Mom Needs Income

Q:

Please help with advice! My 76-year-old widowed mother has sold her home, has $100,000 to invest and needs an investment tool to generate monthly income. Her teacher's retirement pays for her room and board and insurance. She needs from $400 to $500 monthly income for the rest of her life. What low-risk, no long-term investment prescription do you suggest?

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A:

Let's split the difference and say she needs an additional $450 a month in income. That means she needs to earn about 5.40 percent on her money to meet her income needs and not touch the principal balance. Unfortunately, finding a risk-free investment that will yield 5.40 percent isn't readily available at this point in time.

Just living off principal would meet her income requirements for more than 18 years, so a return of less than 5.40 percent would still allow her to meet her income needs over her lifetime.

An immediate annuity would allow your mother to have a guaranteed income stream over her lifetime. This site will calculate the approximate cost of an immediate annuity without any sales people contacting you -- unless you request it.

Your mother could buy an immediate annuity for about $60,000 and that would guarantee her $500 a month in income for life. She wouldn't outlive this income stream. She could then invest the $40,000 as a reserve for financial emergencies.

There is a host of ways to structure an annuity so the annuitant receives a lifetime income. Here are some examples along with their estimated costs:

Single Lifetime Income Annuity Cost

    Testimonial Image
    We had heard about annuities and were investigating them for our IRAs. We also heard bad things about pushy brokers over the years. So when we went to the ImmediateAnnuities.com site we were skeptical about calling them. But whenever we called their staff was really friendly. They answered all our questions and one of their reps even told us that at our ages there was no advantage to buying the annuity with our IRAs. These guys are really honest!
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  • With no payments to a beneficiary ("SL") $59,918
  • With up to 5 years guaranteed to your beneficiary ("5CC") $61,529
  • With up to 10 years guaranteed to your beneficiary ("10CC") $66,279
  • With up to 15 years guaranteed to your beneficiary ("15CC") $73,260
  • With up to 20 years guaranteed to your beneficiary ("20CC") $80,802

Source: ImmediateAnnuities.com

Which approach to take depends on the goals your mother has for the money besides meeting her needs for income. It would be worth it to hire a financial planner to help her make this decision. The National Association of Personal Financial Advisors is a good place to learn more about hiring a fee-based financial planner.

Source: bankrate.com 09-09-2003

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