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Lynne Waihee: Champion of Children’s Literacy |
| Former first lady of Hawaii Lynne Waihee heads the Read to Me International Foundation, which helps kids succeed in life — by the book. |
Balancing Career and Caregiving |
| A Makiki resident describes how he pulls off the ultimate juggling act. |
COLUMN:
Boosting Your Retirement Income
If you have several years to go until retirement, now is the right time to determine about how much annual income you can count on as a retiree. And if it looks like you might be coming up short, you’ll want to take action soon.
Even if you’ve been investing for many years, you may not be able to count on a typical portfolio of stocks and bonds to provide you with the income you’ll need to enjoy a comfortable retirement lifestyle. Consequently, you may want to consider these three moves.
Purchasing an immediate annuity. An immediate annuity works pretty much as the name suggests. You make a lump-sum payment to an insurance company and you immediately start receiving an income stream, which can last the rest of your life.
Immediate annuities are fairly low risk, especially if you buy one from a company that receives the highest ratings for safety and stability from an independent rating agency. And they can provide a reasonable amount of income: If you are 65 and you buy a $100,000 immediate annuity, you’ll receive annual lifetime income of $7,848 if you are a man and $7,392 if you are a woman (as of August 22, 2005). These amounts can vary, depending on the current interest rate environment and the state in which you live.
Still,
immediate annuities do have a downside. Specifically, the fixed payments
you receive each month are subject to inflation. You could easily
live another two or even three decades in retirement; over that time,
even a relatively mild inflation rate can seriously erode the purchasing
power of your fixed-income payments.
To combat this problem, you might want to look for an immediate annuity that is indexed for inflation. Your monthly payments in the first few years might be lower than those offered by a non-indexed annuity, but each year, your income will increase along with inflation.
As you might have guessed, another possible drawback to an immediate annuity is longevity. While you can’t predict the future, you may want to take into account your family history of longevity before you purchase an immediate annuity. You also can structure your annuity to “protect” your investment. For example, you could accept lower monthly payments in exchange for the ability to name a beneficiary to receive your income stream for a designated number of years.
Delaying Social Security. Another way to boost your retirement income is to delay taking Social Security payments. Suppose, for instance, that you were born between 1943 and 1954, and you were eligible to receive $750 each month in Social Security once you reached 62. If you could wait four more years until you were 66, you’d receive $1,000 a month. This strategy depends, of course, on whether you’d have sufficient income to tide you over for those four years. And again, if you have concerns about your longevity, this “delaying” technique may not be right for you.
Repositioning Your Assets. Your financial investments usually serve one of two purposes: to grow or to pay income. When you’re nearing retirement consider exchanging assets that aren’t generating income for ones that will. CDs, government bonds and municipal bonds are examples of investments that generally provide a fixed rate of interest income.
Another type of income is dividend income. It does not provide a fixed rate of interest, but it has the potential to increase over time. This is especially important if you’re considering an early retirement because you’ll need to keep up with the rising cost of living throughout your retirement years.
Also,
in certain times, dividend-paying stocks have outperformed stocks
that didn’t pay dividends. For example, from 1980 to 2004 the
average annual return of dividend-paying stocks was 14 percent compared
to 7.3 percent for stocks not paying dividends.
A word of caution: dividends can be increased, decreased or eliminated at any point without notice. It’s important to seek professional advice for any asset repositioning you may be considering. nDavid Nako has been an Investment Representative with Edward Jones since the firm’s entry into the Hawaii market in 1994. You can reach him at 533-4980; his office is at 1001 Bishop Street, Suite 1080 in downtown Honolulu. Edward Jones has 40 representatives statewide. Check the phone directory or www.edwardjones.com to find the office nearest you.