Time for another Q&A column! If you have a question, send an email to: [email protected].
Q: I have been investing for decades, and I now want to transition into a safe, non-volatile, income producing account without penalties or capital gains. What are my options?
A: Who wouldn’t want a consistent return without risk or capital gains taxes? Sadly, this doesn’t exist. If you seek safety, consider a money market fund, a CD, or treasury bills. Once the Fed starts to cut interest rates, which could be any day, rates on these investments will start to drop.
Q: My husband and I are in our 50s and we have one teenager. It is likely that one day, she will inherit a lot of money. Without knowing at what age she will be when it comes to handling money, is there anything we can do now to help her should she find herself overwhelmed?
A: It’s smart to think about this today. Find a qualified estate attorney, who can walk you through the process and will present you with a variety of options for assisting your daughter in the future. In the process, you will likely have to identify someone (or an institution) who can assist her with money management in the future. Once the plan is intact, discuss it with her so she understands the basics.
Q: My wife and I just sold our house for over $1 million and are (luckily) living rent-free while we search for our new home. In the interim, we would like to have the money in the bank, earning some interest so we can have it work for us. I have seen a bunch of options for online banks. Are they legit?
A: The key is to make sure that whichever bank you choose, that its accounts are FDIC insured. One note: you shouldn’t put the entire million dollars into one account. Instead, spread it out to make sure each account is covered by FDIC insurance, which is currently $250,000 per depositor, per ownership category at each FDIC-insured bank.
Q: With the recent negative headlines about Social Security changes that could be coming, why should I wait until 67 or 70 to start claiming benefits? I was planning on taking mine as soon as I can, because I don’t think that it’s a good investment — and I have zero confidence that the program is going to be around for the long term.
A: If you consider a guaranteed 8 percent return for each year that you wait a bad investment, well that’s a bad investment that I’ll take every day of the week. That 8 percent is the added annual benefit for waiting to claim Social Security. Additionally, Social Security benefits come with a cost-of-living adjustment, to account for inflation in the future. Unless your health isn’t great or you absolutely need the money, waiting is beneficial.
Q: Can I skip maxing out my workplace retirement contributions this year and use the same amount to rebuild my cash savings instead? We recently had to use quite a bit of our emergency cash for house repairs, and I would like to get back up to just over six months of emergency savings. We would still be able to max out our Roth IRA contributions and down the road, I will have a large military pension in the future.
A: I have no problem with your game plan. Think of it as a temporary pause, and it’s not even a full pause as you’ll still be contributing to your Roth IRAs. You’ll be back on track in no time.
Jill Schlesinger, CFP, is a CBS News business analyst. A former options trader and CIO of an investment advisory firm, she welcomes comments and questions at [email protected]. Check her website at www.jillonmoney.com.
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