For a 71-year-old, financial decisions are literally a calculation about life and death

Q: I'm a single, 71-year-old male. I still work part time, so my income is sufficient with Social Security, a small pension, and an annuity. However, I may stop working in June. Then my income will not be enough. I'm thinking of rolling over $100,000 from my retirement account with MetLife into an immediate lifetime annuity where payments can be delayed for 13 months. The payment of $838 a month is the best I've found so far. I would still have about $90,000 left in my retirement account.

Is it wise to do so now when I don't need the money, but may need it in another 10 months? My concern is the state of the market. Like everyone else's portfolio, my portfolio is decreasing. I'm afraid if I wait too long, I may lose too much money and may not be able to get as good a return in the future.
B.D., by e-mail

A: Thinking about life and death is never easy. But that is what it is all about. Your life expectancy is 12 years and 10 months. This doesn't mean you will die then. It only means that half of the men your age will die before then. And half will die later. Your annuity purchase will be a reasonable return investment if you live to expectancy.

When you give your $100,000 to the insurance company, it is betting it can earn more than 4.13 percent for that 12-year, 10-month period. At $838 a month, it will be 10 years before you receive your original payment back. If you die at that time, your return will have been zero. Once you pass 10 years, however, your return on investment starts to climb. It will be 4.13 percent if you live to expectancy. It will rise to 6.38 percent if you live three years beyond expectancy. The longer you live, the better it works as an investment.

Q: I'm wondering about taking my pension as a lump sum. My financial planner recommends taking the lump sum instead of a monthly payment. I know he will benefit from investing the lump sum, but I'm more concerned about how I will benefit, especially if the market goes south permanently. I plan to retire in 2012, and the elders in my family have lived past 80.
C.H., by e-mail

A: A growing body of research suggests most of us would be better off if our retirement income came from multiple sources - Social Security, a pension, and personal savings. This, after all, is the traditional three-legged stool planners have talked about for decades. Own your home debt-free, and your retirement will be still more secure. Having a pension income will also reduce your worry. Imagine the stress of having to make withdrawals from your lump sum over the past 12 months of a declining market! If the withdrawals were high, you could run out of money.

So I say take the monthly payment. The only circumstance under which you should not take the pension is if you have no savings. Then you have to err on the side of flexibility and liquidity, and take the lump sum.

Scott Burns is a syndicated columnist. He can be reached at scott@scottburns.com.