“Being retired, we’re really concerned about our income,” Stuart and Chelsea told me.

“Interest rates are so low,” Stuart said. “And the stock market…” said Chelsea.

I sympathized. Retirees depending on stocks became complacent after the market soared in 2009. But this year the indexes fell. Some market sectors declined substantially, including those paying high dividends, such as oil, utilities, financial services and materials.

I pointed to the continued low-interest policy of the Federal Reserve. It’s been good for borrowers and keeping asset values high, but bad for investors and depositors.

Then last month, the Federal Reserve raised rates for the first time since 2006. Yet 10-year U.S. Treasury interest rates — the benchmark for mortgage rates — ended the year lower!  One-, three- and six-month rates also are substantially lower than at the beginning of 2015.

“So how can we plan on how much income we’ll have?” Chelsea asked.

“There’s a rule of thumb for calculating income from saved money,” I answered. “Take a portfolio that’s 50 percent bonds and 50 percent stocks. Expect to earn 3 to 3.5 percent per year before taxes. You’ll want to take out a little more than that to offset inflation.” That sum will last approximately 30 years spending down the principal to zero. 

Stuart grimaced.

“There are things you can do now,” I said.

I will share my advice:

• Examine your spending. Use software or spreadsheets to record and monitor your spending, not only how much is going out but what you are spending it on. Make sure that you and your partner, if you have one, agree on what you must have, what you’d like to have and what you can do without. This will help keep you from drawing down your assets too much and running out of money.

• Repeat the above every year. Next year may be better for income interest rates or asset values — or worse. Also, bear in mind that your tastes and desires can change. Goods and services that once were important may not be all that meaningful anymore. Don’t take your situation for granted one way or the other.

• Think about working part time in retirement — or delay retirement.  If you have little or no problem with the trade-off regarding your time, you can maintain your lifestyle and your assets or even build your assets.

 “What about emergencies?” Chelsea asked. “I hate thinking that something might happen and we’ll have to sell some of our assets.”

I nodded. “You bring up a good point,” I said.  Actually, you should constantly review your portfolio starting with cash reserves.

Here are a few guidelines I offer:

• Keep cash for at least two years’ expenses in safe, liquid vehicles, and don’t worry about the returns. Online-only savings and checking accounts insured by the FDIC offer the best rates plus liquidity. As needed, refill this cash bucket with income your investments earn.

• Secure the stock profits you’ve made since the financial meltdown. Harvest those gains, even though they’re subject to the capital gains tax. Use them for income, or reinvest in safe investments like bonds or your cash supply. The market goes up; the market also goes down.

• Use spare cash to buy assets at lower prices and valuations. This, of course, requires patience. And while I never advise trying to time the market, the market does go through cycles, and good investments do appear over market cycles.

 “We’d still like to make more money than we’re making now,” said Stuart. “But we’re not big risk-takers.”

Reasonable choices exist, I pointed out. If you want the higher yields of junk bonds, master limited partnerships, preferred stock and real estate investment trusts, be sure you diversify. And invest only a very small percentage of your assets in these vehicles.

“Which brings me to some things you may be overlooking,” I said.

Chelsea’s eyes widened.

“You need to take a fresh look at Social Security and pension claiming strategies,” I said. “Then you can make wiser decisions. As with everything else, I can help you there.”

I offered one last piece of advice to Stuart and Chelsea, who expect to spend far more than 10 years in retirement. “Don’t be fearful of the stock market. Think long-term.”

Stocks offer your best returns over most 10-year periods despite the increased risk over bonds. It is as much a mistake to avoid the stock market as it is to invest too much in it.

Diversification and periodic rebalancing will keep your portfolio — and your retirement — headed in the right direction.

Ira Fateman is a certified financial planner in San Francisco who also teaches workshops at S.F. State’s College of Extended Learning. His next workshop is Feb. 27. Contact him at [email protected] or (415) 277-5955.