Cut back on stocks, beef up on bonds or stash it in cash? Refinance or sell the house? Is it smart to withdraw from a 401(k) to pay off...

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Cut back on stocks, beef up on bonds or stash it in cash? Refinance or sell the house?

Is it smart to withdraw from a 401(k) to pay off a loan? And is marriage a good tax strategy?

When it comes to planning for retirement, there are a lot of questions, as a panel of 12 certified financial planners from the Financial Planning Association of Puget Sound discovered Tuesday.

They answered about 75 e-mails and 120 phone calls from readers who participated in our live, annual “Your Money” financial-planning question-and-answer session, this year’s being devoted to retirement.

Here are some of the e-mailed questions and answers. See more at:

Q. We plan to give all our assets to charity but want to ensure we have enough to take care of any medical issues that may come up in the future. Whom should we choose as executor?

A. If your estate is roughly $200,000 or more, you should look into a “specialized” estate-planning attorney. There are several estate-planning options that may provide retirement income (medical costs included) to you and benefits to your charities. Before you decide to take action, take time to understand the benefits and drawbacks of the potential trusts. Don’t put all your funds in one option. Keep some funds “free.” Who knows what may happen in the future?

If you decide to use one of these trusts, it may affect your choice of executor.

Other options for an executor rather than your relatives or friends include professionals that would be paid. These professionals have years of experience and may provide lots of great ideas.

Q. My husband and I have the opportunity to refinance our home and take out $40,000 to pay off his student loan. Our home is valued at $345,000.

The loan officer said that when we decide to sell our home, it would have to sell at $370,000 to break even (unlikely in today’s market). Should we take out the $40,000 and pay off the loan or just do a straight refinance with no cash out? We are debt-free except for the mortgage and student loan.

A: Unless the interest rate on your prospective new mortgage is much lower than the interest rate you are paying on your student loan, this won’t make much sense in the long term. If your cash flow is tight and the refinance helps you make ends meet month to month, it’s probably worth considering.

Q: I am 67 years old, my fella is 61. He’s working, I’m retiring in July. I own the house. Should we get married so he can take advantage of the interest deduction?

A: There are lots of good reasons to get married but the mortgage-interest deduction is not one of them. If you love him — marry him. If not, find a good attorney that can work out a joint-ownership agreement that will protect your interest in the house and provide him with the tax deduction.

Q: I am in my early 70s. Both my spouse and I are retired. Our annual income is about $100,000. I am concerned about the volatility in the market. We are invested 70 percent in equities, 15 percent bonds and 15 percent cash. Should I change some of my investments to stable value funds? What is your opinion of investing money in tax-free muni-funds, if at all?

A: Since you and your spouse are already retired, an asset allocation of 70 percent in the stock market might be too risky. However, with the market’s turbulence, this is probably not the best time for you to make adjustments. Instead, get your records together on your group of equities, so you know what you paid for each holding. That way, when you do get specific advice you and your adviser will be able to do so with full understanding of the tax ramifications.

It may be that there is no need to change that allocation at all if they are paying great dividends and are in blue-chip companies whose values may recover soon. A stable value fund is primarily another name for bond and money-market funds. No need to go in that direction from what I can gather about your situation. Tax-free municipal bonds are usually a great place for retirement, however, now is not the time to buy because interest rates are very low and the availability of even 3 percent insured AAA such bonds is rare. When you do buy munis go for AAA insured and at least 4 percent.

Q: My wife and I are retired and we are both receiving pension payments. I am now working part time (earned income) and she is not (no earned income). We file a joint tax return. Can we both contribute to a Roth IRA based on my earned income, or is she unable to contribute since she did not have earned income?

A: You can indeed contribute to Roth IRAs for both of you, provided you earn at least the amount that you are contributing. So if you earned $10,000 in 2007 ($12,000 for 2008) or more, you could put in the maximum for each of you. The rules are based on joint earned income when you are married filing jointly.

Q: My husband and I are in relatively good health and plan to retire in a few years at age 62.

We will have no health insurance once we leave work. How much should we plan on spending for coverage before and after we qualify for Medicare?

A: I’ve heard that people needing to obtain individual health-insurance coverage who are in their early 60s are spending about $700-800 per person per month for insurance.

Once you are on Medicare, you’ll still need to cover about 50 percent of your health-care costs with supplemental (Medigap) coverage. But a 65-year-old couple today can expect to spend $8,000 to $10,000 a year on medical costs during their retirement years.

Q: Can a divorced spouse (married over 10 years) begin to collect Social Security benefits on her ex-husband’s record at age 62, even if the ex-husband has not yet signed up for benefits?

A: You may apply at age 62 (do so a few months in advance). You will need proof of both the divorce and marriage to verify your 10 years of marriage.

I estimate that you will probably be eligible for 50 percent of his projected benefit at his age 62 and will always get cost-of-living increases when they are declared.

However, you will not get his accelerated values if he continues to work after that and increases his eligibility base.

Q: I was laid off from my employer of 26 years last month. I have a 401(k) account worth about $190,000 and a small stock portfolio worth about $4,200. My question concerns taking out $50,000 from my 401(k) to pay off a second mortgage which has an interest rate of 10 percent.

Our home is worth about $349,000 and our original nine-year mortgage has about $57,000 remaining at 7 percent interest. Is it wise to raid our nest egg to get out from under this second mortgage or is it better to try to refinance into a new mortgage?

Is a withdrawal from a 401(k) taxed at the time of the withdrawal? I must point out that the loss of my job will put a burden on us to maintain these two mortgage payments ($1,988). I will receive a pension from my previous employer of about $1,000 a month and my Social Security benefits will be $1,400 a month.

A: Talk to a mortgage broker about your options, which may be fewer than if you were employed.

Whether $50,000 will grow better in your 401(k) than what the second mortgage is costing you is the crux of your question. Is your second mortgage a variable rate or fixed rate? If it is fixed at 10 percent and you are in the 15 percent tax bracket and itemize that mortgage interest, then the mortgage is costing you 8.5 percent. Can your 401(k) do better than that? It depends how you have it invested. Look at your returns over recent years to see if you’ve done better. Every dime you take out of the 401(k) is taxable in the year you withdraw it.

So a $50,000 chunk might adversely affect your taxes. If a refinance doesn’t look attractive, perhaps you might consider taking out of the 401(k) just enough each month to cover the monthly payment for the second mortgage.

That way you slow down the withdrawals from the 401(k) and minimize the tax consequences. And it keeps more dollars invested in the 401(k) to grow (your house will appreciate at the same rate whether or not there is a mortgage or two). Plus you still get to keep itemizing deductions longer with the mortgage interest.

Our panel of financial experts

These Seattle-area financial planners volunteered their time Tuesday to answer readers’ questions:
Bob Panian
Randall Wall
Tresa Leftenant
Betty Hedrick
Rick Bryan
Brad Parker
Heidi Davis
Robin Tan
Bradley Allen
Patricia Solberg
Thom Allison
Maureen Jones