08 Aug What investment will get me enough income every year?
Q. I am an 87-year-old widower who wants to transfer $25,000 in mutual funds to something safer. I earn about $2,000 a year on this money and the principal goes up and down, but I don’t want it to go below $25,000. My advisor says that if safety is my primary concern, perhaps I shouldn’t be in stocks. I am interested in safety, naturally, as this is my only wealth, but would like to earn something on this money. I’d be satisfied with earnings of 5 percent or even less as long as my $25,000 was secure. Is there any type of investment that would meet my wants?
— Getting by
A. This question poses more questions for you as the investor.
What you need to decide is what is more important: the annual income you get from the $25,000 or preserving the money.
You will probably have to choose between the two.
Let’s start with your current position: $25,000 invested in mutual funds.
While mutual funds are not as risky as pure equities, they are not by any means a safe investment, said Michael Cohen, a retirement specialist with Certainty Retirement Advisors in Belvidere.
“You can lose money with mutual funds, which from your questions, sounds like is the last thing you want to happen,” he said.
The issue is that those mutual funds are proving interest and/or dividends to you in the amount of $2,000 a year.
“That $2,000 a year is not guaranteed because if your funds take a nosedive like they did in 2008, and your $25,000 is now worth $14,000, your interest/dividends will also be decreased,” Cohen said.
You stated that safety is your primary concern and that this is your only wealth.
“There are certainly options out there where you can get growth in the range that you desire, or better, while taking no downside risk,” Cohens said. “You will, however, not be able to produce $2,000 a year of income from this investment without touching your principal.”
Cohen said something like a fixed indexed annuity could be a consideration.
But, he said, being 87 years old may limit your options because life insurance companies have restrictions on who can and cannot purchase their products, and age is one of those restrictions.
“You have options if you’d like to protect that $25,000 and completely take the chance of loss off the board,” he said. “But that safe investment will certainly not provide you with $2,000 of income each year.”
We recommend you sit down with an independent financial advisor who can discuss your options.
Email your questions to moc.p1579535809leHye1579535809noMJN1579535809@ksA1579535809.
This story was originally published on Aug. 8, 2019.
NJMoneyHelp.com presents certain general financial planning principles and advice, but should never be viewed as a substitute for obtaining advice from a personal professional advisor who understands your unique individual circumstances.