Q&A with certified financial planners

With soaring real-estate prices, disappearing pension plans and mounting personal debt, it's more important than ever to manage your money wisely.

Today, we hosted a financial question-and-answer session with certified financial planners from the Financial Planning Association of the Puget Sound. Your questions and their answers are below.

Advice given during the Q&A is for educational purposes only and does not signify that you have engaged the services of a financial planner. It relies solely on the information you provide.

My wife has held numerous jobs over her career. As a direct consequence of this, she has many 401k and IRA accounts with various firms. Should she consolidate her accounts to better manage them? If so, what do you recommend she do? Thanks - I appreciate your assistance.

— Michael

Michael: Consolidation and simplification always makes it easier to establish and maintain control of your investments.

To consolidate the accounts most 401(k) plan will allow you to rollover assets into an existing 401(k) (if your wife's current employer offers such a plan). Other alternatives would be to rollover/transfer the various investments into a single IRA (offered by most financial institutions, banks, mutual fund companies and brokerage houses). You should consider whether you want to manage the money yourself or whether you want assistance from a financial advisor in consolidating the accounts and/or assistance managing the assets going forward. Fees, costs and advice can vary widely between firms.

Here are some websites to consider that were mentioned in the Seattle Times article: www.napfa.com, www.fpanet, or www.seattletimes.com/yourmoney.

We owe 93k on our house at 6.3% 13 years left and 73k on home equity varialbe rate @ 8.25%. We have over 100k in retirement(ira,annunity etc). we were thinking of cashing out some of our retirement to lower the amount on home equity. Is that wise. I am 43 and my spouse is 45.

— R.

R: There are a lot of other questions and issues that are swirling around your question that makes it impossible for me to judge whether this action would be wise or unwise. Here are a couple considerations that I suggest you investigate. Review the documentation on each of your accounts and fully consdier the actual costs related to the withdrawal from each of the retirement accounts. This will allow you to compare that penalty withdrawal cost of the withdrawals to the value of reducing the amount on your home equity loan.

With that said, the value of compound interest and tax deferral are very powerful financial forces which you will circumvent taking money out so early in life. Every financial situation is unique and there is no way, with the very limited information presented here, that I would recommend someone to take money out of their retirement plans to pay down on their home equity line...everything else being equal.

Instead, it would seem much more prudent and cost effective to lay out your goals, plans and ideas with an objective financial advisor LONG before you expose any of your retirement dollars to taxes. Any experienced Certified Financial Planner practitioner should be able to give you the advice you seek. You can visit www.seattletimes.com/yourmoney or www.fpanet.org for help in finding a planner and most provide a free initial consultation.

I am a 59 year old male and will receive a pension of $46,000 per year at age 62 with no COLA. I have 165,000 in Vanguard accounts 60% (Primecap and Extended Market index as well as Life Moderate) U.S. stock and 10 % international and 30% total bond. I have %13,000 in a ROTH with T Rowe Price Real Estate, Emer European and New Era divided equally. My Soc Sec. will be 16,500 at age 62 if I decide to take it then. Am I alright to retire at 62 (I don't plan on taking 401K distributions until I'm at least 66)? Should I take my SS at 62 or wait? Should I work a year or two past 62? I have averaged 8.2% gain over the last 5 years on average with my Vanguard and 12% with my ROTH. Thank You.

— Ed A.

Ed: 1. Am I alright to retire at 62 (I don't plan on taking 401K distributions until I'm at least 66)? - This questions is beyond the scope of this hotline. I would recommend contacting a financial planner or checking out sources that provide online help in addressing this issue. I noted you are using T Rowe Price and Vanguard mutual funds, so check out their homepages to see if they have planning resources. I will mention that a number missing from your data is your expected cost of lifestyle for your retirement years and this is one of the key numbers to consider. Prior to using any of these sites, I would suggest you consider your present budget amount and project how it might change in your retirement years.

Another great website to consider is www.smartmoney.com It was mentioned in the Seattle Times article as a resource.

2. Should I take my SS at 62 or wait? This will largely depend upon when you retire and your expectations for your life expectancy (if you think you'll die earlier than average, you have an incentive to begin taking funds earlier than later). Still, specific advice for you and your own personal, unique situation will depend on some of the answers that result from #1 above.

