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Question:


I am 81 and am selling my home. Where should I invest the proceeds in order to have a yearly income and have this income last until I die?
-BChilds


Answer:


Unless your dwelling is of palatial proportions, you probably won’t be able to generate enough income to cover all of your living expenses. The easiest way to execute your plan, as far as it will go, is to place the proceeds from the home sale into an annuity. An insurance company will calculate your life expectancy from actuarial tables and personal circumstances like your age and health-related factors. Based on your life expectancy and on projections of investment returns on the money you place in the annuity, the company will determine an amount to pay you each year until death.
 
If the issuer hits everything on the nose, then the total payments over the annuity’s life will equal the amount of the original investment plus the income the money earns plus a profit. If the investor lives much longer than anticipated, then he wins twice over, as he will get more payments than expected, while an early death is doubly negative.
 
There’s another double negative that may swear you off the idea of buying an annuity now, however. While the housing market has stabilized, prices remain well off their highs of a few years ago, so your home may not fetch as much as you hope. Interest rates are very low, too, and as rates are the main factor used to project investment gains, annual payments on annuities bought today are likely to be exceptionally low.
 

Higher-paying alternatives exist, but the risk of loss is greater, too, and the income guarantee diminishes. It’s in times like these that an old joke – “I’ve got enough money to last the rest of my life, as long as I die tomorrow” – is particularly resonant.

-Conrad de Aenlle



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