A recent MSN Money article contemplated how $250,000 could be used to create retirement income. When the article asks why use $250k, it goes on to explain, "Because U.S. Census Bureau data show that the average net worth of a 65-year-old with some college education is $500,000. That person can put half of his or her overall net worth toward income generation and still have Social Security and other assets to draw upon to maintain a diverse portfolio and a source of emergency funds."
I personally think that $250,000 is a reasonable number to shoot for as a base for retirement income, but I have some different ideas that the MSN Money article on how it could be used to create that income.
Even with the stock market taking off right now in 2013, I've remained a fan of my slow and steady income fund DRIP -- or dividend reinvestment plan. I have a good such income fund in my current retirement plan, but with an extra $250,000, I could really drive my retirement income higher. My current plan's share prices rise and fall with the moves of the stock market, but it provides monthly dividends that typically add up to about 6 percent of my fund's total annually. At this rate, I'd be pulling in about $15,000 a year from my income fund, which added to Social Security payments and any other income, could provide me a nice cushion before having to consider drawing down against my asset total.
Pay off debt
Right now our family is debt free, and I hope we remain so until retirement. However, should we arrive at our golden years with debt, paying off this debt could be another good way to make use of a portion of that $250,000 amount.
A recent MSN Money article regarding baby boomer debt noted that the Employee Benefit Research Institute reports the average overall debt for 55-and-older households is $70,370. Whether it's credit card debt, student loans, a mortgage, or other higher interest debt, being able to ditch debt with interest rates higher than what we could earn on investments could be another good option for putting that $250,000 to work in a way that while maybe not generating income, works in kind of the same way by lowering expenses.
Government savings bonds
The MSN Money article notes TIPS (treasury inflation-protected securities) as an income earning option, but I'm fine with the good old-fashioned I-series savings bonds. These bonds don't have a guaranteed rate of return, but they are meant to keep up with and even beat the government's determined rate of inflation. Having owned these bonds over a period of a decade, and laddering them out over time, my annualized returns have averaged right around 3.5 percent, which while not enough on their own to sustain me in retirement, could be a secure location for at least a portion of that $250,000.
*Note: This was written by a Yahoo! contributor. Do you have a personal finance story that you'd like to share? Sign up with the Yahoo! Contributor Network to start publishing your own finance articles.
More From This Contributor:
The author is not a licensed financial professional. The information provided in this article is for informational purposes only and does not constitute legal or financial advice. Any action taken by the reader due to the information provided in this article is solely at the reader's discretion.
- Personal Finance - Career & Education
- Investing Education