3. Should I work a year or two past 62? Aside from lifestyle and life expectancy considerations, the answer to this will also depend on the results from #1 above. If there was one best answer for everyone, everyone would do it. If the best answer was to always begin taking Soc. Sec. benefits at age 62 (or, for that matter, at whatever is someone's "normal retirement age"), everyone would do so. With that said, there are calculators on the soc. sec. website that help calculate the benefit of waiting vs. not waiting to begin taking benefits. Consider utilizing that resource.

You are a perfect example of the type of person who would benefit by working through all the pros, cons and considerations to the wide range of decisions that must be made for anyone prudently planning their retirement. This is what Certified Financial Planner practitioners do - and some specialize specifically in retirement planning. You can visit www.seattletimes.com/yourmoney or www.fpanet.org for help in finding a planner and most provide a free initial consultation. Consider taking that step soon so you are not forced to make major decisions quickly.

A family friend has a young daughter under 5 y/o. As a result, she is currently researching the GET program and 529 plans to fund her daughter's future educational needs. What are the benefits of each? Additionally, outside of hiring a CFP, what state's 529 plan is the most beneficial to enroll in? Thank you for your help!

— Heidi

Heidi: Great question! It is wise to begin planning for the daughters education at this time.

In regards to the 529 plan, I recommend you utilize the following website www.savingsforcollage.com as a good source for finding answers about 529 plans. For answers or benefits about the GET plan, the Washington State website can be used to get information about the plan. You will also see a posting from earlier today that responded to essentially the same question.

It is beyond the scope of this hotline to make a recommendation in regards to which state's 529 plan is best (however, they do vary widely in terms of investment choices and costs). I have seen various such analysis' done in the past but because the funds, and their sponsors, evolve through time, you will want to search out current information.

Alternatively, consider seeking the assistance of a Certified Financial Planner practitioner. Many planners have tools and software that evaluates 529 plans and can then steer you to the 529 plan (or plans) that is best suited to you and your family's needs. Some planners specialize in college planning. You can visit www.seattletimes.com/yourmoney or www.fpanet.org for help in finding a planner and most provide a free initial consultation.

Retirees are faced with choices as to what order to draw assets in the most tax efficient manner: Annunities, IRAs, jointly held stocks/cash

— Dick

Dick: Thank you for the question.

Of the financial plans I have delivered or reviewed, I have generally seen the assets liquidated in this fashion:

1. Jointly held stocks or non qualified assets first; 2. Next, IRA's 3. Lastly, annuities.

Remember, this is general advice. The answer will depend upon your individual situation, goals and tax implications durying your retirement years.

Working with a Certified Financial Planner practitioner that specializes in retirement planning and distributions could prove very valuable to you. Consider visiting or www.fpanet.org for help in finding a planner and most provide a free initial consultation.

My father is 83 years old, excellent health, has only one main asset, his home. Home value is $300,000 and has a $60,000 mortgage. My mother has already passed. What should we do to protect this asset if something happens to him? He is living in the home alone and the title is soley in his name. Appreciate your comments.

— Curt L.

Curt: What should we do to protect this asset if something happens to him?

I will assume you are concerned about a long term health care issue that would eventually bleed the estate dry. Long term care (healthcare) insurance is one answer, but at age 81, it will be very costly (and that assumes he passes the medical exam). In the case of a illness resulting in the need for long term care, the house is an exempt asset so qualification for Medicaid may be possible depending on his income level. Only after his death does the government has the right to come back to the estate to recover what was paid out in medical assistance. So, this will not totally protect the asset, but your father's care may very will be taken care of by Medicaid.

You can also seek legal advice on the issue and I would recommend seeking those attorneys who specialize in elder care. The Washington State Bar Association website has a listing of all attorney's within the state of Washington, listed by specialty.

You would likely find it beneficial to consult with a Certified Financial Planner practitioner. You can visit www.seattletimes.com/yourmoney or www.fpanet.org for help in finding a planner and most provide a free initial consultation.

I recently attended a retirement planning seminar in which the speaker felt strongly the income tax rates would inevitably go up starting in a few years due to a number of factors such as our enormous national debt and the decreasing tax base as the baby boomers retire. It was therefore his opinion that it would be wise to start putting larger amounts into retirement vehicles in which tax is paid before deposit rather than when it is taken out. What is your take on this?

— Stephanie S.

