Go Back  DVD Talk Forum > General Discussions > Other Talk
Reload this Page >

Need Financial Advice

Other Talk "Otterville" plus Religion/Politics

Need Financial Advice

Old 10-03-06, 07:07 PM
  #1  
DVD Talk Legend
Thread Starter
 
Mordred's Avatar
 
Join Date: Jan 2000
Location: Austin, TX
Posts: 12,215
Likes: 0
Received 0 Likes on 0 Posts
Need Financial Advice

This is in relation to this thread. I'm going to be helping my mother do some financial planning, and will probably set her up with someone actually qualified to give financial advice, but until that gets done, she's stuck with me.

First of all, my dad had a great pension (the primary benefit of being a city employee for 30 years in a place where you could opt out of Social Security) which she and my 18 year old sister should be able to live off comfortably unless inflation goes crazy. My dad also had a life insurance policy through the city and another supplemental policy, both of which I would classify as sizable but not obscene.

Some questions/discussions:
1) I assume that taking the lump sum for the life insurance would be the best option rather than letting the insurance company pay her an annual amount (annuity?). There appear to be no tax implications for taking the lump sum and I'm guessing that I/we can generate more interest with that money than the insurance company.

2) I'm advising her to attempt to live solely off the pension and use the proceeds from the policies to invest for the future and other big purchases/donations she might want to make in the future. Also my two sisters don't have tons of earning potential and I don't want to be the one supporting them in the future, so hopefully this money could help them if needed. That said what are the best ways to invest it?

3) I'll be opening an EmigrantDirect account (currently 5.15% interest) for my mom and closing out the stupid 1.5% savings account they have at the local bank. What would be the maximum "smart" amount to invest in an account such as this? Guaranteed interest is certainly safe, but there are obviously relatively safe investments with higher rates and smaller tax implications, although liquidity becomes an issue.
Old 10-03-06, 07:37 PM
  #2  
DVD Talk Hero
 
Join Date: Jul 2001
Location: MI
Posts: 25,061
Likes: 0
Received 0 Likes on 0 Posts
It's hard to tell without more specific info but the lumpsum is very likely a better deal than the annuity they will offer.

In the EmigrantDirect, is the account Federally insured. If so, it is only insured up to $100K. You may want to look for other comparable banks and open multiple accounts if the insurance aspect is important to you.

I would recommend some part be invested in equities. You might be best off with equity based mutual funds, rather than individual stocks. However, there is a lot of uncertainty in the stock market now. You may want to put the money in interest bearing accounts and slowly invest some portion of it.
Old 10-03-06, 07:52 PM
  #3  
DVD Talk Legend
Thread Starter
 
Mordred's Avatar
 
Join Date: Jan 2000
Location: Austin, TX
Posts: 12,215
Likes: 0
Received 0 Likes on 0 Posts
Originally Posted by OldDude
It's hard to tell without more specific info but the lumpsum is very likely a better deal than the annuity they will offer.

In the EmigrantDirect, is the account Federally insured. If so, it is only insured up to $100K. You may want to look for other comparable banks and open multiple accounts if the insurance aspect is important to you.

I would recommend some part be invested in equities. You might be best off with equity based mutual funds, rather than individual stocks. However, there is a lot of uncertainty in the stock market now. You may want to put the money in interest bearing accounts and slowly invest some portion of it.
EmigrantDirect is an FDIC bank. The limit would be $200K with a solo and a joint account (she's putting me on most of her accounts as it is) but that seems like an awful lot of money to tie up in a savings account where the interest will be taxed at 28%(?).

We will definitely be avoiding stocks at least for right now. It's not my money so I'm not going to be gambling with it. Mutual Funds are a much safer investment and we'll probably mix in some of that. I think bonds are a good idea and tax free muni's seem the best, except for the normal long term. I know precious little about the bond market and while I think I understand a bit about how they are resold, I'm certainly not an expert. That was one of those things I always meant to have my dad explain to me (he wasn't a financial whiz, but he certainly understood a lot about the markets).
Old 10-03-06, 08:08 PM
  #4  
DVD Talk God
 
kvrdave's Avatar
 
Join Date: Aug 1999
Location: Pacific NW
Posts: 86,201
Likes: 0
Received 0 Likes on 0 Posts
Man, that is tough to know without knowing the amounts. If she can live on the pensions quite nicely, then I would be perfectly happy with the 5% return, or some type of tax free muni, etc.

And, honestly, I don't worry much about the limit for FDIC insurance. When was the last time a major bank went under? I have more than the limit in one account (as a temporary deal for business) and my grandmother has around $150k in one bank as well. I wouldn't have a problem putting money in my Schwab account and they aren't FDIC insured. Anyway, I look much more closely at the institution and just see the FDIC thing as a fall back worst case, end of the world, scenario.
Old 10-03-06, 09:24 PM
  #5  
DVD Talk Hall of Fame
 
Duran's Avatar
 
Join Date: Jul 1999
Location: Columbia, MD
Posts: 8,177
Likes: 0
Received 0 Likes on 0 Posts
e-Loan now has a FDIC insured online savings account paying 5.5%.

