Some Investments Aren’t Worth the Trouble

Q. I am 62 years old and have about $700,000 in savings. Half is invested in Vanguard Balanced Index Fund, half in cash. I have no debt and no income need now, but I will need about $2,000 a month at 65.

I feel this stock market is getting real tired. I’m thinking of selling $100,000 of VBINX and buying a 3-year deferred annuity through I’d buy an annuity with a 5-year payout of $1,800 a month. That would take me to age 70, and then I could draw $2,200/ month deferred benefit. You thoughts? —J.C., Austin, TX

A. You’re not alone in being nervous about the markets. But let’s take a closer look at your level of risk. With half your nest egg in Vanguard Balanced Index fund and half in cash, your effective asset allocation is 30 percent stocks, 20 percent bonds and 50 percent cash.

No one would say that’s an aggressive, high-risk stance! Taking $100,000 out of Balanced Index Fund and putting it in an annuity would reduce your equity investment down to only 21.4 percent of your portfolio.

While you would be avoiding market risk with the annuity product, you would also face limitations on how much you could withdraw, including no withdrawals for three years. And if your monthly payment figure is correct your return on that $100,000 would be 60 payments of $1,800 a month, a total of $108,000. Your $100,000 would earn all of $8,000 in interest over the 8-year period. That’s not a big reward for tying up your money.

How about leaving everything as it is? Interest rates might rise over the next three years and you’ve got more than enough cash to handle the 5-years of cash withdrawals.

The increase in your Social Security benefit would be a good bet.

Q. I’m 70 years old, single and own a house located in a fancy, old, established neighborhood. The house, with no mortgage, is valued at $800,000 to $1,400,000, depending on source, so I figure it’s worth $1 million. I get $22,800 a year in Social Security, $26,000 a year from two pensions and $12,000 a year

from a back-house rental. That’s a total of about $61,000 a year from

Social Security, pensions and rental.

I withdraw about $12,000 a year from my 401(k), which only has $43,000, left in it. I had $120,000 in the 401(k) when I retired 5 years ago, so I guess I withdraw more than I think. My property tax is close to $10,000 a year.

Would it make sense for me to take the property tax deferral offered to seniors by the Travis County tax office and pay the 8 percent interest plus taxes when I sell my house— and not withdraw money from my 401(k)?

I don’t intend to sell my house until I need to move into a retirement center. Will taking the property tax deferral hinder me from getting a home equity loan if I decide to do that later? Is there any reason to think about a reverse mortgage rather than a home equity loan if I need more money in a few years? —H.P., Austin, Texas

A. Deferring the $10,000 a year real estate tax may not provide the “run room” you are seeking. Since you appear to have spent about $77,000 (plus investment return) from your 401(k) over the last five years, you’ve been spending at least $15,400 a year. So you’d still be draining our 401(k) account and would be out of cash before you were 80. Still, if you wanted to follow that route, it would not interfere with getting a reverse mortgage at a later date. You’d just have to pay off the tax bill as part of starting the reverse mortgage.

A reverse mortgage will have higher costs to initiate, but a lower interest rate. Using Wade Pau’s reverse mortgage calculator on his retirement researcher website, I found that you would face initial costs of $5,628 but you would be eligible for a credit line of $320,288 or a life tenure monthly income of $2,140 a month.

With a house that is worth much more than the maximum allowed for a reverse mortgage, you’d have substantial leeway, particularly if the house continues to appreciate. The big issue would be to sell the house before your remaining equity was less than the cash you’d need to enter a continuing care retirement community.


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