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Positioning for Retirement Is as Important as Investing
June 16, 2005

Positioning for Retirement Is as Important as Investing

Written By: Scott Burns

Q. I am a retired dentist, age 57. Have a stock/bond portfolio currently at $800,000. My wife is still working (age 53) and is making $150,000. She still wants to work a few more years. We have no debt. House is worth $800,000. Also we have $34,000 in annuities (gaining 3% a year). Plus we have another $750,000 coming in from a sale of a business over time (the next five years).

I have recently received $500,000 in cash. This money has to be invested in something very secure. I understand that both my wife and I can buy $60,000 in I-bonds ($30,000 from a bank and $30,000 over the internet) each. So where do we put the other $380,000?   I also thought about Treasurys in a 3-year ladder.

E. B., by e-mail


A. Buy the I Savings bonds and build the ladder--- but make it shorter. Currently there is virtually no yield difference between 2 and 3 year maturities., for instance, recently put the 2 year Treasury yield at 3.52 percent. The 3 year yield was at 3.56 percent.

So there is no reward for taking the risk of a longer term investment--- unless short term interest rates decline. The spread between 2 years at 3.52 percent and 6 month Treasuries at 3.11 percent is also narrow--- but the 42 basis point difference gives you a tiny bit of "insurance" against a further increase in rates.

Bottom line: you should be able to keep your principal safe while getting a 3.5 percent yield. With a good parking spot for your money you and your wife should then  

Start to prepare for when both of you are retired. This involves two major steps.

The first is to start imagining the transition from her current earned income of $150,000 (plus your investment income) to a retirement based entirely on investment income and Social Security. With about $2 million in financial assets that would be about $80,000 plus Social Security, probably another $36,000. Unless your $800,000 house has very low operating expenses, supporting it will probably reduce your discretionary income.

The second is to examine the structure of your accounts. If most of your $800,000 stock/bond portfolio is in qualified accounts--- such as Keogh's, SEP-IRAs, and IRAs--- you should consider doing a Roth conversion when (and if) the opportunity presents itself. This will get the tax liabilities out of your qualified accounts. It will mean you don't have to make Required Minimum Withdrawals at age 70 1/2.

It will also mean that your withdrawals, when you make them, won't be taxable and won't cause your Social Security benefits to be taxed. Right now it looks as though your Social Security income will be subject to taxation.

(You can learn more about this by visiting my website, <>.)

Why did I say "when (and if) the opportunity presents itself?"

Our friends in Congress, masters of the 'gotcha' game, don't allow conversions if modified adjusted gross income is over $100,000. Fortunately, you and your wife will have an interesting opportunity planning her retirement transition. As with all things involving taxes and accounting, you need to go way beyond a newspaper column. Spend some time with your accountant.


Q. I am a healthy 59 year old woman with a Roth IRA worth about $110,000. I am thinking about buying a condo for about $107,000 with monthly maintenance of $283. Over the past 20 years I have rented, paying up to $550 per month.

What is the best way to structure a loan in order to keep my total monthly payments in the $550 range, including the maintenance fee? Do I cash in the IRA for full payment? Half and Half? I don't know who to talk to about this and wonder, at 59, whether I need the headache of ownership.

---B.S., by e-mail from Bellaire, TX


A. You might be able to make the out-of-pocket expenses similar to your $550 monthly rent expenses--- by paying cash for the condo--- but the rude fact is that the condo unit costs a lot more than your rental unit. Unless the condo has a better location, better amenities, etc. you're better off in the rental unit.

Remember, in addition to the maintenance fee, you'll also have to pay real estate taxes (probably another $200 a month). That brings your monthly out of pocket expenses to $483 ($283 maintenance plus $200 taxes) --- before you give up any of the investment return on the Roth IRA account by redeeming it to pay cash for the condo.

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