Mom Needs Income


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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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

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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


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: 09-09-2003

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