Stephanie, It is certainly not difficult to build an argument for that opinion. I personally have been recommending to my clients (for their new investment dollars) that they do Roth IRAs first, then simultaniously do 50% taxable and 50% tax deferred. It is a gamble (yes, well, as with most things in life), but I'm gambling there's a 50% chance that income tax rates will be higher for most baby boomers when they are in their 70's and beyond. I could be wrong. No guarantees. :-)

We have 4 kids (8, 6, 4, and 8 months) and we havent saved much moeny towards their college funds. But we have saved about $220K in Roth IRA, IRA and 401(K) combined and we are continuing to put $15K + $3K match into 401(K) and $8K into Roth IRA. We currently have no debt and no mortgage. And we are in early 40s. Where should we put money (single income with about 100K)? These are our options: Retirement: 401(K) and Roth IRA? Or Education: Education IRA or 529 plan or custodian accounts? Or buying another house? What are our best priority and where to find the best financial help?

— Charles

Charles,

You are a great candidate for a full financial plan. You are doing many good things but in a less than coordinated manner. Your responsibilies are great (with four children to educate) but the truism is, "Be sure to have your oxygen mask on before you help the kids with theirs". In other words, be certain that you have taken care of your retirement before you work on the education funds. You could run some WHAT Ifs on-line at Smart Money or any of a number of mutual fund websites.

It is commendable that you have no debt or mortgage and this makes you a great candidate for retirement and non-retirement investing. The trade off is that you may want to do some of each because we cannot be certain what the tax rates will be when you are in retirement. I often recommend that people go a bit easy on the qualified plans like your 401(k) because it may turn out to be better to pay the taxes now and not later during retirement if the rates are 38 or 45 %. I often recommend 50-50. The next step is to get in touch with your risk temperments so you invest at a risk level that is prudent and comfortable for your family. Not everyone needs to, or should, "go for the gold". Consider utilizing an asset allocation model that best suits you and your goals.

Roth IRA investing is a must as long as you are eligible. This is such a great opportunity , especially for people under age 50 because you will (should?...tax laws can change...!) be able to avoid all taxes on these investments when you are old and grey. Consider maximizing your opportunities here before 529 or other educational funding.

It is not clear if your interest in buying another house is for living or investing. Do some basic value clarification or prioritizing of goals to see if being landlords is of interest. Real Estate is like other investment vehicles: it has it's day in the sun and then some rainy days.

I really think you would find it very valuable to work with a Certified Financial Planner practitioner. Go to www.seattletimes.com/yourmoney for referral resources to a comprehensive planner and interview two or three to be certain you get a planner not just a money manager.

Regardless of asset allocation, in general, is there a downside to investing only in index funds?

— Lidia

Lidia: Since you have not asked for the upside of using index funds, I will focus strictly on the downside (as I see them) to index funds. The main downside to index mutual funds is the inability to invest in sectors or company capitalization size (ie. Small cap, etc.) at a different percentage than the index you've chosen to utilize. Your investment will perform exactly as "the market" (or, specifically, that index) performed. In the years when that particular index is a "winner", you "win"...and vice versa. If you have an investment portfolio that warrants having, say, 10 different broadly diversified index funds, you should be broadly diversified...in as much as you have invested in specific indexes.

Some investment advisors think that "actively managed" mutual funds (with a manager at the helm) will, on average, perform better than an index fund (most typically during down markets) AFTER considering their typically higher costs of investment management (they don't work for free). I will refrain from taking a position here as the "experts" routinely disagree on this issue.

My recommendation is to prudently use a wide range of investment tools that fit your situation, risk tolerance and time frames so you can achieve your financial goals. Index funds are one of many investment tools available that have, like all investment tools, inherent pros and cons. If index funds were the "best" investment for everyone, everyone would use them. Clearly they don't. Consider chosing the tools that make you feel most comfortable, stick with them over a long period of time, and remain properly diversified.

I would really encourage you to seek the assistance of a Certified Financial Planner practitioner. You can visit www.seattletimes.com/yourmoney or www.fpanet.org for help in finding a planner and most provide a free initial consultation.

I'd like to know how to get negative items off my credit report. Someone told me that the bureaus are supposed to do it automatically every 7 years, but my report still shows old negative information. Do I file a dispute? Do I just call them? I'm not sure how to take care of it. Thanks.

