A. Here are two suggestions. You can avoid market risk by buying a fixed-term annuity product. Basically, it’s like a loan you give to an insurance company and they pay it back in a selected number of years. The longer the term you pick, the better the interest rate you will receive on your money.

You can get quotes from www.immediateannuities.com by inputting the amount you want to invest and looking for the monthly payment. Recently, for instance, an investment of $100,000 would have brought a monthly payment of $1,740 for 5 years, $970 for 10 years, and $730 for 15 years. The implied yield on these payments is an annual rate of 1.7 percent for 5 years, 3.1 percent for 10 years, or 3.7 percent for 15 years. A small portion of the payments would be taxable interest. The rest would be return of principal.

You would then have a reliable flow of cash that you can use to augment your spending, giving, or investing.

Another option would be to donate a portion of the $400,000 each year to a charitable gift fund. You would have the benefit of an immediate deduction in the amount donated, reducing your income tax bill. While you have many choices, you could invest it very conservatively, looking for capital preservation, not growth. There are many of these funds, but Fidelity has the largest. It is very competitively priced.  Furthermore, you’d be able to make donations from the fund each year. So you can either increase your charitable donations or use the charitable gift fund as a substitute for your giving from other income sources.

Q. I am 60 years old, single and have no dependants and no debt. I rent the place I live in. All my money is invested in Vanguard mutual funds. Here is how the money is invested in a taxable account: $1 million in Tax Managed Capital Appreciation, $700,000 in Tax Managed Small Cap, $63,000 in Tax Managed Growth and Income, and $30,000 in Prime money market. An IRA account is invested this way: $190,000 in the Total International Stock Index, $260,000 in Growth Index and $12,000 in Value Index.

I lost my job more than one year ago. It is difficult to find another one. Can I retire on the money I have? How much pension can I safely tap from this capital per year? —V.C., Dallas, TX

 

A. You can retire provided only that you can afford to live on the income from your portfolio of $2,255,000. In the current market a 4 percent withdrawal rate might not be wise. Instead, you should select a rate more in line with the actual dividend and interest income the portfolio can produce— say 3 percent. That would give you an income of about $68,000 a year. By investing a portion of the money now in mutual funds in "dividend aristocrats"— stocks with a long history of growing dividends— you might also consider living on as much as 4 percent of the portfolio. That could increase income to $91,000.

This income will be supplemented by your Social Security benefit, when you elect to take them. If you check your most recent annual statement from Social Security, you'll find estimates of what your benefits will be at age 62, your full retirement age and age 70. That will definitely be a nice addition to you other income.

How this feels will depend entirely on how much you were earning when you were working and how comfortable you are living on that $68,000 a year.