‘My income isn’t enough to enjoy life.’ I’m 78 and a widow with no kids. I need to live on $250K, Social Security, a pension and an annuity that ‘I regret.’ Help.

Question: “I’m 78 years old, a widow and have no children or grandchildren. I sold my house and need to live on the $250,000 profit for 10 to 12 years. I’m looking for a fee-only fiduciary financial planner. I have a small income from Social Security, a pension and an annuity which I regret, but my income still isn’t enough to enjoy life. I want to rent from now on and expect rent to be about $1,800-$2,000 a month when I move to New Mexico. Where can I put my money? How much can I responsibly draw each month? Will any advisers work with someone who has as little as I do?” (Looking for a financial adviser too? You can use this free tool to get matched with financial advisers, from our ad partner SmartAsset, as well as CFP Board and NAPFA.)

Answer: The first thing to note is that it’s not just about chasing the highest yield. “The right place for your cash depends on when and how you plan to use it. If you need access for regular expenses, liquidity is key,” says Kelli Smith, director of financial planning at Edelman Financial Engines.

Essentially, since it sounds like you need access to your money, you’ll want to avoid tying it up in the market or a CD and instead look into a high-yield savings account that will earn you a fair return without any withdrawal penalties. In addition, you’ll want to be sure you have an emergency fund that’s accessible, preferably with three to six months’ worth of living expenses set aside in case something unexpected occurs and you need quick access to funds.

You also need to get smart about your asset allocation. “You’ll want a portion of your assets invested in assets that can provide meaningful long-term growth, such as stocks. These assets enable your portfolio to continue growing despite the effects of inflation and periodic withdrawals from the portfolio,” says Derek Jones, chartered financial analyst at Scratch Capital. 

Furthermore, you’ll likely need some exposure to relatively stable assets such as bonds or cash equivalents. “These assets can be utilized to fund your portfolio withdrawals in periods of stock market turbulence,” says Stephen Akin, investment adviser representative at Akin Investments.

Preservation of your $250,000 capital should be your primary concern since you plan to live on that for the next 10 to 12 years. “I would structure a balanced portfolio of quality growth and dividend stocks as well as laddered bonds or CDs,” says Akin. 

Needless to say, the less you have to draw down the money, the better. “Without knowing the valuations of your Social Security, pension and annuity, I’m reluctant to offer a monthly dollar amount that you can withdraw at this time. You could restructure the annuity or the pension, but again, that would require a deeper probe of your investments,” says Akin.

To determine an appropriate growth asset versus a stable asset mix, there are many different methods you can utilize. “One method is to build your portfolio around a three- to five-[year] protective reserve,” says Jones. “Say your total after-tax monthly income from your Social Security, pension and annuity is $4,000 and your monthly expenses are $5,500 per month. This means you have a $1,500 per month portfolio withdrawal need which is $18,000 annually. If you put $90,000 of your $250,000 in stable assets such as bonds or money market funds, you would have five years’ worth of your portfolio withdrawal needs invested in relatively secure assets. On average, it has taken about two to three years for U.S. stocks to fully recover after a bear market.”

There are also varying methodologies used to determine what safe withdrawal rates are. “Typically, a safe withdrawal rate refers to a percentage of the portfolio that you can pull out each year with the expectation that those withdrawals will not permanently deplete the real value of your portfolio over a long investment horizon,” says Jones. 

In the long run, a more aggressive portfolio should allow for a higher annual withdrawal rate because the expected long-term returns are relatively high compared to a conservative portfolio. “A more aggressive portfolio comes with short-intermediate term risk that many investors may not be able to comfortably tolerate which is why adding some exposure to stable assets often makes sense,” says Jones. Indeed, for someone in their late 70s or early 80s, Jones says a common, reasonable withdrawal rate is 5%. 

Another tip: “There are many states, communities and religious groups that offer significant breaks on the average monthly rent. If you would consider relocating, that too, could open up more opportunities for you beyond the idea of moving to New Mexico,” says Akin.

What kind of pro can help?

Determining a safe withdrawal amount depends on factors like longevity and the types of accounts you have. “A financial planner takes a comprehensive look at your entire financial picture and creates a strategy for using your assets in the most effective way. By reviewing your income streams and savings, they can project your retirement income and expenses over the next decade and beyond and build a personalized plan to help keep you on track,” says Smith.

When looking for a fee-only financial adviser, use FINRA’s BrokerCheck tool to begin your search for qualified professionals, says Akin. “Many advisers who charge their fee based on assets under management (AUM) have minimum asset levels. Where there are firms that have minimums in the $1 million range, there are plenty of firms with minimum asset levels less than $250,000,” says Jones. 

What’s more, there are firms that offer fee arrangements like hourly or flat fees. “These firms typically don’t have minimum asset levels. In any of these arrangements, it’s important to ensure that you feel the level of service you are receiving is worth the price,” says Jones.

CFPs are the gold standard in financial planning as they complete extensive education requirements, pass exams, perform thousands of hours of work-related experience and uphold a fiduciary duty. Most commonly, CFPs work on an assets under management (AUM) model, where they charge an industry average of 1% of AUM, but many CFPs offer hourly or project-based engagements. Hourly CFPs charge between $200 and $500 per hour while project-based advisers tend to cost between $1,500 and $7,500 depending on the scope of work.

Your best bet, according to certified financial planner Tim Witham at Balanced Life Planning, is to steer clear of some of the big box finance outfits. “Many either have high minimum balance requirements or offer watered down advice. Instead, look for an independent fee-only adviser. Various sites like FeeOnlyNetwork.com or NAPFA.org can help with finding one that fits the bill,” says Witham. You can also use this free tool to get matched with financial advisers, from our ad partner SmartAsset.

Have an issue with your financial planner or looking for a new one? Email questions or concerns to picks@marketwatch.com.

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