— Melanie

Melanie, You will need to do some work yourself to get the mis-information cleaned up. There are three major credit bureaus and they do not always report the same correct (or incorrect) information. Information may or may not drop off after it is over seven years old. Your first step will be to contact each of the three credit bureas, request a copy of your credit report, and find out what each company is reporting. You may be able to get one or more credit report for free. If you must pay for a copy they tend to be pretty nominal in cost.

For each company that has misinformation, you need to write them a letter and dispute the reporting error(s). My personal experience has been that they are very slow in correcting the information...but once it's done it will be well worth it. I recommend you look at your reports at least every three years and more frequently if you are going to be applying for a new mortgage.

we elected not to particpate in the GET program 10 yrs ago (we have a 12, 10 & 7 yr old) because mutual funds were doing well. now i'm thinking we shld start doing this program to give us some peace of mind for our girl's college education. has anyone done any analysis to see if it was an advantage to put money into this program as opposed to investing in the stock market and mutual funds? and what would be more riskier?

— Jeanne

Jeanne: I am going to assume you have not been putting into either at this point.

There are pros and cons to both plans. What we are discussing, I will assume, is the 529 college plan vs. the Washington State GET Plan.

Here is how I usually answer the question.

1. The GET plan offers, for a premium, and based on the cost of higher education tuition in the state of Washington a guarantee that you will have so many units of your daughter's education paid for in advance. That is really what separates the GET program from investing in other accumulation vehicles (such as mutual funds or stocks that do not have any guarantees). If your daughter chooses to go to an out of state school, the funds can be used for out of state college tuition. The state invests the money paid into the plan and makes all of the investment choices for you.

Because of the inherent guarantees associated with this type of 529 plan, most planners would consider this to be a more conservative investment choice vs. the accumulation-type of 529 plan discussed next. There is a Washington State GET program website where you can get (pun intended) more information. You need to compare the costs and consider how valuable you feel the GET's guarantees are to you and your family. Remember: the State of WA is "guaranteeing" (or backing) this plan...laws can be rewritten if necessary...

2. Accumation-type of 529 plans (also sponsored by each respective state) use mutual funds as their investment tool. The growth is tax free if used for qualified higher education expenses. The beneficary can be changed in the future and the funds can be used for a broad range of higher education-related expenses (beyone just tuition). Since the tools of investment are mutual funds, the balance will be as volitile as the risk profile of the underlying mutual funds chosen. Within most 529 plans, you have the option to be very conservative or aggressive (or a combination of the two). There are other advantages to 529 plans. If you want further information, consider visiting the following website: www.savingforcollege.com My recommendation is start soon is investing in either or both

I also encourage you to seek the assistance of a Certified Financial Planner practitioner. That person can help you evaluate 529 plans, your risk tolerance, your personal situation, and help you determine the best fit of investment vehicle to best meet your goals. You can visit www.seattletimes.com/yourmoney or www.fpanet.org for help in finding a planner and most provide a free initial consultation.

I'm 31, my wife is 40 and we have twin 2 1/2 y/o with another on the way. I've heard that you should be saving at least 10% of your income, 7% if you have a state pension like I will. I have a 457 plan that I contribute 6.35%, $190 a check, with a 100% match worth $65,000. My wife has a 403 which she contributes 3% with a 50% match, just started. My pension should give me 60% of my income, approximately $60,000 a year when I retire in 30 years. My wife will retire in about 15 years. Outside of this she has retirement accts worth $192,000 and mine worth $30,000. We own a home with a $330,000 mortgage and worth $600,000 and have a little debt that we are paying down. With all that, should I be ok for retirement and can I start contributing to my kids GET account?

— Alec

Alec: You are to be commended for the programs you already have in place. You are rare at your age being so settled into a career and family. It is still difficult, however, to say whether or not you will have any difficulty funding your goals if you stay employed and on course with your savings. The big question, as with many entering into a financial planning process, is to do some of the hard work on three important questions: What is your budget now and what is it going to be in the future? Unless you have the data, do an analysis of three various months throughout the year or keep track monthly going forward. Your financial success or failure will depend largely on what you spend, your life style and your values to determine whether your current savings rate will be adequate.

Secondly, you will need to get in touch with your risk temperments. Are you major risk takers or do you keep things close to the vest, once you acquire them? It will depend on how much you can save, but mostly on how hard you are willing to put your assets to work.

