Dear MarketWatch,
I’m 67 and late in the game. I estimate an income of $3,500 to $3,700 per month from Social Security, and about $750 per month from a pension.
I want to strengthen my social security as much as possible. I have $100,000 and I want to retire in three years. My peers have 10 to 20 times more set aside for retirement, maybe more.
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In your professional opinion, what would be the best use of this $100,000?
I’m thinking about annuities, but what I’ve read isn’t good.
Late bloomer
Related: I’m 54 and have $2.6 million saved. My husband, 68, wants me to retire early, but he has very little retirement savings.
Dear late bloomer,
Your position may not be as precarious as you fear.
There’s a lot you can do with $100,000, but you probably don’t want to tie it up to anything. Broadly speaking, annuities are an insurance product that provides investors with a guaranteed income. Annuities aren’t inherently bad, but they can come with high costs and complicated terms, and their reputation has been tarnished by heavy-handed sales techniques that sometimes push people into investments that aren’t right for them.
However, regulations have improved and the financial sector and government are paving the way to make them more accessible. However, an annuity may not be the right choice for you. Some advisors avoid annuities for retirees because they would require tying up most of their liquid assets in those types of products. Once you buy that type of product, you can’t take the money out like you can with an investment portfolio or a money market fund.
You get $4,000 a month combined from Social Security and your pension. If your expenses in retirement are less than $4,000 per month, you might not be living as tight as you think. You can even put a little more money in a savings account while you’re retired – imagine that! And if you’re on the cusp of $4,000 a month, you can withdraw your savings at the barest level to offset those costs.
The financial services industry uses the 4% rule as a benchmark for how you can benefit from your retirement savings over a 30-year period. If you added nothing else to that $100,000, you would withdraw $4,000 for the first year of retirement (which works out to about $333 per month). In subsequent years, you’ll need to adjust for inflation (and of course, the amount of money you need can fluctuate from year to year).
As for the $100,000, strike a balance between letting it grow and not investing in something that’s too risky. A regular savings account does not protect you against inflation, but a high-yield savings account or money in government bonds can help. You can also create a balanced investment portfolio, but consult a financial planner to ensure that it is not too conservative or too aggressive, neither of which would be good.
There’s no magic product to make up for the years you haven’t saved, but that doesn’t mean you can’t make smart moves now. For example, you said you plan to retire in three years, so during that time, and assuming you stick to that timeline, try to prioritize your savings as much as possible. If you have a 401(k) or 403(b) at work, sign up and try to set aside as much as you can through pre-tax payroll deductions.
Alternatively, you can use an IRA, which doesn’t have as high a contribution limit as the 401(k) but is an investment account that you can put money into as long as it’s income. You can also choose a traditional or Roth IRA account, the former of which is contributed with pre-tax dollars and the latter with after-tax dollars. Having both types (in the form of employer-sponsored retirement accounts or an IRA) will help diversify your retirement income.
Focus on your own plan – not on how much others have saved.
