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The Wall Street Journal highlights the issues savers have today with combating inflation in this persistently low yield environment. In an excellent article published in March of 2012, it discusses the issues retirement investors face when fighting inflation in this low-yield environment.  

It isn’t fun being a saver these days.

The fragile economic recovery, weak housing market and tight lending standards all underscore the need for an ample emergency fund to ride out a job loss, unexpected expense or other temporary financial shock.

Yet interest rates are sitting near multidecade lows—and the Federal Reserve has vowed to keep those rates at rock-bottom levels through 2014.

That means investors who stow emergency funds in a bank account or certificate of deposit will have trouble just keeping pace with inflation, currently around 3% a year. The average annual yield on four-year CDs, for example, sits at 0.89%, compared with 2.61% in March 2008, according to Bankrate.com. Unless the economy takes a grave turn, such savers will end up with less spending power than they started with.

The article discusses the importance of liquidity in emergency funds, and makes this important point when it comes to cash:

You just have to suck it up and get used to the fact that you aren’t going to earn much.

Retirement income investors need to turn their savings into income streams.  We constantly work to balance safety, profitability, liquidity and longevity in our recommendations.  this is a situation where liquidity and flexibility cost you in terms of real returns and declining spending power- cash earning .5% looses 2.5% of its value each year in a 3% inflation environment.

It may be more prudent to analyze and moderate your liquidity needs in search of higher yield.

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“For all time periods and for all portfolios, the addition of the annuity leads to a decline in the portfolio failure rates.”