Conventional wisdom has it that today’s low investment yields tend to harm low-income retirees, who receive little or nothing from the bank accounts and bonds they had counted on for spending money. That’s certainly the case, but a recent study from the Employee Benefit Research Institute (EBRI) found that low yields have even more impact on younger workers as well as on people with high incomes. Agreeing with those conclusions, Barton Close, vice president of investments, in the Chattanooga office of Raymond James & Associates, told On Wall Street, “Those low yields have turned around my strategies 180 degrees. Now I put more focus on current cash flow.”

The EBRI study compared a world with historic investment returns, including a 2.6% real (after inflation) return from bonds, with a world where sustained low yields dropped the real bond return to -1.4% a year, as was the case early in 2013. Counting all assets—investments, Social Security, pensions, home equity—the change in bond returns raised the probability of running short of money over a long retirement.

What’s more, “the lower interest-rate scenario had a progressively larger impact on simulated retirement readiness as income rises,” EBRI reported. For the highest income quartile, the percentage of life paths projected to run short of money rose from 14.5% (historic returns) to 31.8% (sustained low yields). Similarly, the more years workers had to build a retirement fund, the greater the impact of low yields. For those with 20 or more years until retirement, negative projections rose from 13.9% of those simulated life paths to 36.4%.

“From our perspective,” Close said, “the possible problem comes from the fact that investment returns depend so much on dividends and interest income.” In the accumulation mode, that income is reinvested, while retirees rely on dividends and income for spending money. “When yields come down, total returns come down,” he added.

Consequently, Close has become more tactical in his approach to investing. “Now we look for current cash flow before growth of cash flow and value.” He said the search for cash flow has led to more emphasis on assets such as REITs, MLPs, high-yield bonds, and foreign bonds.

Dealing with a low-yield environment is a concern for both retired clients and for those still building a retirement fund, Scott Thoma, co-chair of the investment policy committee at St. Louis-based Edward Jones, said in an interview. “Retirees who want to spend only investment income may go longer-term and lower-quality in bonds, to boost yields,” he pointed out. “We’ve suggested to our advisors that they warn clients that such moves can increase risk. Focusing on total return, which might include selling assets to raise spending money in retirement, may be a better approach.” Thoma also noted that Treasury yields are extremely low now, compared with other bond market sectors, so looking at other types of fixed income, such as municipal bonds, could be considered.

As for those clients still building their retirement fund, Thoma said that his firm had recommended reducing longer-term fixed income holdings while adding to short- and intermediate-term issues. “This is likely to provide more preservation of principal and increase the amount that can be reinvested in the future, perhaps at higher rates. For all of our clients, we urge regular meetings with their advisors to see if they’re still on track to reach their goals, or if changes need to be made. That’s the purpose of working with a financial advisor.”