Your Questions About Investing In Mutual Funds

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Richard asks…

Is using an immediate annuity and investing in mutual funds the best of both worlds for an early retirement?

Lately, I’ve been thinking much about an early retirement. Have worked over 20 years in the same company. Plus, always good to prepare as I’ve seen friends and family get an early retirement forced upon them. I was thinking about using an immediate annuity (along with a pension) for a guarenteed income stream. However, since a regular income wouldn’t keep up with inflation, I’d definitely still want to have money invested in mutual funds too.

Let’s say the annuity plus penison brings in about $50,000 a year, with about $400,000 left in other investments and a Roth IRA about $50,000. Also, no mortage in home, no dependents to provide for. With $50,000, some of that can still be used to continue investing in mutual funds even in retirement. Thus, if a bear market comes along, it’s comforting to know there is a steady income stream.

Would that combination of annuity and mutual funds be the best of both worlds for a stress free early retirement?

financi4 answers:

It seems to me that you are reasoning quite well. I recommend ensuring that your annuity be of the index linked type, or one which rises annually otherwise your real income will be falling. Shop around for the annuity, because the rates quoted vary widely.

Then consider your mutual funds. These should be of the equity income and property income type, invested in a variety of good markets, like US, UK, and Europe. You can assume that the income from them will at least keep up with inflation, but would probably do better. The income from them is published in newspapers, magazines and in the managers’ brochures,so it will be quite easy to do your own calculations of expected income, and the apportionment you prefer between annuity and mutual funds
Have a long and happy retirement.

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