Dear Dr. Don,
I have a jumbo CD paying 5.6 percent maturing in November. Current CD rates are in the 1.5 percent to 2 percent range and it doesn’t look like they will be going up by November. What alternatives do I have? I am 78 and on a fixed income.
— Olive Options

Dear Olive,
That’s a great rate. I can understand why you’re concerned about replacing that income.

Using Bankrate’s compare rates feature, the best annual percentage yield I could find for a five-year jumbo CD was 2.9 percent, which is almost a full percentage point over what you’re seeing, although you didn’t tell me what maturity you were evaluating.

You’re not alone. There are a ton of income-oriented investors trying to figure out how to get a decent yield in a safe investment. Chasing yield by investing in riskier investments isn’t the answer for someone who can’t afford risking principal.

A fair number of money gurus are suggesting the dividend yields on company stocks can provide the current income that CDs can’t. But you’re taking on risk to principal to get those yields. In addition, the government is slated to start taxing dividend income at ordinary income rates again starting in 2011.

A fixed-income annuity can offer higher yields than CDs, but the decision process is too complex to accomplish in a column. An earlier column — “Classic question: Annuities or bonds?” — will help you think through the issues as well as emphasize the need for professional advice.

I’m in the camp that believes interest rates can’t stay low forever. If you can finesse your income needs over the short term, don’t make the long-term decision to buy an annuity in a low-rate interest environment.

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