Beware of Deferred Annuity Salesmen: A Case Study in Generating Retirement Income

I recently received a question from Pauline of Mission Viejo, California regarding the money she's saved for retirement. I think both her question and my answer can help readers with the hot topic of investing your retirement savings.

I am a 64-going-on-65-year-old single female, self-employed right now. I'm in good health and have no dependents nor a spouse.

I have accumulated retirement savings of about $600,000, most of it in cash or bonds (CDs and money market accounts). It has been parked in the cash accounts for more than two years after the stock market scare. About $200,000 is in an IRA. I know this is not an efficient way of managing my money; that's why I'm asking for help.

I need about $1,200 per month more than what I am receiving now, which is about $2,000 per month from Social Security and a small pension. I was thinking about an immediate annuity. However, three different male financial planners -- who would be happy to sell me deferred annuities -- recommend that I don't annuitize. The financial planners are paid in a variety of ways, including commission. I haven't paid them anything yet.

I am just starting my own business, so I'm not yet in a position for a SEP-IRA. I was laid off from a job in April. Because of my age and the employment climate, I think it's better to do contract work from home and do it for the next 20 years.

Thanks for any guidance you can provide me.
First, congratulations to Pauline for arriving at age 64 in good health and with $600,000 in retirement savings -- she's in much better shape than most Americans her age. She's also got the right idea when it comes to being willing to work to supplement her retirement income. Not only will it bring in more money, but it might improve her health, increase her longevity, and provide social contacts, even if she's working from home. It also seems she can live on a little more than $3,200 per month, so she's doing a good job of managing her living expenses.

But Pauline faces a few important decisions:

• Should she buy a deferred annuity?
• What's the best way to deploy her retirement savings to generate the additional income she needs?
• Should she change the way she's currently invested her retirement savings?
• What's the best way to work with -- and pay for-- a financial professional?

While I don't have all the facts of Pauline's situation in order to provide personalized recommendations, I do have some thoughts to share that might help Pauline and my readers. Please keep reading to see my answers.

Next: Should Pauline buy a deferred annuity?

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