Investments for seniors

Investments for seniors. Reverse Mortgage Alabama. I found this great comparison story about investing versus taking a Reverse Mortgage for financial security. Some investments aren’t worth the trouble. The Seattle Times. Business. By Scott Burns

Reader is thinking about buying a three-year deferred annuity; expensive home would give owner leeway in a reverse mortgage.

Q: I am 62 and have about $700,000 in savings. Half is invested in Vanguard Balanced Index Fund, half in cash. I will need about $2,000 a month at age 65.

I’m thinking of selling $100,000 of VBINX and buying a three-year deferred annuity through I’d buy an annuity with a five-year payout of $1,800 a month. That would take me to age 70, and then I could draw $2,200 monthly in a deferred Social Security benefit. Your thoughts?

A: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.

Taking $100,000 out of the 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. 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 eight-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. The increase in your Social Security benefit would be a good bet.

Q: I’m 70 years old, single and own a house with no mortgage and is valued at $800,000 to $1,400,000, 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 backhouse 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 has $43,000 left in it. 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 and pay the 8 percent interest plus taxes when I sell my house — and not withdraw money from my 401(k)? 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?

A: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 your 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. With a house that is worth much more than the maximum allowed for a reverse mortgage, you’d have substantial leeway. 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.
Questions:scott@scottburns.comCopyright, 2017, Universal Press Syndicate

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