Question

I’m 78, widowed, and without children or grandchildren. After selling my house, I have to manage my $250,000 profit for the next 10 to 12 years. My social security income, along with pensions and annuities, is pretty low, which makes it challenging to enjoy life. I’m considering renting, which is expected to cost around $1,800 to $2,000 a month once I move to New Mexico. Is there someone who can responsibly advise me on managing this amount?

Answer

First off, it’s crucial to understand that searching for the highest return isn’t the only goal here. The right place for your funds really depends on how you plan to use them and when you’ll need access. Kelly Smith, a director of financial planning, emphasizes that liquidity is key for covering regular expenses.

Since you’ll need to access your funds, it might be wise to stay away from tying up your money in the stock market or fixed deposits. A high-yield savings account could be a solid option, offering reasonable returns without withdrawal penalties. Plus, having an emergency fund is crucial—three to six months of living expenses set aside can help if unexpected costs arise.

Consider your asset allocation carefully. As Derek Jones, a Chartered Financial Analyst, mentions, some of your assets should be in investments that offer long-term growth, like stocks. This can help counteract inflation and withdrawals.

It might also be beneficial to have some stable assets, like bonds or cash equivalents. Stephen Akin, an investment advisor, notes that these can help during market downturns.

Given your plan to live off $250,000 for the next decade or so, it’s crucial to manage that equity effectively. Akin suggests creating a balanced portfolio with a mix of growth stocks, high-dividend stocks, and laddered bonds or CDs.

Of course, the less you have to withdraw, the better your situation will be. Without knowing the specifics of your social security, pension, or annuity, it’s difficult to pin down an exact monthly withdrawal amount. You might consider restructuring those investments, but that would require a deeper dive into your financial situation.

There are various methods to find the right balance between growth assets and stable ones. For example, if your total monthly income (after taxes) from social security, pensions, and annuities is about $4,000 while your expenses total $5,500, you’d need to withdraw around $1,500 monthly. If you invested $90,000 of your funds into stable assets, you would have enough to cover five years of withdrawals, since stocks typically bounce back in two to three years after a downturn.

Also, there are different strategies for determining safe withdrawal rates. Jones mentions that a typical “safe” rate is around 5%. More aggressive portfolios can allow for higher withdrawals, but they come with risks that might not suit every investor.

One additional tip: rental prices have seen reductions in many areas. If you’re open to relocating, your options might expand beyond just moving to New Mexico.

What Kind of Professional Help is Available?

How much you can safely withdraw depends on factors like your lifespan and the specific types of accounts you have. A financial planner can give you a comprehensive overview of your financial landscape and help you develop effective strategies. By analyzing your income and savings, they can help create a personalized plan for managing expenses in the long run.

If you’re on the lookout for a fee-only financial advisor, Akin recommends using FINRA’s BrokerCheck tool. Many advisors work on an asset management fee basis and may have minimum balances, some of which can be around $1 million, although others may cater to people with less than $250,000.

There are companies that offer different pricing structures—like hourly or flat rates—without minimum asset requirements. Just ensure that the service you receive is worth the fee you pay.

Certifying as a CFP is significant, as it involves meeting educational criteria, passing exams, and accumulating experience while upholding fiduciary responsibilities. Although many CFPs may charge approximately 1% of assets managed, they might also offer hourly rates ranging from $200 to $500 or project-based fees from $1,500 to $7,500, depending on the work involved.

Tim Witham, a certified financial planner, advises steering clear of larger financial firms due to their high minimum balance requirements and less personalized advice. He suggests looking for independent, fee-only advisors. Websites like FeeOnlyNetwork.com and NAPFA.org can assist in finding one that suits your needs.