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Q: I am 67, my wife is 66. We are both retired and receive about $65,000 a year in Social Security and pension payments.

She has a 401(k) with her former employer worth about $216,000. Its return has been 3 to 4 percent, all in a “stable value” fund.

I have $420,000 in a 401(k) with my old employer. It is averaging a 2 to 3 percent per year return, also invested in a stable value fund.

We feel better being conservative in our investments, as they are our primary fallback sources of income.

We will have to start minimum distributions at 70.5 years of age. It seems to me that I would have to average a return of 10 to 15 percent return on any new investments to recover the tax loss from the rollover. What would be a prudent move for us at this point in our lives?


Some people can’t bear the idea of ever losing any money. You may be one of them. The only problem with your desire to avoid risk is that it commits you to accepting a return that will not be adequate for the long-term future that you face.

You and your wife have a joint life expectancy of about 25 years — one of you is likely to live that long.

During that time you will be increasingly dependent on your savings. Basically, you have a tough choice: You can steadily lose purchasing power to inflation, or you can take some amount of risk and increase the probability that you’ll have a return high enough to offset inflation.

So what should you do? Put 20 percent in equities, in a low-cost index fund, and keep the remainder in fixed income.

Your returns will increase nicely, you will have a small risk of loss, and you will have the sure knowledge that 80 percent of your money is relatively safe from loss.

Q: I will be 66 in July. I own my home. I owe about $116,000 and bought it for $204,000 four years ago. I have no children or other relatives to leave it to.

What do you think of a reverse mortgage in my situation?

A: A reverse mortgage won’t work for you due to financing limits and expenses.

Using an online calculator, I found that you would not qualify for two of the three programs currently available.

Under the third program you would qualify, but would achieve no more than eliminating your current mortgage payment. This would be of some benefit. But without other resources, it is likely that future expenses, taxes and insurance premiums would make you “house poor.”

For the long term, a better option would be to sell your home and become a renter, holding the equity you liberate as a reserve fund.


Copyright 2013, Universal Press Syndicate