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‘Have I Managed My Finances Properly For a Long Retirement?’

Elderly Couple
Creative Commons photo courtesy flickr user Zadi Diaz.

Paul Solman frequently answers questions from the NewsHour audience on business and economic news on his Making Sen$e page. Friday’s comes from a reader at Next Avenue. The NewsHour has partnered with Next Avenue, a new PBS website that offers articles, blogs and other critical information for adults over 50.

Elizabeth Hagan: I will be 65 next year. I have been retired since 2010 from a state university job. I do not qualify for Social Security, but have a state pension. My retirement pension plus that from my deceased husband is $4,000 per month after taxes, I have almost $220,000 in a low-risk TIAA-CREF annuity plan, I own my home outright with a value of well over $100,000 and I own Series I Treasury bonds worth about $48,000. I also have a little over $27,000 in bank checking/savings and have no outstanding loan or credit card debt.


I did pay a Certified Financial Planner in 2002 after my husband died for a plan at that time, which I mostly complied with. I realize I am in a comfortable position, but as a woman from a long-lived family, I am wondering if there is something better I should be doing now with my annuity funds and cash? Do you advise me to see a CFP again? I am considering selling my house and retiring to a warmer location due to arthritis. I want to make my plans starting with the best financial situation I can.

Paul Solman: I have questions, Elizabeth — many questions. The first and foremost: how much do you live on? And if you move to warmer climes, will the tab change? Second question, almost as important: Is the $4,000 per month inflation protected, as Social Security is? I’ll leave the other questions for the CFP, though I worry about your finding a good one. By definition, fully half of them are below average and how are most people to know what criteria to use in picking one? You remember what they call the person who finished at the bottom of the class at the worst medical school in the country, right? “Doctor.”

Tallying your numbers, it looks like you have just under $300,000 in savings, leaving your home equity out of the picture. One way to think about the value of such a nest egg is to see what it would yield if you were to put it into the safest possible investment: an inflation-protected annuity. (This assumes you are willing to leave nothing as an inheritance.) An inflation-protected annuity, for a woman your age, returns something like 6 percent a year: $18,000+. Both Vanguard and, from what I read on the Internet, Principal, offer inflation-protected annuities. That is, guaranteed regular payments until you die.

The bottom line is that if your pension is inflation-protected and so is your nest egg, and you can live on $58,000 a year or less, you should be fine, no matter how long you survive.

But what if you become incapacitated? Or simply turn frail enough that you need to live in an assisted living facility or nursing home? Do you have long-term care insurance? Medicaid will pay, once you’ve depleted all funds. But you will be at the mercy of the system, a system that will be increasingly strained as baby boomers such as yourself decline in health, a system that is already under enormous budgetary pressure.

You might try out Larry Kotlikoff’s ESPlanner Basic to see how safe you are. Larry and I will be simplifying it soon — and adding a little zest, we hope.

This entry is cross-posted on the Making Sen$e page, where correspondent Paul Solman answers your economic and business questions

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