'What should we do with a $100,000 windfall?'

(Money Magazine) -- We are retirement age and expect a windfall of $100,000. What should we do? -- Debbie, Jamestown, N.Y.

You mean besides thank your lucky stars? Seriously, an extra $100,000 could very well be enough to significantly improve your prospects for a secure and enjoyable retirement. On the other hand, it's not so large a sum that you can afford to be cavalier about how you manage and spend it.

Your first step: Assess your retirement prospects without factoring in your expected $100,000 windfall. Unless you know what sort of lifestyle your current resources and savings will be able to support, it's hard to know how best to integrate this new money into your planning.

You can do this assessment by going to T. Rowe Price's Retirement Income Calculator. Just plug in your age, the value of your savings (again, leaving aside the hundred grand), how your money is invested and how much monthly income you think you'll need to live comfortably once you retire. You'll get an immediate estimate of the chances that your resources will be able to generate your target level of income throughout retirement.

If this analysis shows that your probability of getting your target level of retirement income is uncomfortably low -- say, less than a 70% chance -- then you'll want to use your windfall to get you closer to an acceptable level of sustainable income.

One way to do that is to invest the $100,000 along with the retirement savings you already have in a conservative blend of low-cost stock and bond funds like those on our MONEY 70 list of recommended funds.

Assuming an initial withdrawal from savings of 4% to 5% that's adjusted annually for inflation to maintain your purchasing power, your hundred-grand windfall should have a relatively high probability of generating roughly extra $4,000 to $5,000 a year of real, or inflation-adjusted, income.

Another strategy to consider is putting a portion of your windfall into an immediate annuity, a type of investment that turns a lump sum into guaranteed lifetime income.

The upside of doing this is that the combination of an immediate annuity and a portfolio of stocks and bonds may be able to boost the amount of annual income you can draw from your savings while also lowering your chances of running through your nest egg too soon.

The downside, though, is that you'll no longer have access to any money that goes into the immediate annuity. So you wouldn't want to go the immediate annuity route unless you would still have plenty of other savings in stock and bond mutual funds that you could tap both for retirement income and emergencies and such.

But if after plugging your financial info into the retirement calculator, you find that you will have sufficient retirement income without tapping that extra $100,000, then you might want to take a different approach for handling your windfall. Since you won't need that hundred grand for regular expenses, you could consider earmarking it as a "lifestyle slush fund," a separate pool of assets for funding occasional splurges that can make life a little more enjoyable.

You could tap this side fund to pay for a cruise or other vacation every couple of years. Or you might dip into it to help out grandkids, other family members or even contribute to philanthropic organizations that are important to you.

If you have outstanding balances on credit cards or other loans, you could use a portion of your windfall to erase your debt or pare it down to a more manageable level. Or for that matter you could just hold the windfall aside as a special reserve, taking comfort in knowing that you have an extra cushion to absorb any financial shocks, such as unexpected health care costs.

If you take this "slush fund" approach, you can still invest your windfall along with the rest of your retirement savings and just keep a running tally of how much of it you've spent.

But you may find it easier to keep track of -- and psychologically more comforting -- to invest your windfall as a separate bucket of assets. For guidance on how to invest this bucket, you can check out our Asset Allocator.

One more thing to be mindful of. It seems that whenever one comes into a big sum of money, all sorts of people inevitably get wind of it -- advisers with self-serving investment schemes, acquaintances convinced they deserve a share, outright flim flam artists looking to fleece you.

So when you get this money, move slowly and deliberately. Initially, you may even just want to stick it in an FDIC-insured savings account until you perform the evaluation I've recommended. Granted, your money won't earn much in such an account. But windfalls don't come along every day, and you don't want this one to slip through by moving too hastily.

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