The only comparable rate with tax breaks would be federal or municipal bonds. Federal will be state income tax free, and you can purchase them on-line at TreasuryDirect.gov with no commissions. You can also get t-bills of various terms. The last I checked, the 6 month t-bill was about 5%. I don't think TX has a state income tax, though, so I'm not sure I see the benefits. Other investments outside of a retirement account may be tax deferred, but not tax free.

Personally, I think a 5% risk-free return is pretty good.
Old 10-04-06, 07:39 AM
  #6  
DVD Talk Godfather
 
The Bus's Avatar
 
Join Date: Aug 2001
Location: New York
Posts: 54,876
Likes: 0
Received 0 Likes on 0 Posts
Interesting. I never knew you could "opt out" of Social Security. So she won't get any survivor benefits from your father?

I would ask around about finding a good financial and tax planner. Right now, taxes aren't so much of an issue because assets are being transferred over from a spouse. It's going to get much trickier when she passes and assets go to her heirs.* Dave mentioned tax free munis, which are a good asset class to consider --- ideally she should have some money in her regular bank, some in savings, some in munis. If she's going to leave anything for your sisters, it would make sense to have that in equities as you don't need the stability over the next few years.**

Long story short, you need to get professional help from a financial planner and an estate planning attorney. Look for a financial planner that charges by the hour (not by the trade). A comprehensive estate / Medicare plan should probably run you less than $2500 (and possibly much, much less).

* I am not an estate planning attorney.
** I am not a financial planner.
Old 10-04-06, 08:25 AM
  #7  
DVD Talk Hero
 
Join Date: Jul 2001
Location: MI
Posts: 25,061
Likes: 0
Received 0 Likes on 0 Posts
Originally Posted by Mordred
I think bonds are a good idea and tax free muni's seem the best, except for the normal long term. I know precious little about the bond market and while I think I understand a bit about how they are resold, I'm certainly not an expert. That was one of those things I always meant to have my dad explain to me (he wasn't a financial whiz, but he certainly understood a lot about the markets).
You need to estimate what income tax bracket she will be in. Tax free munis only make sense if you are in top bracket, 35% (or maybe second, 33%). The ratio of interest rates between them and taxable interest is set to appeal to that crowd.

All stocks (and stock based mutual funds) involve some risk but some stocks are much less volatile than others. There are some that pay a decent dividend as well as offering some opportunity for capital gain (but less than pure "growth" stocks) and the dividends are only taxed at 15% (until a Democrat wins).
Old 10-04-06, 09:01 AM
  #8  
DVD Talk Legend
 
kenbuzz's Avatar
 
Join Date: Jun 2000
Location: Bloomington, IN
Posts: 21,074
Likes: 0
Received 8 Likes on 7 Posts
Originally Posted by The Bus
Interesting. I never knew you could "opt out" of Social Security.
Certain government employees have this option. My Dad was a civil servant for the USAF for 30+ years and never paid a dime into Social Security - he was enrolled in the US Federal Employees retirement thingy. Congress is also FICA-exempt.
Old 10-04-06, 01:34 PM
  #9  
DVD Talk Legend
Thread Starter
 
Mordred's Avatar
 
Join Date: Jan 2000
Location: Austin, TX
Posts: 12,215
Likes: 0
Received 0 Likes on 0 Posts
Originally Posted by The Bus
Interesting. I never knew you could "opt out" of Social Security. So she won't get any survivor benefits from your father?
In 1982 or '83 the City he worked for opted out and enrolled in the Texas Municipal Retirement Service which works pretty similarly. Since he worked for several years before that my mom will get a small amount from SSC once she reaches full retirement age, but it will be about 1/7th what she's getting from the TMRS pension.
Old 10-04-06, 01:38 PM
  #10  
DVD Talk Legend
Thread Starter
 
Mordred's Avatar
 
Join Date: Jan 2000
Location: Austin, TX
Posts: 12,215
Likes: 0
Received 0 Likes on 0 Posts
Originally Posted by kvrdave
Man, that is tough to know without knowing the amounts. If she can live on the pensions quite nicely, then I would be perfectly happy with the 5% return, or some type of tax free muni, etc.

And, honestly, I don't worry much about the limit for FDIC insurance. When was the last time a major bank went under? I have more than the limit in one account (as a temporary deal for business) and my grandmother has around $150k in one bank as well. I wouldn't have a problem putting money in my Schwab account and they aren't FDIC insured. Anyway, I look much more closely at the institution and just see the FDIC thing as a fall back worst case, end of the world, scenario.
I don't like talking about exact amounts too much, especially since I don't make an effort to hide my identity. Through the pension she'll be making a few thousand more than my dad was making at the city, so I don't see how she couldn't live off that for the time being, particularly since her costs should decrease (even though her insurance is going way up).

I'm not too concerned about the FDIC limit either, but all the banks I've seen mention the limit and the joint+single work around to double protection.

Posting Rules
You may not post new threads
You may not post replies
You may not post attachments
You may not edit your posts

BB code is On
Smilies are On
[IMG] code is On
HTML code is On
Trackbacks are Off
Pingbacks are Off
Refbacks are Off


Thread Tools
Search this Thread

Archive - Advertising - Cookie Policy - Privacy Statement - Terms of Service - Do Not Sell My Personal Information

Copyright 2018 MH Sub I, LLC dba Internet Brands. All rights reserved. Use of this site indicates your consent to the Terms of Use.