When rates are low, your nest egg suffers

Q. Once you retire, how do you make your nest egg generate enough money to live with interest rates so low?

A. If you can't take any risk, you really don't have many good choices. The last time you could get a five-year bank CD yielding more than 5% was in 2000, according to Bankrate.com. Since then, savings rates are lower than an ant's basement. The average money market fund yields just 0.01%, according to iMoneyNet. The top-yielding five-year CD in the nation, offered by VirtualBank, yields 2%, according to Bankrate.com.

Unfortunately, savings rates aren't going to rise any time soon. The Federal Reserve has said that it won't raise short-term interest rates until the unemployment rate falls to 6.5% or lower, and that probably won't happen until 2015.

What's a saver to do? If you really can't take a risk, you just have to wait it out. One solution: Divide your savings into four parts, and buy a one-year CD every three months. Right now, you'll get about 1% from the top-yielding one-year CDs, according to Bankrate.com. As interest rates rise — eventually — your yields will rise every quarter.

You could get a higher yield by investing in a 10-year Treasury note, currently yielding 2.74%. But at that rate, $100,000 would give you just $2,740 in income a year, or $228 a month, for a decade. Better not plan on eating out.

If you hold your bond until it matures, you won't risk losing money, except to inflation. If you sell before it matures, you could lose money if interest rates rise.

If you need higher rates than the 10-year Treasury offers, you'll be taking on additional risk. Although high-quality corporate bonds don't default often, it is a possibility. And low-quality junk bonds have considerably more risk of default — in which case, you'll have to stand in line with the company's other creditors.

You can get somewhat higher yields by investing in dividend-paying stocks. AT&T stock, for example, has a 5.08% dividend yield. Verizon yields 4.13%. Gene! ral Electric yields 2.81%.

The risk? They're stocks, and they could cut their dividends if times are tough. On the other hand, you don't have to put your entire portfolio in dividend-paying stocks. Putting 20% of your portfolio in riskier — but higher-yielding — investments won't send you to the poorhouse if the stock market falls. You'll still have 80% of your portfolio in cash.