That takes us to number Three: What are you timelines? i.e. Will you be financially independent and able to retire at 55 or 75? What do you want to happen? Do you love your work? Do you have travel or other plans that will incur major expenses? Once you have these three concepts clear in your mind, you are ready to run some WHAT IF scenarios. Some of the web sites like Smart Money have tools you can use to do this. Go to www.seattletimes.com/yourmoney and you will find numbers of resources to assist you. Planning is never finished (but is an evolution) and you need to continue throughout your lives updating, reevaluating and running new WHAT Ifs. You have a great start.

we are in our early 50's, max out our roth ira's and 457K, and have about $50k in a traditional ira from a rollover. We make about $85k in salary this year, but will increase this by 50% beginning 2008, do you recommend converting the aforementioned traditional ira to a roth?

— Rob S.

Rob: I would recommend looking at it. Many financial service firms have the software to compare the cost of leaving it in the traditional IRA vs. rolling it to a Roth IRA. You might also check some mutual fund or finanical service firms' websites as many offer the same tools on their websites.

The primary consideration will be how long the funds will remain in the Roth IRA prior to withdrawal in addition to how long it takes the tax free accumulation to offset the taxes you have to pay upon conversion. Remember, you do not have to convert 100%: you can just convert a smaller percentage.

I would really encourage you to seek the assistance of a Certified Financial Planner practitioner. You can visit www.seattletimes.com/yourmoney or www.fpanet.org for help in finding a planner and most provide a free initial consultation. Take advantage of it.

Your question is multifaceted. There is the near term decision on the rollover vs long term decisions regarding age of retirement, amount needed to retire, and your various sources of income. A CFP practitioner has the tools and the experience to assist you making prudent, informed decisions.

Will a financial planner sit down with me and go over my IRA investments and make suggestions as to allocations? I've done most of it myself with research, but am not sure if the funds I've chosen are good or if I have good diversification. Also, my elderly parents are both doing well, but we've just learned that my dad's pension is not transferable to my mom should he pass away first. They do have an annuity, but otherwise all my mom would have is social security (I don't think they have any life insurance). Is there some sort of trust me and my sisters could invest in and cash out quickly to help my mom (or dad) along?

— Ann

Ann: Many financial planners would be willing to give you a checkup and offer advice as to what you are doing right or what you should change regarding your IRA. Go to www.seattletimes.com/yourmoney to find links to help you locate a Certified Financial Planner practitioner. They would also be able to help with your question concerning your parents. There are certainly options that you and your sisters could explore but they will inherently be highly client-specific and therefore inappropriate to be answered in this general forum.

My girlfriend, who is 24, is thinking about setting up her initial Roth IRA account. What benefits are there to a Roth IRA? Is there a minimum amount for her to start a Roth IRA? Is it worth her while to even start one if she invested just $50 dollars at the beginning and $20 dollars every week? What totals would be optimal if she could invest more per week? Are all Roth IRA offered by all the brokerage firms the same, (ex. Fidelity, Ameritrade, TRoweprice) or are they different? Are there other retirement options she can look into? Thanks for your help!

— Brandon

Hi Brandon,

What about you? Do not get left behind! Starting to invest early in life is one of the smartest things you can do. The Roth IRA is one great option. Different companies will have different minimums and different investment options. It pays to shop, but small amounts limit the choices. While the Roth IRA is great, employer options such as 401(k)s may be the best for the amounts you are talking about (assuming they are available to you).

Keep in mind that investing for the long-term is generally smart...but if you don't have an adequate cash reserves you may be forced to sell your intended-to-be-long-term assets in the short run...and that's awful when it's forced to be sold during a downturn in the market...and you end up selling at a loss!

To begin your investment education, consider visiting the following websites: www.seattletimes.com/yourmoney or www.fpanet.org Get started and good luck!

I'm 52 and can't imagine ever being able to afford to retire. I have $195,000 in a 401(k) (that amount before today's stock market crash) to which I add $700/month, an IRA worth about $13K, and about $200K in home equity. I look at retirement charts and despair. Is there any hope?

— Rosemarie

I am currently working for a company that awards restricted stock and also offers an employee stock purchase plan at a ~10% discount. Should I sell my ESPP shares sooner rather than later or should I hang on to all my company stock? If you recommend selling should I use the proceeds to pay off debt or would you recommend reinvesting?

