JASON HEATH | Special to the Financial Post  | Published May 30, 2012

Bond yields are hitting both record lows and record highs all over the world and creating risks for retirees long accustomed to treating fixed income as the risk-free component of their portfolios.

Interest rates in many European countries are moving higher as the risk of default rises, while at the same time American, British, Finnish, German and Swedish 10-year government bond yields have all hit record lows this week. Australian and Canadian yields are closing in on record lows and Japanese 10-year government bonds are yielding less than 1%. The Swiss 10-year: 0.59%. Retirees trying to invest for income may feel compelled to move from bonds to equities, adding an element of risk to their portfolio that they may not appreciate.

With rates as low as they are, locking in for several decades of annuity payments seems equally risky given the threat of inflation.

At the turn of the millennium, in 2000, a $100,000 joint life annuity with no guarantee period provided a couple with about $610 a month, or $7,300 a year, in income, but at today’s rates, a 65-year-old couple would receive only about $450 a month, or $5,400 a year, from the same $100,000 — a 26% decline.

People retiring with defined-benefit (DB) pensions have a suddenly difficult choice between monthly pension payments or increasingly plush lump-sum payouts that can be transferred to a locked-in RRSP by pension managers who would love to hand off the risk. read full article