THE JOURNEY
Business
Putting savings into IRA likely to
bring payoff later
Janet Kidd Stewart
Chicagoland
Final
Copyright 2008,
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Q:
I'm almost 61 and still working, but plan to retire 15 months from now. I
have no debt and make about $28,000. Did I mention I hate my job and have for
39 years? So I would rather live in a cardboard box than keep working. But my
real question is, should I take the $6,000 out of my savings and put it in my
IRA for this coming year? A:
Even though you are so close to retirement, you could benefit from
contributing to your individual retirement account, an IRA expert said. You
can make this move as long as you have that much earned income this year. "My
gut instinct is his income will be lower next year than this year," said
James Lange, principal with James Lange & Associates, a "He's
probably in the 15 percent [tax] bracket, and there's a reasonable chance
that after retirement he'll be in the 10 percent bracket, so he can, in
effect, make 5 percent on the money by putting it in now and taking it out
[after retirement]. Unless he's in a higher bracket after retirement, this
would make sense." Because
of when you're retiring, you may be tempted to begin taking Social Security
at your first possible chance, but Lange urged holding off as long as
possible to boost the monthly payments. "Most
clients want to start taking payments right now, but if he can afford the
cash flow of not taking them for a while, he'd probably be better off
waiting," Lange said. That's
because with increased longevity, there's more time for delayed higher
monthly payments to pay off. If
you've hated your job for 39 years, you may not be interested in delaying
retirement or another career. Lange
said it's common to see people who could dramatically boost their pension by
waiting a few years to retire, but they can't do it. "For
a lot of people it makes sense to hang in there a little while, but a lot of
them just can't stand it," he said. Even
if you retire from this job and look for another, you could carry a negative
attitude to the new job, said Jeannette Woodward, author of "Finding a
Job After 50." She
recommends taking some time off after you quit and taking in new experiences
to get yourself out of your work rut. Later, you may find the right job could
pay some bills and provide some joy in work that you have missed, she said. Take
a community college course or travel to someplace you've never been, she
suggested. Q:
I am in the process of selling my $3 million universal life insurance policy
for $431,000. Is this a fair price? I took this policy out in June 2002. At
that time, I paid in a sum of $250,000. The cash value now is $272,000. I am
74, and my wife is 75. This is a second-to-die policy. I have not paid any
more premiums so far. What do you think? A:
Although a return of $181,000 on your $250,000 investment less than six years
ago would strike a lot of people as a pretty good deal, there are other
things to consider, said Scott Witt, an actuary in New Berlin, Wis.,
who counsels individuals on life insurance issues. Was
this the best offer you received, or the only one? Comparison shopping with
various buyers of these policies can lead to better offers, Witt said. Based
only on the details in your letter, Witt suspects that either your policy was
underpriced, or your health has substantially worsened. "For
this policy to be worth so much more than the cash value, it would seem that
the insureds have taken a sharp turn for the worse
with their health," Witt said. If
that's true, your financial priorities may have changed, or you no longer may
be willing or able to keep it in force, in which case a settlement might be
the best course, he said. But
make sure you're clear on the reasons for the change, because most policies
are worth far more to the owner if held for the original life of the
contract, Witt said. ----------
Have
a retirement question? Write to yourmoney@tribune.com, or via mail at Your
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