— Larry

Hi Larry -

I'm not sure I can answer your question to your satisfaction. I don't know the company so I don't know if it is an investment you would want to make if you did not work there. If not, you likely will want to sell. Clearly there will be tax implications of selling so be certain you know the tax implications of redemptions.

The other consideration is what your overall asset allocation is. It is important to manage the risk of your investment portfolio and maintaining the allocation that is right for you over time. If most of your investments are in your company stock you may want to consider selling some stock to allow for broader portfolio diversification.

If you DO decide to sell some (or all) of the stock, pay down debt would likely be prudent. You did not share the type of debt you are holding - and the answer to that question may affect the answer (ie. Mortgage debt tends to be better debt than consumer debt, everything else being equal). Once you are debt free then you can continue to build up your investment portfolio. With that said, buying company stock at a 10% discount is very compelling...but so are the benefits of portfolio diversification. Consider utilizing a Certified Financial Planner practitioner to prudently evaluate your options, choices and unique personal situation so you can make better informed decisions.

We have saved 3+ million for retirement, owe no money on our house or on anything else (no credit card debt, no school loan debt, no car payments), have saved the maximum in the GET college fund for our daughter. What else should we save for with our money?

— T.D.

Hi TD -

Great job saving for your major goals!

You are in a very privileged spot where you can take time to think about and discuss your values and then direct money accordingly. Also, you can use your excess savings and savings capacity to teach your daughter not only about managing money but also about the values you embraced to get in such a positive position.

The first step is to determine what % of your $3,000,000 will be needed by your family to achieve your financial goals. Working through a comprehensive financial plan, and estate plan, should give you what you need to adequately, and confidently, answer that question.

Once you have determined what money you will not need for your own family's consumption, I suggest you consider creating a charitable giving allocation. When we create an investment allocation we first decide on the percentage of your total investments you want to put into cash, large-cap stocks, mid-cap stocks, small-cap stocks, etc. When creating a charitable giving allocation you start by determining if you want to give to environmental causes, human services, arts, religion, etc.

Once you have determined the "classes" then decide on the percent of total giving to each class. The final step is to determine which organizations to give to in each class.

There is a saying in the estate planning industry that the first generation earns the money, the second saves it and the third spends it. In a few families this cycle has been broken. The common thread of the successful families have been philanthropy. Building and managing a charitable giving allocation is a great way to help your family retain the assets you have worked so hard to earn.

What are the real tax and other benefits to owning rental property? I hear so many variations. What's true?

— Sharon

Dear Sharon: As with most investments, benefits vary. There are no short and simple answers to these questions and I do not know your individual tax situation. For many individuals, real property investments involve a significant portion of their investable assets because housing is so expensive here in greater Seattle! Additionally, property investments involve lifestyle questions. Do you want to be a landlord? Real property, unlike stocks/mutual funds, is much more difficult to price accurately and to sell quickly. Unlike stocks/mutual funds, you could potentially have liability issues (ie. What if someone falls on your investment property and hurts themselves?).

Before you make such an important decision, you should seriously consider consulting with a Certified Financial Planner practitioner. You can visit www.seattletimes.com/yourmoney or www.fpanet.org for help in finding a planner and most provide a free initial consultation. Take advantage of it.

I inherited my mothers house and pay the same tax rate she paid. If I put one child on the trust as a co-trustee, when I die would that mean my kids would get the house for the same tax rate I paid? Also does the rental income from this house count as my personal income? thank you.

— Anna

Thank you for your question Anna. Some people may qualify for a reduced tax rate, but this is based on the individual and not the property. Your attorney should be able to answer questions about the pros and cons of adding a child as a co-trustee, but I don't think you will find that property taxes are among them.

Yes, rental income must be reported to the IRS. Make sure you are tracking rental expenses to offset the income and please consult with a CPA with regards to your specific tax issues.

An asset allocation model that I am looking at recommends 80% stocks and 20% bonds. However these days, money market accounts pay as much as 5%, which seems to be about as good as bond yields. Given that interest rates are likely to rise in the future (and thus bond prices should decrease), does it make sense to keep the 20% in money market instead of bonds, since money market gives you a similar return without the risk of a decrease? Or am I unaware of a benefit of bonds here? Thank a lot.

