Annuity can take place of pension

My husband and I are thinking about retirement. In many of your columns, you note multiple sources of income. Pensions are often provided for those working for someone else. What sources of income are available for middle-class people who are self-employed? — B.K., Garland, Texas

A pension plan provides workers with a guaranteed lifetime income. People who are self-employed can achieve the same security by committing a portion of their retirement savings to a single-premium life annuity purchased from an insurance company.

A recent quote from the website immediateannuities.com indicated a monthly income of $490 for a joint-life annuity on a 66-year-old couple for a $100,000 purchase. It would be unwise, however, to commit all of your savings to a life annuity. Why? Because a life annuity is an exchange of one sum, that $100,000, for a lifetime of fixed payments — you can’t get your original investment back.

The next thing for you to do is make an appointment at your local Social Security office and get estimates of your current and future Social Security benefits.

We are looking for guidance on the best thing to do with proceeds from the sale of our home. I am 57, and I will retire with a civil service pension, money in the Thrift Savings Plan and Social Security. My estimated pension is $2,500 a month. My current TSP balance is $227,000, and I plan to contribute $18,000 a year for the next six years. My Social Security benefit at age 66 will be $2,154 a month. My husband, also 57, is self-employed. He will have only Social Security when he decides to retire. His benefit is estimated at $1,704 a month at 66.

We have about $170,000 from the sale of our home. From these proceeds, we plan to set aside funds for our son who is just starting college ($65,000 for four years) and also set aside (in a money market fund) an emergency cash amount of $35,000.

What type of investment would you recommend for college savings? And what strategy/investment plan would you recommend for retirement purposes? — L.L., by email

The best you can do on the college funding is to do some careful hunting for higher-rate certificates of deposit on bankrate.com. Although you’ll get a lot more than average CDs, it won’t be impressive, but you’ll avoid risk of loss. Time the maturities for when the payments are due.

Assuming reasonable risk in current savings, taking more conservative positions as you approach retirement (and immediately afterward) is a good way to sleep better.