retirement

Fixed annuity the answer for $250K nest egg?

Don TaylorDear Retirement Adviser,
I'm now retiring at age 56 and have about $250,000 in after-tax savings. I'll likely use this nest egg over the next 10 years of retirement, in roughly equal amounts per year. I have a healthy 401(k) balance but want to avoid tapping that for as long as possible. How would you suggest I invest the $250,000? I assume I can get a 1.5 percent annual return.

Thanks,
-- Tom Tenyear

Dear Tom,
I think you should consider an immediate annuity with a 10-year period certain to give you a monthly payment over the next 10 years. I used an online tool to estimate a monthly payment, and $250,000 should produce an estimated monthly payment of $2,268. That works out to an annual return of about 1.7 percent, which is better than what you assumed.

Unlike the typical immediate annuity that stops payout when the annuitant dies, a period certain annuity makes the monthly payments over the time period established by the annuitant. It would also go to beneficiaries should the annuitant die during the time period.

This is a pretty conservative strategy, but the insurance company should be able to do a better job structuring how it invests your investment than you might do on your own.

I'd suggest that you pay for a few hours' time of a fee-only financial planner to review your retirement income needs. This person would also look at how your investments, pension and Social Security can be optimized to meet those needs while minimizing risk.

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