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How should we invest €1.25 million in pension savings if we withdraw €50,000 annually?

We have $250,000 in the bank and a million to invest for a debt-free retirement. Of that million, we have to earn $50,000 a year. Where should I invest it?

-Robbing

First, congratulations on saving $1 million for retirement. I’m sure a lot of hard work went into this! You’ve also done a great job of building a bank account that you can use for emergencies or other immediate needs. When you combine these two asset bases with your debt-free balance sheet, you should be in a strong position to reach your income goal of $50,000 per year.

Deciding how to invest your assets is crucial, both before and after retirement. A financial advisor can help you select and manage investments for your retirement portfolio.

Before evaluating options for investing your retirement savings, it’s important to start by assessing your goals. On the surface, the $50,000 per year income goal is simple, but some of the nuances may be relevant and worth exploring. There are some additional considerations to take into account before deciding where to invest. That’s why we’ll go into this in more detail before outlining the possible investment options.

A couple about to retire is looking at possible investment options.
A couple about to retire is looking at possible investment options.

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As with any estate planning decision, you should always start with your goals. It seems like generating revenue is your main goal. But are there other long-term goals that this $1 million should help achieve? For example, do you want to retain the value of the principal sum over time and perhaps leave money to heirs? Or do you plan to spend this principal during your retirement?

If we take the $50,000 annual income goal at face value, a required return of 5% is achievable and certainly not overly ambitious. You can buy a single premium immediate annuity today and earn this rate. However, if preservation of principal is desired, inflation must be taken into account in your calculation. Assuming positive inflation in the future, you would need a higher return than 5%. Additionally, if you want to leave a legacy as part of your estate plan, you’ll need to think about how much you want to leave. This also affects your return needs.

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(If you’re not clear about your financial goals, consider contacting a financial planner and talking about it.)

There are many more factors to consider in conjunction with your goals before making an investment decision. We’ve already mentioned one – inflation – but here are some additional considerations:

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