No. of Recommendations: 0
jfinegan: "My mom is 77 years old and has just sold the first home she ever owned. She will realize a net-after tax ammount of roughly $330,000.

Her monthly social security and pension payments will cover her new apartment rental plus utilities.- @$1800.

Question- In order to have a supplemental monthly income from her $330,000, what would be the best vehicle?

Fixed Annuities scare me due to high fees and CD rates have just gone down.

How can she maximize earnings on her principal and still receive a monthly payment of @ $2500.
PS- she will need to access the new cash immediately."

I dislike being the bearer of bad news, but unless there are other assets invovled, this does not look that good.

By my calculation, $2500/month = 30k/year AND 30k/330k = 9.09% withdrawal rate. Even for only a 10-year horizon, the the largest "safe" withdrawal rate discussed on the Retire Early Home Page (URLs provided below) is 8.47%.


go to Retire Early Study on Safe Withdrawal rates.

The RE study assumes that the witdrawal amount is inflation adjusted annually. If your mother will stick at $2500/month and not require annual inflation adjustments, that would buy you some cushion.

Using PPI to inflate, puts the 9.09% withdrawal rate somewhere between 90% and 95% survivable (and I am guessing closer to 90%) while using CPI-U to inflate puts the survivability rate at almost 98%.

OTOH, the RE study assumes a portfolio at the efficient frontier for the appropriate timeframe and realtively low expenses for the funds - deviation from either would work against you.

In addition, 10 years makes your mother 87 years old. If your mother is generally healthy, and especially if she comes from long-lived stock, that time frame may be too short. At 20-year horizons, anything much over 5.7% withdrawal rate places you below the 90% survival rate.

Much of this is a question of personal risk aversion, and I cannot know your aversion or your mother's aversion. I suggest that you do much reading at the REHP (especially to understand the studies and rates because at some level no rate is truly 100% safe) and then if you have questions, you may wish to skim the Retire Early board (in Speakers' Corner) or post there. The author of the REHP posts as 'intercst' on the TMF boards.

Hope this helps. Regards, JAFO

Print the post  


The Retirement Investing Board
This is the board for all discussions related to Investing for and during retirement. To keep the board relevant and Foolish to everyone, please avoid making any posts pertaining to political partisanship. Fool on and Retire on!
When Life Gives You Lemons
We all have had hardships and made poor decisions. The important thing is how we respond and grow. Read the story of a Fool who started from nothing, and looks to gain everything.
Contact Us
Contact Customer Service and other Fool departments here.
Work for Fools?
Winner of the Washingtonian great places to work, and Glassdoor #1 Company to Work For 2015! Have access to all of TMF's online and email products for FREE, and be paid for your contributions to TMF! Click the link and start your Fool career.