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Guru_Guy, Lawyer (JD)
Category: Tax
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Experience:  I am a lawyer who understands tax law and finance.
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I am 76 years old and I will be receiving money from ...

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I am 76 years old and I will be receiving money from the sale of family farm. I have depended upon rent from the land for several years....approximately 17,000 a year. Now, after taxes I will have 330,000 approximately. How would you invest this to have an income each year for the rest of my life?
Submitted: 6 years ago.
Category: Tax
Expert:  Guru_Guy replied 6 years ago.
Hello,

Given your age and the fact that you will be living off this money, it sounds like you want to go with a very safe and secure investment.

Stocks usually give a much better return over time than bonds or CDs. However, stocks always carry the risk of loss if prices go down. The conventional wisdom is that if you are investing for ten or twelve years down the road, stocks will do much better over time. But short term volatility makes them a poor investment for shorter term goals.

It sounds to me like you need a secure investment as your spending needs are probably going to be much shorter term.

The problem with safer investments, of course, is that they offer a lower return. For example, if you bough 1 year treasury bonds, you would get a return of only 3.17%, or an annual return of $10,461 each year on an investment of $330,000.

The best short term option I know of right now is a money market account with Countrywide financial, which offers an annualized yield of 5.3%. That would give you interest of $17,490 over a year. However, money market rates can go up or down, so if interest rates continue to fall, you might not make quite that much.

Also, money market accounts are FDIC insured up to $100,000. This means that if the bank failed, that is the maximum amount the government would give back to you. Therefore, I would not recommend putting more than $100,000 into a money market.

You could also consider CDs. These have the advantage of maintaining their interest rate for the full term of the CD, but because most investors think rates will continue to fall, most CD's pay a lower interest rate than the best money markets. Countrywide also has the best CD rates in the country, a 3 month CD at a 5.5% yield. But again, you don't want to put more than 100,000 with one bank.

IndyMac Bank has a 3 month CD that offers 5.4% yield, so that might be a good option for you as well. If you go with a 1 year CD, you get a rate locked in for that long, but you probably won't due better than a 5% yield.

My recommendation for someone in your position would be to spread around the money to about four different banks, to make sure each account is under the $100,000 level Put part of the money into higher yielding money markets and part into CDs that offer the best yield. This will give you a safe return and fast access to your money should you need it.

Although your return may be a little less than the $17,000 or so you were receiving before, you have the benefit of access to the money and no worries about loss of capital. Even if you spend some capital each year, you should be fine for the rest of your life.

For example, if you withdrew $24,000 per year and were making 5% interest on your savings, your principle would not run out until a little over 23 years from now, when you would be age 100. If you took out only $20,000 per year, or about $3000 more than you get now, your principle would last for almost 35 years, probably well beyond your needs (sorry, but living beyond 112 years old is probably too much of an ambitious goal).

If you want to do more searches for very good investment rates on money markets and CDs, I recommend this site:

http://www.bankrate.com

I hope this helps!
Guru_Guy, Lawyer (JD)
Category: Tax
Satisfied Customers: 2418
Experience: I am a lawyer who understands tax law and finance.
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