses how low interest rates may impact annuity decisions, asset location, and the timing of Social Security.

Christine Benz: Hi. I'm Christine Benz for Morningstar.com. What does the current low-yield environment mean for retirement planning?

Joining me to discuss that topic is Christine Fahlund. She is a senior financial planner and vice president with T. Rowe Price.

Chris, so good to be here with you.

Christine Fahlund: It's terrific.  Thank you, Christine.

Benz: Let's talk about the challenging environment that retirees are facing, and specifically the conundrums, the multiple issues created by very low yields currently.

I'd like to look at annuities, start there, because historically they have been sort of standard planning advice for people getting ready to retire. The single premium immediate annuities that I know a lot of planners like you recommend have relatively low payouts at this point. So, does that mean that they shouldn't be part of retirees' toolkits?

Fahlund: No, I don't think so. Maybe not the single premium annuity right now, because of the very low rate. But certainly tax-deferred annuities, variable annuities, you'd have the option to go with equities, heavily into equities in those.

It's important to have that guaranteed income in your portfolio. So, I think too often we overreact to what's happening today. We all want higher yields and growth, but it can make sense to have the annuities anyway.

Benz: Let's just discuss some of the key benefits that one gains by having an annuity. I think people hear the word "annuity" and their hackles go up. They think very high costs.

Fahlund: That's right.

Benz: Let's talk about what you see as the benefits, and why someone might consider one.

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