Like many retirees, Judy Yontz, 68, of Columbus, Ohio, worries that her retirement money is insufficient to cover expenses and might eventually run out.
She gets $2,100 a month from a combination of Social Security, a pension and a part-time job as an administrative assistant at a hospital. Her only debt is the $450 monthly mortgage payment on her condominium, and her strict budget even accounts for the $2 tip to her hairdresser.
Nevertheless, Judy projects that her monthly expenses will reach $2,600, while her income, at best, is fixed — and will likely fall once she stops working entirely. She has $8,000 in the bank and $113,000 in a 403(b) account retirement plan, to which she adds $600 a month. Any unplanned expenses, such as a jump in utility bills or condo fees, would be troublesome.
Judy is one of those rare people who should trim or eliminate retirement-fund contributions. Putting that $600 (or most of it, allowing for paying the extra taxes) into accessible short-term savings would provide valuable wiggle room. Judy can also look for ways to wring a few extra dollars of income from her investments without undue risk.
For instance, she could tweak the allocation of her mutual funds. Judy has been extremely cautious, investing only 10 percent of her portfolio in stock funds. Increasing her stock allocation to 25 percent — or, at most, 50 percent — would help Judy’s retirement plan grow over time and reduce the risk that she will run out of money.
Low-cost growth-and-income funds that invest in high-quality, dividend-paying stocks are ideal for seniors who want a moderate stock allocation. One good choice is T. Rowe Price Equity Income, which yields nearly 2 percent.
With the remainder of her savings, Judy is open to buying an immediate annuity, which pays a guaranteed monthly income. Retirement annuities can form a solid foundation, but current interest rates are so low that the fixed monthly check would be small and likely to lose purchasing power over the years. For instance, if Judy pays $60,000 today, she would get about $370 a month for life, according to Immediate Annuities.com.