— James

Asset allodation models look at more than just return or yield on the asset classes. They also consider the correlation between the returns of the asset classes considered. Bonds returns historically have relatively low correlations to stocks returns. Because of this, many investment experts suggest bonds as a portion of a portfolio to reduce overall portfolio volatility. There are always periods of time when the asset classes' performance is less than is hoped for and less than some other asset class that might have been considered. An asset allocation strategy is a long term strategy and it is generally not advantageous to shift to other asset classes along the way. The decisions as to which other assets or asset classes to shift to and determining the optimum time to make the shift are asset selection and market timing issues. Many experts suggest that selection and timing decisions are unlikely to improve on the long term portfolio performance.

With that said, be aware that not all bonds are created equal. There are various types of bonds available with varying expected returns and corresponding expected risk profiles. To properly allocate the 20% for bonds (assuming that allocation is the one that you're comfortable with and appropriate for you) you may want to get up to speed on the bonds best suited for you and your portfolio.

Thanks in advance for any help. 1) My wife owns a small biz run out of our house and is putting money aside to pay taxes. Do you have a recommendation for a good type of account to put that money in to earn some interest until she has to pay her taxes (high yield savings, CD?)? 2) I have a regular IRA (in addition to a 401k that I'm maxing out) that is sitting in a fund that is underperforming. Do you have any recommendations for a straight rollover?

— Dave

Hi Dave,

Thanks for your inquiry. There are many factors to consider here and they vary by your own unique individual situation. Here are a few thoughts to your queries:

1. Beware of CD's that have maturities longer than the date you anticipate sending in your tax payments, as some of them have extremely steep early withdrawal penalties.

2. I would look to compare the rates on high yield savings accounts and/or comparative money market instruments.

3. Is your IRA only invested in one fund? If so, and it is not a total stock market index fund (aka a broad, "S&P 500"-type of fund or comparable), you may need to worry more about further diversifying your holdings instead of just choosing a better performing fund. Perhaps professional guidance and/or utilizing an asset allocation tool would be appropriate.

4. In addition, if you are currently saving to this IRA account (and it is non-deductible) you might consider establishing an individual 401(k) plan for your wife's business (assuming her business is profitable).

However, most of the recommended courses of action are entirely dependent upon your specific financial situation. I would first suggest that you retain the services of a Certified Financial Planner(tm) practitioner. They can help you evaluate and educate you about the vast array of options available to you in the financial marketplace. After they have performed a detailed analysis of your situation you will be better informed to make decisions that have the potential to have a large impact on your overall situation. Here is a good place to start: http://seattletimes.nwsource.com/html/businesstechnology/
2003586289_finresourcesweb25.html

Good luck!

I have Two questions: 1) I contribute to a local college turion savings program called GET. The monthly deduction is set up from my bank checking a/c. Is it true that if the monthly deduction is done through my pay check deduction the tuition contribution amounts can be tax-deductible? 2) For my son's 20th birthday I would like to start an investment a/c for him with a $500 amount. What's the best way to do this? Should the $500 be invested in stocks or mutual funds or a retirement a/c? Thanks so much for your response!

— Vim

1) No, I am sorry...monthly deductions do not change its deductibility.

2) What will the money be used for? If it is for your son's eventual retirement, consider helping him make contributions to a Roth IRA (assuming he is eligible). Within the Roth, a mutual fund can be a great way to get diversification and professional managemenet. Keep in mind that mutual funds typically have account minimums. You will need to shop around to find one that will accept $500. Perhaps you could encourage his own savings by offering to match the money he saves?

How do I find a qualified financial planner, and what should I expect to pay? I am 34, have 11 homes (nine of which are rentals) and don't know where to look to find someone to help me reach my retirement goals. Up to this point i have pretty much been wining it on my own and doing what feels right. Thanks.

— Nathan

Nathan: You can begin by loggin onto www.seattletimes.com/yourmoney to look for links to sites from which you can find a qualified Certified Financial Planner practitioner. There are different models that planners use for determining what you might pay and how planners can be compensated. Some work on the basis of hourly fees, some on project based fees, some offset their fees based on commissions earned from various insurance or investment products you might purchase, others earn no commissions whatsoever. The amount you should expect to pay generally depends on the level of service needed (aka the "scope of the work"...the more extensive and complex the situation and need, the higher the cost). The best thing for you to do is to talk to several planners to find out what their expertises are, whether they specialize in real estate investment planning, and what their fee structure is. Most planners will offer a free initial consultation during which these kinds of questions will be answered.

