How should I invest my nest egg for maximum retirement Income?

CNN/Stylemagazine.com Newswire | 5/23/2018, 11:05 a.m.
I'm in my mid 60s and have about $1.2 million I would like to invest for the maximum income possible ...

Walter Updegrave

(CNN Money) -- I'm in my mid 60s and have about $1.2 million I would like to invest for the maximum income possible for the rest of my life. I don't care for stocks or bonds because I hate the idea of seeing the value of my savings drop if the market has a correction. And I don't understand annuities. Any suggestions?—M.B.

You've got a number of conflicting wants and needs that you'd do well to sort out if you hope to come up with a sensible plan to convert your nest egg into income that can support you the rest of your life.

You say, for example, that you want "the maximum income possible," yet you seem bent on ruling out stocks and bonds, investments that, in combination, have a solid record of being able to deliver the size returns you need to generate a high level of income for the long term.

You also express concern about the value of your savings dropping during market downturns. That's understandable. No one enjoys seeing his nest egg take a hit, especially the gut punch of a severe bear market. But this aversion to seeing even a temporary decline is incompatible with your desire for maximum income. The more you dampen up-and-down swings in the value of your retirement portfolio, the more you reduce your return potential, which makes it tougher to get the higher retirement income you seek. You can't have it both ways, a shot at maximum income and total stability.

Finally, you say you want this income to last for life. But you then seem to suggest that annuities — a type of investment specifically designed to create a payout you can't outlive — are a no-go. I agree that annuities can be difficult, sometimes almost impossible, to understand. And I don't want to suggest that you must own an annuity. Still, if you really want retirement income you can count on for the rest of your life, I think it's at least worth considering whether an annuity might make sense.

All of which is to say that I think you need to consider setting a more realistic goal when it comes to retirement income — namely, creating a plan that can get you a reasonable amount of sustainable income given your resources, while limiting volatility to a manageable level rather than trying to do away with it altogether.

Related: 4 steps you should take when buying an annuity

The first step toward creating such a plan is to get a handle on how much income you'll need to cover your retirement expenses. You can do that by going to an online budgeting tool like BlackRock's Retirement Expense Worksheet, which has room for you to enter dozens of retirement expenses ranging from essential outlays for housing, food, health care and transportation to more discretionary expenditures for travel, entertainment and charitable donations.

Once you've toted up your expenses, you can then see how much of those costs you'll be able to pay for with assured income from sources like Social Security and any pensions. If you haven't already begun drawing Social Security, you can see what size monthly check you might receive by going to the Social Security Administration's Retirement Estimator tool.