Putting Savings into IRA Likely to Bring Payoff Later

Published on 03/30/2008 via Chicago Tribune

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 Pittsburgh accounting firm. Assuming you qualify for a tax deduction on the contribution this year, you can wait until you're in a lower bracket to pay the tax on that money, he said.

"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.