Dear Carrie: I'm 83; I have always invested; and now I want to make sure I have stable income for the rest of my life. Where should I put my money? --A Reader
Dear Reader: This is a great question, especially in light of the most recent Retirement Confidence Survey conducted by the Employee Benefits Research Institute. In that study, only 35 percent of retirees believe they have enough money to cover basic expenses. When it comes to having enough for medical and long-term care costs, the percentages dip even lower. So a retiree of any age should be looking carefully at ways to maximize -- and stabilize --retirement income.
There are several ways to create stable income. Central to your security will be having enough cash on hand to comfortably handle your short-term needs. Then, once this reserve is in place, you can look at how to invest the rest of your assets to keep more cash coming. Here are a few suggestions.
HAVE A YEAR'S WORTH OF CASH EASILY ACCESSIBLE
First take a realistic look at your expenses. What do you generally spend on things such as housing, food, transportation, insurance and medical care? Now subtract any regular income you get, such as Social Security benefits, pensions or real estate. How much more do you need? Ideally, you want to have enough cash to cover at least one year's worth of expenses in an easily accessible account, like a checking or savings account. Think of this as your spending money.
KEEP ENOUGH FOR THE NEXT TWO TO FOUR YEARS IN SHORT-TERM INVESTMENTS
On top of one year's worth of cash, I'd also keep enough to cover another two to four years in short-term investments such as CD's, Treasury bills or highly-rated municipal bonds. For instance, a ladder ranging from 6 months to 4 years would give you predictable access to your money. In today's interest environment, you may not get significant returns, but the main point is stability, not growth.
LOOK FOR SOME GROWTH
Once your cash needs are covered, if you have additional assets to invest, you can consider investing in stocks. Although it's generally appropriate to become increasingly conservative as you age, it's still a good idea to have some exposure to the stock market for growth as well as inflation protection. And if your stocks pay dividends, that can be another potential source of income.
YOU CAN ALSO CONSIDER AN IMMEDIATE FIXED ANNUITY OR A CHARITABLE REMAINDER TRUST