Is It Time to Buy Your Own Pension?

According to an online calculator at ImmediateAnnuity.com, a $200,000 lump-sum purchase for someone living in Massachusetts as I do would produce a monthly income of $1,350 on the life of a single person and $1,167 on the lives of a couple, assuming the monthly benefit remains the same after the first spouse dies.

That works out to $16,200 for the single-life annuity and $14,004 for the joint-life annuity. Under these scenarios, it would take about 12 and 14 years respectively for the annuity purchasers to recover their initial investments.

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In this case, ask yourself, at age 65, how likely is that you or spouse will live until at least your late 70s. Quite likely for many folks, I'd say.

I know $14,000 a year in annuity income for a couple might not sound impressive, but look at it in context of your overall income situation.

The average married couple collecting Social Security will receive $22,512 next year. That would bring my imaginary couple's guaranteed annual income to $36,000. Add to that a 4 percent annual withdrawal from the remaining $300,000 investment portfolio, and this couple might be looking at more than $48,000 with three quarters of it guaranteed.

One important thing to keep in mind about annuities is that there are many add-ons you can purchase, just like when buy a new car from a dealership. These include inflation protection, guaranteed payment periods in case you die early and reduced payments for a surviving spouse or partner.

Each option you add or subtract will change the monthly payment you receive. To test scenarios that might fit your situation best check ImmediateAnnuity.com or another online calculator for the Vanguard Lifetime Income Program under the annuities section of Vanguard.com.

Running the numbers yourself can help you decide whether it's the right time to buy your own pension and add a new level of security to your retirement.

This work is the opinion of the columnist and in no way reflects the opinion of ABC News.

David McPherson is founder and principal of Four Ponds Financial Planning in Falmouth, Mass. He previously worked as a financial writer and editor for The Providence Journal in Rhode Island. He is a member of the Garrett Planning Network, whose members provide financial advice to clients on an hourly, as-needed basis. Contact McPherson at david@fourpondsfinancial.com.