Roanoke Times
Copyright (c) 1995, Landmark Communications, Inc.
DATE: MONDAY, March 30, 1992 TAG: 9203270494
SECTION: BUSINESS PAGE: A-9 EDITION: METRO
SOURCE: MAG POFF
DATELINE: LENGTH: Medium
I got a letter last September saying the company would not process my request for the interest option. They asked me to send my policy, which I did thinking I would get my money. The policy was payable at 65, and I am now 66.
A: New Jersey regulators seized Mutual Benefit Life last July, only a few weeks before your endowment policy matured in August.
A spokeswoman for the company in Newark said regulators will not allow the option you chose, which is to leave the investment in tact and take only the interest as income. Nor will they pay out the investment to you in a lump sum.
That leaves you two choices.
If you are retired and at least 65 years old, you have the option of taking out the investment in installments over a period of 10 years. That means the money would run out when you are 76. The spokeswoman said the entire amount would be paid out in the decade if you choose this course.
Or you can do nothing right now and hope that the regulators find a buyer willing to pay 100 cents on the dollar. The buyer would probably give you more options but might not pay out lump sums.
In the meantime, your investment is earning interest and the company is paying death benefits.
Follow this lesson
Q: My husband and I are 54. He is disabled, and I would like to retire at 62. I am covered by a retirement system, but my husband is not. Our total income is around $40,000 a year. We are totally debt free and own our home.
I presently have $25,000 in a deferred compensation account and add $600 a month. It is invested 46 percent in small-company growth stocks, 40 percent in a balanced fund and 14 percent in an asset allocation fund.
I also have $3,000 in my credit union and add $500 a month to it.
We have $25,000 invested in Kemper Retirement Series, $15,000 in CDs and $1,000 in the Janus Twenty mutual fund.
Now we have $10,000, and I am not sure how to invest it. It is temporarily in my credit union. I would like to invest 50 percent in the Janus Twenty Fund or Montgomery Small Cap Fund; 25 percent in the Janus Growth Fund; and 25 percent in a utility mutual fund. With the prediction that the market is headed for a fall, I am hesitant to invest right now, but I do not want the money sitting around either. As you can see, I am a novice and in need of help.
A: Your situation is an example of what can be accomplished on a middle-income salary through routine investment and diversification of a portfolio. You should be giving investment lessons to others.
You are obviously going for growth to maximize your retirement fund, so the allocation you suggest makes sense. The stock market is high, but you have more than five years to ride out future ups and downs. Historically, only the stock market and mutual funds provide the growth you need.
Of IRAs and taxes
Q: My wife and I are 28 and 30 years old respectively. We both contribute the maximum amount allowable to 401(k) plans at work. Additionally, we save $1,400 a month, of which we are earmarking about $600 a month for retirement. That money is currently being put in a variety of stock mutual funds. Our goal is to retire in 20 years.
Should we be putting any of our retirement funds in IRAs? Because we both have retirement plans at work, our contributions would not be deductible. Would it be worth the 10 percent penalty we would have to take at age 50 to get the years of tax-deferred growth? Any other ideas to maximize growth?
A: You can take advantage of the tax deferral and still avoid the 10 percent penalty, at least under current law.
Andrew Hudick of Fee-only Financial Planning Inc. of Roanoke said you can begin to withdraw money from your IRA prior to the age of 59 1/2 if you take periodic payments that are annuitized based on your life expectancy. Once you begin withdrawals, you must continue until you turn 59 1/2, at which time you can do anything you wish with the account.
The same is true of your 401(k) plans at work, Hudick said.
He urged you to maintain careful records to prove that you paid taxes on the amount you invested in an IRA. The Internal Revenue Service considers all of the money inside an IRA taxable unless you prove otherwise, Hudick said, so the record-keeping burden is on you to show that no taxes are due on the investment itself. Most people, Hudick said, can't even find records to prove their tax basis in a stock a year or two after buying it.
Hudick believes you are maximizing growth through your stock mutual funds.
Mag Poff covers banking and finance for the Roanoke Times & World-News. She will help find answers to your personal finance questions. Send them to her at the Roanoke Times & World-News, P.O. Box 2491, Roanoke, Va. 24010.
by CNB