What central banks want you to do is take more risk. They hope that low interest rates and quantitative easing will encourage investors to buy higher yielding assets such as equities and corporate bonds, thus reducing the cost of capital to companies and so encouraging more investment and economic growth.
But of course there's an obvious reason for us not to do this - risk. The problem here isn't merely normal share price volatility and business cycle risk. It is also that there is a danger of secular stagnation - sustained low growth which depresses equity returns even over many years. Japan's experience since 1989 tells us that super-low interest rates can cause rises in share prices, but without real economic growth these rises will soon be reversed.
There's a good reason why so many investors in developed economies are holding bonds at negative real yields (and negative nominal ones in Europe). It's that they fear the possibility of even worse returns on riskier assets.
If chasing high returns is dangerous, there's something else savers can do. We could change our lifestyles to adapt to low returns. This means saving more, and getting into the habit of spending less and so coping with low retirement income, or working longer and retiring later.
There are obvious drawbacks with this - and in fact a not so obvious one too. Alex Bryson at the NIESR and George MacKerron at the University of Sussex have found that job satisfaction does not increase as we get older. Granted, more senior workers might have pleasanter jobs as we can delegate drudgery to our younger colleagues. But we are also more aware that our time on Earth is running out and so we are aware of the high opportunity cost of work - the fact that it stops us doing better things. If you think you can cope with low returns by postponing retirement, therefore, you might be in for a nasty and long surprise.
All this seems depressing: negative real returns on safe assets compel us to do something painful.
Here then, comes some good news. There is - unusually - a pot of money we can use to get out of this pickle. Quite simply, we can spend our children's inheritance.
This is a big pot. HMRC figures show that in 2011-12 - the latest year for which they have data - people left £36bn in their estates excluding housing. That's an average per person of £136,000, equivalent to five times the average wage.
On average, then, our wealth outlives us by a lot. This contradicts conventional economic theory, which says that we should run down our savings in retirement. But we don't do this.
Were we to do so, we could partly avoid the otherwise unpleasant choices imposed upon us by negative real rates. For example, if we assume real returns of 3 per cent per year - a reasonable expectation for a mix of bonds, cash and equities - then someone who expects to live for 30 years could take more than 5 per cent per year out of their savings in retirement.
One obvious objection to doing this is that it deprives your children of their inheritance. But why make big sacrifices yourself to benefit people better off than you? Even if the economy grows by only 1 per cent per year, people in 30 years' time will be 35 per cent better off (after inflation) than they are now. And their non-material living conditions should also be better because as John Stuart Mill said, "a stationary condition of capital and population implies no stationary state of human improvement. There would be as much scope as ever for all kinds of mental culture, and moral and social progress." If you've brought your children up well they have a good chance of a better life than you. They shouldn't therefore begrudge your dis-saving - especially if negative real rates and the threat of secular stagnation proves to be temporary.
Another objection is that dis-saving is risky because we might live longer than we expect or because our capital might be eroded faster than we expect by falling markets.
One solution to these risks, albeit an expensive one at current yields, is to buy an annuity. There is, remember, still something to be said for these.
However, the risk of spending too much of our wealth is not the only danger. Spending too little is also risky because it deprives us of happy memories later. For me personally, a bigger fear than spending a few years in poverty is that I'll die regretting the fact that I've wasted my life working.
Worse still, if we spend too little now we might not be able to make up for lost time by spending later. MIT's Amy Finkelstein has shown that the pleasure we get from a pound of spending declines as our health worsens. Holidays aren't so enjoyable if we are not as mobile as we used to be, and fancy cars are pointless if our eyesight is fading. This argues for us spending while we still have our health.
I suspect, though that a bigger obstacle to us running down our wealth in old age isn't the riskiness of doing so or the desire to leave money to our children. It is instead psychological. If we've spent decades saving and building up wealth it's difficult to change these habits. If, however, we are to enjoy a long or happy retirement in the face of negative real returns on save assets we need to think about how to make this adjustment.
