So we asked retirement planner ING Financial Services to help us analyze what it takes to produce $1,000 a month in steady income to augment a pension and/or Social Security, for a minimum of 20 years from retirement at 65. We picked 20 years because Social Security's Life Expectancy tables predict:
- A man reaching age 65 today can expect to live, on average, until age 83.
- A woman turning age 65 today can expect to live, on average, until age 85.
If a 65-year-old man spends $172,000 on a lifetime annuity, he'll receive $1,000 a month--$12,000 a year--for the rest of his life, whether he lives 20 years or 40 years. If you need to also provide for a spouse or a partner, you'll want to buy a joint and survivor annuity and that takes more money. How much depends on the age of the partner. You can noodle around with these numbers without registering or fearing that a salesperson will bother you if you don't want to be contacted by going to ImmediateAnnuities.com.
2. Build a Ladder
The downside of an annuity is that the insurance company wins and keeps your money if you die young. If you're concerned about leaving money to your heirs, you can create a similar predictable income by buying a carefully selected collection of certificates of deposit (CDs), U.S. Treasuries, municipal and corporate bonds. You'lll need to invest $600,000 at current interest rates--today's average CD is paying 1.59 percent, according to Bankrate.com--in order to earn an average of $12,000 a year in interest and dividends.
3. Invest in the Stock Market
If you are willing to take a little bit more risk and can be flexible about the amount of money you withdraw every month, putting your money in a balanced or index mutual fund might be the answer for you. Using the traditional 4 percent rule of thumb for withdrawals from these kinds of investments during retirement, you'd need to invest $300,000 and aim for a return greater than 4 percent to pull out $1,000 every month. "This should be nonessential money," Ford warns. "If we had a repeat of what happened in 2008, you'd have to pull back and say, 'For the next year or two, I'm going to pull out zero,'" she said.
4. Rely on a Reverse Mortgage
If your mortgage is paid off--or nearly so--and your home is still worth several hundred thousand, taking out a reverse mortgage--where the mortgage company pays you as long as you live in the house--is a viable way to create a predictable income stream. AARP offers a calculator to help you determine how much a reverse mortgage might pay you. According to AARP, you'd need a fully paid-off $450,000 home to generate $1,000 a month in income. But be aware that if you must move--to a nursing home, for instance--you'll trigger a sale. The bank will take what it is owed. If there is anything left, you'll get it, but generally, these are structured so that after a few years, the owner doesn't have much if any equity left--at least on paper.
5. Get a Part-Time Job
This isn't exactly a savings plan and many people can't continue to work as long as they live. But if you've been a lousy saver, working part time may be your best option for earning retirement income. If you take a job that pays the federal minimum wage -- $7.25 an hour -- you'll have to work 32 hours a week, 52 weeks a year to gross that much. We hope you like saying, "Welcome to Walmart."
6. Don't Quit Your Day Job
According to Social Security' benefits calculator, a 60-year-old earning $50,000 a year will get $1,158 a month if he takes Social Security at 62. If he waits until age 70 to claim it and continues to pay into the system and gets regular increases in wages, by the time he hangs up his work boots, he'll earn $2,602 a month. That's a $1,444-a-month raise just for hanging in there. Sure there are drawbacks. If you die young, you forfeit all those years of benefits, but the odds are 50/50 that you'll beat Uncle Sam at his own game.