Weston: No simple answer to investing questionQ: I have over $100,000 to invest, any suggestions? A quick and simple answer is fine.
By: Liz Weston, INFORUM
Q: I have over $100,000 to invest, any suggestions? A quick and simple answer is fine.
A: Your question doesn’t have a quick and simple answer. How you should invest the money depends on too many factors, starting with what you plan to do with the money.
If you want it to go toward your retirement and you have 20 years or more until you quit work, then putting some or all of the cash into a diversified mix of stock mutual funds or exchange-traded funds makes sense.
If you plan to use the money for expenses within the next few years, then you should keep it in a federally insured savings account. That’s also a good option if you don’t know what you want to do with your windfall yet.
A fee-only financial planner can help you figure out your goals and sort through your investment options. You can get referrals from the Garrett Planning Network at www.garrettplanningnetwork.com, which represents planners who charge by the hour, or the National Associations of Personal Financial Advisors at www.napfa.org, which represents planners who charge retainer fees or a percentage of assets they manage for you.
Q: My wife and I, ages 58 and 60 respectively, are both retired and collecting $3,500 a month in pensions. We have about $375,000 in two 401(k) accounts and owe about $75,000 on our home. Should we be thinking about estate planning? If so, who does this work and how much do they charge?
A: Unless your home is a mansion, you probably don’t have to worry about the federal estate tax, which currently affects only estates worth $5 million or more. In 2012, the limit is scheduled to drop to $1 million.
But you still need an estate plan. Most important, you need legal documents that can help others take over for you should you become incapacitated. Powers of attorney for health care and finances can allow someone you trust to pay your bills, make medical decisions and otherwise handle your affairs. Spouses typically name each other as their preferred agents, but you also need to name back-ups in case one of you dies or you’re both injured in the same accident, for example.
You also probably need a will to say who gets what when you die, and you may want to consider a living trust if the probate process in your state is particularly lengthy or expensive (as it tends to be in California). You can create all these documents yourself using software products such as Quicken WillMaker or Nolo’s Online Living Trust. If you want a little more guidance – and many people do – you should look for an attorney who specializes in estate planning. A simple will with powers of attorney will cost a few hundred dollars, while a living trust typically costs $2,000 or more.
Q: My son has taken out college loans. He graduated this year, and the loans are coming due. I am surprised to see that the interest rates range from over 6 percent on the federal loan to 10 percent on the others. Is there a way to refinance this since home loans are at record lows under 4 percent?
A: Mortgages are secured by a piece of property that can be sold if the borrower fails to pay. Student loans are essentially unsecured, although collectors can pursue borrowers until they die since there is no statute of limitations on this debt.
The 6.8 percent rate on federal Stafford loans may seem high in this low-rate environment, but historically it’s a pretty good rate for an unsecured student loan. What’s more, the rate is fixed – unlike rates on private student loans, which are variable and can rise to 18 percent or more.
Your son probably won’t be able to find a lower rate unless you become his banker. If you’re financially able, you could pay off the loans and then charge him 4 percent or so to repay you.
Otherwise, he should focus on paying off his private student loans as quickly as possible, because of the risk that the rates will climb higher. To free up more cash, he should consider consolidating his federal loans to get a longer payback period – 15 or 30 years instead of the standard 10 years – and thus a lower monthly payment. If his income is low and the amount he owes is substantial, he also should investigate the income-based repayment option on his federal loans, which could further lower his required monthly payment.
Liz Weston is the author of “The 10 Commandments of Money: Survive and Thrive in the New Economy.” Questions for possible inclusion in her column may be sent to 3940 Laurel Canyon, No. 238, Studio City, CA 91604 or via http://asklizweston.com.