QUESTION: My wife and I are both 75 years old. Our home and cars have no loans, and our credit cards are paid in full each month. We live mostly off our Social Security. We have about $350,000 in assets, including our home, in the form of some CDs and mutual funds, which are earning very little.
We are going to be inheriting $60,000 to $70,000. Can you suggest a reasonably safe investment? At our age, we cannot afford to lose much.
ANSWER: It seems to me that you are in pretty good shape. You have $350,000, which includes the home (and you haven’t told me how much that is worth), plus another $60,000 to $70,000 coming in. You also mentioned that you have your savings in CDs and mutual funds that are earning very little.
I am sure you’re concerned about losing part of your assets, but unless you are prepared to put some of these at risk, you will continue to earn very little. I would be thinking about putting that money — not all of it, maybe $15,000 every couple of months — into the stock market. Look for well-established American firms that consistently pay a dividend of 2 percent to 3 percent and over a period of time have shown growth in their stock.
QUESTION: My wife and I are now 70 years old and retired for the past seven years. We own our home and have savings in an IRA CD. Both of our names are on the house, and my wife is the beneficiary of the IRA CD. Other than the two cars, that’s about it.
We are concerned about what happens when one of us passes away. Do you think a living trust is the best answer to avoid probate?
ANSWER: The house is in both names, and with a right of survivorship, that should take care of that problem. Other than that, the two cars should be in both of your names with a right of survivorship. I see no reason for a living trust if you are simply going to leave everything to the surviving partner.
QUESTION: I recently dined in a California restaurant and I noticed this at the bottom of the menu: “A 4 percent surcharge will be added to your check to contribute to employee health care.” I had placed a 10 percent tip on the table, but after reading that the restaurant forced a tip of 4 percent into my check, I put down a 6 percent tip. What would you have done?
ANSWER: I also would have objected to the 4 percent surcharge that was added to your check. I wouldn’t have done what you did, but I understand why you did it, which is certainly your right.
I would point out that a 10 percent tip is really just not enough in today’s world. I always tip at least 20 percent, sometimes more. The waitress/waiter would have to serve $500 worth of food to make $50 in tips, and that seems to me not a likely number for them to reach. Give it some thought.
QUESTION: My daughter and her husband have a decent amount of money in savings and a 401(k). Her husband is a manager and the company is doing away with its pension, so he has to decide where to put his share. I suggested rolling it into the existing 401(k), but her husband wants to explore other options. What is your opinion?
ANSWER: The first thing I want to know is how the 401(k) is invested and how it is doing. If it’s doing well, making 6 percent to 7 percent or more, you might consider adding funds to that. If it’s making only 2 or 3 percent, they will never be able to live on that.
At the risk of repeating myself, they need to involve themselves in the stock market by investing in solid American companies that are consistently growing and paying a decent dividend of 2 percent to 4 percent. Otherwise, the options are very limited.
Send questions to firstname.lastname@example.org or to Smart Money, P.O. Box 7150, Hudson, FL 34674. Questions of general interest will be answered in future columns. Because of the volume of mail, personal replies cannot be provided.
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