retirement

Don't tie up too much cash in annuities

I am a single woman, age 65, and will be retiring in a week.

I have worked with the same company for 14 years and have a pension fund as well as a 401(k) account. Together they total about $180,000.

A friend of mine who is also my financial adviser wants me to put about half of my funds in a fixed-rate annuity and the other half in a deferred annuity. The adviser claims that I will get a bonus of several thousand dollars for investing with the adviser's firm and will pay a rate of 7 percent on the deferred funds.

I am not at all knowledgeable about the stock market, annuities, IRAs, etc. I will be getting about $800 per month from Social Security and my fixed monthly expenses total about $1,000. I have a mortgage of $600, plus utilities, insurance, etc. I owe no other money except for my mortgage.

I am terrified of making the wrong move with the money I've saved. Leaving money to my children is not as big a concern as being able to support myself and not be a burden on them. I am in good health.

Thanks for any advice you can give.
Sheryl Petrovich

Sheryl,
 The fixed annuity sounds like it may make some sense. Essentially, you give the insurer enough money to cover the gap in your monthly budget. As an example, a woman your age living in California would likely be able to give an insurer $50,000 and in return receive a $308 monthly income for life.

But I wouldn't tie all of your money up in annuities.

Even at age 65, you've still potentially got a 40-year investment horizon and you need to take some market risk. By leaving a chunk of money in your 401(k), it can continue to grow tax-deferred at a rate potentially greater than that of the deferred annuity.

One last thing to note -- once you deposit your money, you can't get it back in a lump sum. So you don't want to tie up all of that $180,000 in case you have an emergency or need a big chunk of cash.

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