My spouse and I are doing some retirement planning and we need to compare the financial difference between drawing out payments from one of the following two investment scenarios.

1. Investing a lump sum $400,000 into a conservative retirement portfolio at age 65 and drawing off the investment for retirement income ($'s would be from the sale of a cabin property). Vs. 2. Drawing off retirement income from a Roth IRA that has grown to $400,000 by age 65.

Questions:
1. What is a realistic rate of return I can expect from the lump some invested at age 65?
2. What are the differences between the taxes I will face when I go to draw off retirement income from the two investments?
3. What are the different annual tax implications for each investment?
4. What is the best type of investment for the lump sum scenario that minimizes tax losses yet allows me to draw out retirement income.
5. Will you please include any estimates of likely tax rates I will face or the percentage of investment returns I should forecast for either scenario?

6. One final question: We can lock in a rate of return at 6% (guaranteed) for 30 yrs and the annual amount invested stays within the fixed assets portion of our retirement investment portfolio. Is this a fair /good deal or should we invest in something else to meet this fixed assets portion of my portfolio?


Thanks for your help on this,

AtlantaTaxExpert

1) Answer depends on your risk tolerance. I cannot realistically answer without a LOT more information about you, your spouse and your other sources of income.

2) Money from a ROTH IRA is totally tax-free. Other income, like an annuity, is subject to income taxes. The rate depends on your total income.

3-5) Insufficient information to answer accurately.

6) I would have to examine the investment package in detail before I can comment on whether it is a good deal or not. It sounds like an annuity, which may or may not be a good idea. Again, I simply do not know enough about you to answer.

You really need to consult with a fee-only financial planner. I suspect a commission-based financial planner is offering you the 6% plan. It may be a great plan, but I would not trust the word of someone who may be drawing a large commission (about two years' worth of premiums) to sell you the package. A fee-only financial planner works for YOU alone, not for a commission.