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Ask an Advisor: We Have $1.25M in Retirement Savings and Need to Withdraw $50k Per Year. How Should We Invest it?


We have $250,000 in the bank and one million to invest for retirement with no debt. We need to earn $50,000 a year from the million. Where should I invest it?


First, congratulations on saving $1 million for your retirement – I’m sure a lot of hard work has gone into this! You have also done a great job building up a bank account that you can use for emergencies or other immediate needs. When combining these two asset bases with your debt-free balance sheet, you should be in a strong position to achieve your $50,000 per year income objective.

Deciding how to invest your assets is critical both before and after retiring. A financial advisor can help you select and manage investments for your retirement portfolio.

Before evaluating options for investing your retirement savings, it’s important to start by assessing your goals. On the surface the $50,000 per year income goal is simple, but some nuances might be relevant and worth exploring. There are some additional considerations that you should keep in mind before deciding where to invest, so we’ll dig into those before outlining potential investment options.

Understanding Your Goals

A couple that's on the verge of retiring looks over potential investment options.

As with any wealth planning decision, you should always start with your goals. It appears that generating income is your primary objective. But are there other long-term goals this $1 million should help to serve? For example, do you want to preserve the value of the principal over time and perhaps leave money for heirs? Or do you intend to spend this principal down over retirement?

If we take the $50,000 annual income goal at face value, then a required return of 5% is achievable and by no means overly aspirational. You could purchase a single-premium immediate annuity today and earn this rate. However, if preservation of principal is desired, then inflation should be factored into your calculation. Assuming positive inflation in the future, you would need a higher rate of return than 5%. Further, if you wish to leave an inheritance as part of your estate plan, then you will want to think about how much you wish to leave behind – this will also impact your return needs.

(If you’re not clear on your financial goals, consider connecting with a financial planner and talking it over.)

Additional Considerations to Evaluate

There are many other factors to account for in conjunction with your goals before making an investment decision. We already alluded to one – inflation – but here are some additional considerations:

  • Time value of money: A dollar today is worth more than a dollar in the future. Factoring in the time value of money, spending $50,000 per year would deplete the entire $1 million balance in just over 14 years. Does this time frame align with your retirement horizon?
  • Age and income: Similar to the above point, when do you expect to retire and for how many years will you be drawing from your portfolio? Will you be working for longer and able to further grow the value of your principal investment? Does this $50,000 cover all of your expected living expenses or will you have other supplementary sources of income, such as Social Security or employer-sponsored retirement plans to provide additional support? These questions directly influence how much risk you can take with your investments.
  • Long-term care: An often-overlooked expense in retirement is long-term care. These costs can quickly extinguish savings in the absence of long-term care insurance. Do you have long-term care insurance in place to protect against the risk of exhausting your principal quickly?

(A financial advisor can help you evaluate and plan for these factors, among others. Find a fiduciary financial advisor today.)

Investment Options

A retired couple adjusts their retirement savings portfolio, shifting some of their money into more conservative assets.

In the context of the potential goals and considerations outlined, let’s explore some potential investment options.

As mentioned, if you simply need to generate $50,000 per year, unadjusted for inflation, and do not want to maintain or grow your principal, purchasing a single-premium annuity is a straightforward solution. Another relatively safe, income-focused option would be to build a portfolio of laddered treasuries or certificates of deposit (CDs). However, this could introduce reinvestment risk. Since interest rates are currently near your 5% target, there is no assurance they remain there in the future. You could structure an annuity or build a laddered fixed-income portfolio that aligns with your expected retirement horizon.

If you want the $50,000 annual withdrawal to keep up with inflation, or if you want to preserve the $1 million principal over time, then you should consider investing in a more diversified portfolio. You could construct an income-oriented portfolio comprising both bonds and dividend-paying stocks that can generate your desired level of annual income while also protecting the value of your principal. This option could be attractive if you decide you want more spending flexibility in retirement, on things such as gifts or travel, or if you are concerned with the potential of outliving your savings.

(And if you need help deciding how to invest your retirement portfolio, consider working with a financial advisor.)

Bottom Line

On the surface, the question of where to invest can seem quite simple when you have an annual income target in mind. However, when you unpack the true nature of this goal, as well as some relevant considerations, the question becomes a bit more nuanced. Understanding your goals at a deeper level and the factors that could influence whether you successfully accomplish these goals will ultimately help you make the most sound and unbiased investment decision.

Retirement Planning Tips

  • As you can see, planning for retirement can be complex and overwhelming. However, a financial advisor can help you navigate the process. Finding a financial advisor doesn’t have to be hard. SmartAsset’s free tool matches you with up to three vetted financial advisors who serve your area, and you can have a free introductory call with your advisor matches to decide which one you feel is right for you. If you’re ready to find an advisor who can help you achieve your financial goals, get started now.
  • It’s important to maintain an emergency fund with enough money to cover between three and six months worth of living expenses, even in retirement. An emergency fund should be liquid – in an account that isn’t at risk of significant fluctuation like the stock market. The tradeoff is that the value of liquid cash can be eroded by inflation. But a high-interest account allows you to earn compound interest. Compare savings accounts from these banks.

Photo credit: © Seisa, © Vladimirov