Q: Maybe you can answer a question that has puzzled my wife and me. We're planning on retirement in about five or six more years and have been trying to come up with some realistic estimate of how much income for living expenses our savings will generate. All we get are "it all depends" answers. That's not good enough for intelligent planning. Any suggestions?--T.C.
A: You obviously won't buy "it all depends." It's a sticky question all right, because as any financial planner will tell you, your post-retirement nest egg should be spread over any number of investments that balance safety with acceptable risk and, consequently, wildly varying yields. Getting an average here is a little bit like trying to guess the average weight of a classroom full of 6-year-olds--from the skinnies to the chubbies.
Generally speaking, the safer the investment the lower the yield--but not always. You'll need some investments that are low-yielding but give you a hedge against inflation.
Others will give you a hedge against deflation but, again, may be low yielding (or not). Others should be in tax-free securities, which distorts the picture by throwing into the pot a low-yield that isn't really all that low because of the tax-free feature.
See the problem? Here's one rough rule-of-thumb, however, that some planners use: For every $1,000 in investments, figure a dividend/interest income of anywhere from $6 to $12 a month. "Rough" is the name of the game here. With a nest egg of $100,000 you'll have an income of anywhere from $500 (6%) to $1,200 (14.4%) per month. The average: $9 per $1,000 or an overall yield of about 10.8% annually.