Commitment management a powerful tool for retirement investing
Q. I am a 66-year-old recently retired single male. I receive a $1,600 monthly teacher’s retirement pension, $1,400 a month in Social Security, and $210 a month from a life annuity. My living expenses come to about $3,000 a month. The expenses include $400 for spending money and a $600 car lease which will be completed next June. At that time I plan to return the car to the dealership. I would like to pay cash for a cheaper used car and avoid having a car payment. I also have $10,600 in a money market savings account that earns about 1 percent. I have two annuities, one with $30,000 and one with $5,000. Both have four more years before I can withdraw them without paying a surrender fee. I have been told you can take 10 percent a year without paying a surrender fee. I also have a $97,300 IRA rollover account in a money market account earning 1 percent interest.
I owe $82,000 on my house at 5.25 percent and have about $45,000 equity in it. My question: What should I do with the savings account, the annuity, and the IRA? Where can I invest them and get more interest, yet be able to access some of the money if there is an emergency?
D.R., by e-mail
A. Your situation is a good example of how powerful careful commitment management can be in retirement.
With $3,210 a month in assured monthly income and $3,000 a month in expected expenses, the income from your $143,000 in savings could make a big difference. But earning only 1 percent, it doesn’t provide you with much wiggle room.
Even if you could increase the average yield to 4 percent, you would only be adding about $360 a month to your income.
That’s why you’re smart to focus on the $600-a-month car lease. If you buy a good used car and pay cash, you’ll reduce your income need by more than you could reasonably expect to increase your investment income.
There is a similar opportunity in your home mortgage. I don’t know what the monthly payment is, but it’s probably $400 to $500 a month - another big chunk of required spending that probably offers virtually no tax savings from interest deductions.
You should use the money market account to deal with the car lease and the cost of buying a used car. Take the maximum 10 percent withdrawal from the annuities unless their yield is reasonable, such as 3 percent interest or more. And invest the IRA rollover.
As an inexperienced investor you should probably buy a balanced fund that invests in stocks and bonds. Vanguard Wellesley is a conservative asset allocation fund with an expense ratio of 0.25 percent, a track record that more than 90 percent of its competitors can’t match, and a current yield of about 4.5 percent according to the Morningstar website.
Scott Burns is a syndicated columnist. He can be reached at scott@scottburns.com. 
