For young investors with all the time in the world, the market's big drop over the past two years has been more of an opportunity than a setback. But if you don't have a lot of time left before you actually need to start spending all the money you've set aside over the years, you can't afford to wait for things to get better -- you need to figure out right now what to do next.

Taken for a wild ride
If you're in or near retirement, the last two years have really hurt. Because you've been saving toward your retirement a lot longer than younger investors, you had more money at risk in the markets. Moreover, if you've already retired, you don't have a steady paycheck to help you get through the tough times.

Even worse, most of the advice you hear is tailored more toward younger investors who can afford to wait for a rebound. You need to do something different and more immediate. But don't give up hope; while you won't have as many options as those with a longer time horizon, you can still have a comfortable, secure retirement.

A few ideas for older investors
To get your investments back in shape, first you need to know exactly where you stand. You should know:

  • Your current asset allocation. If you owned a lot of bonds, you might actually be in better shape than you thought. But some have been surprised at just how many stocks they owned through mutual funds.
  • Your money needs. How much are you spending every month, and how much of those expenses do other sources of income, such as Social Security or pension payments, cover?

Once you know your current situation, consider these three alternatives.

1. Increase your investment income.
Last year's stock market crash isn't the only problem retirees are having lately. Lower interest rates have decimated income from safe investments like bank accounts and Treasuries, forcing some to consider riskier fixed-income alternatives like corporate bond funds to sustain their income.

Yet if you're really willing to take on more risk, dividend-paying stocks give you both current income and future growth prospects. Look at how some dividend stocks have performed since March:


Current Dividend Yield

26-Week Return

NYSE Euronext (NYSE:NYX)



Mattel (NYSE:MAT)



DuPont (NYSE:DD)



Annaly Capital Management (NYSE:NLY)



Limited Brands (NYSE:LTD)



Unilever (NYSE:UL)






Source: Motley Fool CAPS.

You won't want to put all your money into even the most conservative dividend stocks. But with a portion of your portfolio, dividend stocks can carry the burden when your other income-producing investments fail.

2. Consider an immediate annuity.
Annuities have a bad reputation for high fees and unnecessary gimmicks. But immediate annuities are as simple as they come, and they can help you lock in a predictable flow of income for the rest of your life.

With an immediate annuity, you make an upfront payment in exchange for a stream of future income that lasts as long as you live. You don't have to worry about how to invest to get that income; the insurance company does it for you. So if there's a bear market, you'll still keep getting your checks.

Before buying an immediate annuity, make sure you understand all the options and features. But it's a gamble that's worth taking with a portion of your money, in part because it will help counterbalance risks you take elsewhere.

3. Convert to a Roth IRA.
If you have a lot of money in traditional IRAs, you're sitting on a potential tax land mine. But if your income is small enough that you're in a low tax bracket, it might pay to convert some of that IRA money to a Roth IRA, paying tax on the amount converted but taking advantage of that low bracket.

The strategy isn't for everyone, but it has two advantages: not only does it give you potential tax-free income upon withdrawal, but it also extends to your heirs after you die. So if you expect to leave money to younger family members who are in higher tax brackets, you might save them money by converting and paying the tax bill yourself.

Don't give up
As dire as the past two years have been, you're not out of options. By considering a combination of these and other strategies, you can dig yourself out of whatever hole you're in and find a way to stay comfortable in your retirement.

If you're near or in retirement and need more help weighing tough options, join our Motley Fool Rule Your Retirement service. You'll get monthly newsletters that explain complicated issues as well as access to a community of other investors with firsthand knowledge of the things you're going through. Try it today free with a 30-day trial.

Fool contributor Dan Caplinger never assumes time is on his side. He doesn't own shares of any of the companies mentioned above. NYSE Euronext is a Motley Fool Rule Breakers selection. Unilever is an  Income Investor recommendation and a  Global Gains pick. Try any of our Foolish newsletters today, free for 30 days. The Fool's disclosure policy gives you good luck.