| Special to USA TODAYFed expects key rate at near zero through 2023The Federal Reserve foresees the economy accelerating quickly this year yet still expects to keep its benchmark interest rate pinned near zero through 2023, despite concerns in financial markets about potentially higher inflation. (March 17)APIt was never an ideal situation for retirees. The low-interest-rate environment meant that retirees earned next to nothing on their fixed-income investments. But now, yields on long-term bonds are rising. So, how might retirees who were hoping to live off interest income and dividends rejigger their portfolios now?► Review your investment policy statement. If you have an investment policy statement or IPS, now would be a good time to review it. If you don’t have one, now would be a good time to create one.The statement spells out how much you should invest in stocks and bonds based on your time horizon, risk tolerance and investment objective. It also spells out when you will make changes to your asset allocation. So, unless your investment policy statement is telling you to make changes to your portfolio, sit tight.► Don’t do anything. If you don’t have an investment policy statement and don’t plan on drafting one, the next best thing to do is nothing, says Charles Rotblut, a vice president and financial analyst at the American Association of Individual Investors.”We don’t think investors should be quick to adjust their portfolios to changes in the bond or the stock markets,” Rotblut says. “Even with the recent increase, bond yields are still very low historically.”Just started collecting Social Security?: Here’s how to know whether you’ll owe taxes on itPersonal finance: How will a surge in bond yields affect your mortgage, car loans and 401(k)?Plus, he says, “often the risk of making a mistake by acting on what one thinks the market and economy are going to is usually greater than the risk of just sticking with their current allocation.”► Which bonds to invest in? If you’re properly diversified, you’ll have to invest a portion of your money in fixed-income instruments. But which ones? According to Rotblut, the association’s asset allocation models use short-term bonds and intermediate-term bonds, both of which less sensitive to changes in rates than long-term bonds. In addition, he says CDs, or certificates of deposit, and money market accounts can easily be substituted for a short-term bond allocation.Others agree. “Interest rates and bond prices are inversely related, and bonds with longer maturities experience a larger price effect when interest rates change,” says Jay Abolofia, a certified financial planner with Lyon Financial Planning. “This means, if you believe interest rates will rise in the near future, it may make sense to shorten the duration of your bond holdings. In practice, this could mean replacing longer-term bonds in your portfolio with shorter-term bonds of the same quality.”In general, Abolofia says, retirees benefit from holding bonds with a relatively shorter duration since they carry less interest-rate risk.► Be flexible. Another adviser recommends the need to be flexible. “Most portfolios should be flexible enough to position and prepare for higher rates,” says Brandon Opre, a financial adviser with TrustTree Financial. “It’s not too late, particularly if rates will continue to go higher.”He notes, for instance, that certain bond sectors will do better than others in a rising rate environment. In fact, some experts suggest investing in inflation-protected bond funds, such as the Vanguard Inflation-Protected Securities Fund Investor Shares, Schwab US TIPS ETF and DFA Inflation-Protected Securities I.► Ladder your fixed-income investments. Experts also recommend laddering CDs and/or bond funds. With this approach, you would own a mix of short-, intermediate-, and long-term fixed-income instruments and as the short-term instruments mature you would reinvest the proceeds at higher rates in the future, says Opre.Recently widowed?: Here’s what you need to know about Social Security survivors benefitsTo execute this strategy with bond funds, Rotblut notes that BlackRock, Invesco and Fidelity all offer defined-maturity bond funds. “These ETFs and mutual funds are professionally managed portfolios but mature just like bonds do,” he says.► Look for stock sectors to replace your bonds. You might also consider tweaking the stock portion of your portfolio. “There are also certain stock sectors, such as real estate and financial, that tend to outperform in rising rate environments,” says Opre.Robert Powell contributes regularly to USA TODAY, TheStreet and The Wall Street Journal. Got questions about money? Email Bob at email@example.com.The views and opinions expressed in this column are the author’s and do not necessarily reflect those of USA TODAY.