I am single, 26, and Have not started to contribute ina any retirement plan (401 k, IRAS, etc) why I should start cintributing and what is the best option?

— Sebastian A.

Sebastian: I meet with 50, 55, 60 olds all the time who wish they had started when they were 26. You want to start now so you won't be making that wish when you are 60 and wondering how you will have enough money to live on in retirement. The magic of compounding of returns allows a relatively small sum of money to grow large given enough time. Give yourself as much time as you can.

Look first to your 401(k) options. If your employer matches some of your contribution, that's hard to beat (they are giving you "FREE" money). Look at the investment options available within the 401(k). Most have lots of good choices. If you don't get a match, or if you are not happy with the choices, consider an IRA of some type. You have nearly unlimited options for investing within an IRA.

Contact www.seattletimes.com/yourmoney to find links through which you can find a certified financial planner practitioner who can give you more details based on your specific circumstances.

We have two small children (ages 16 months and 3 years). Is it possible to setup a tax deferred retirement account (like an IRA) for children like these who are under 18? It would seem that the best way to help them to provide for their own retirement would be to put even a small ammount in a tax deferred investment when they are very young. (Note that we already have section 529 plans for their education)

— Sabra

Sabra: The kids would need to have earned income to contribute to the IRAs. Babysitting, mowing yards, etc. does not qualify.

There may be some more complicated options that are available, but that is beyond the scope of this forum. If you learn the pros and cons of 529s, you may find that you can use them in imaginative ways.

I would really encourage you to seek the assistance of a Certified Financial Planner practitioner. You can visit www.seattletimes.com/yourmoney or www.fpanet.org for help in finding a planner. Most provide a free initial consultation. Take advantage of it.

How do you know how much to fund your 403(b) account? I do not receive a match from my employer, but do have a state sponsored pension (Teachers plan 3). But I have a hard time figuring out how much to fund to ensure a comfortable retirement? I am 36 now.

— Jeff B.

Hi Jeff -

Short of having a detailed financial plan prepared by a Certified Personal Financial planning practitioner, I suggest you use a retirement calculator to help determine how much to save for retirement. You can find a calculator by going to www.seatletimes.com/yourmoney and clicking on one of the links. I have found the Smart Money site to be a good one for calculators.

By the way, you should review the management expenses in the 403(b) you are using. They can vary quite a bit between providers. I think you'll find that the state investment plans you're contributing to will have lower management fees but probably fewer investment choices to choose from.

I am 38, divorced and have 2 young kids. I am enrolled in the company sponsored 401(k) plan, but only contribute 6% in order to get the 3% non-elective contribution. I probably could do 8-10% in the 401(k), but I wonder if I should be doing Roth IRA's for the kids as a college savings tool. I can't do both. Which is better?

— Colleen

Hi Colleen,

Thanks for your inquiry. It really depends on the other factors relative to your specific financial situation. Remember that you can often take a loan for college, but you can't take one for retirement. How much have you currently saved toward your retirement? How much will you need to live off of during your retirement years? When will that retirement period start? As you can see, the most recommended course of action is entirely dependent upon your specific financial situation. Therefore, I would first suggest that you retain the services of a Certified Financial Planner(tm) practitioner. They can help you evaluate and educate you about the vast array of options available to you in the financial marketplace. Here is a good place to start: http://seattletimes.nwsource.com/html/businesstechnology/
2003586289_finresourcesweb25.html

Best of luck to you.

I am quiting my job with the City of Seattle and starting my own little business. I am a massage therapist and working on starting a business as a yoga instructor. I will be my only employee for both aspects of my business. I have about $35,000 in my city retirement and have worked there long enough to be vested(not that i really know what that means). I am 36 and single. I am starting to research what would be the best thing for me to do with that money and am kinda overwhelmed by all the options and not knowing much about any of them Roth IRA's, traditional IRA's, someone recommended sharebuilder401k. I would like to do something with that money and then also have some kind of account that I can add a little money to each month. I think if I roll that money over now into a trad. IRA i get taxed later? If i roll it into a Roth IRA now I get taxed now and not later? Any advice would be appreciated. Thanks.

— Cindy

Hi Cindy,

Thanks for your inquiry. First of all, 100% vested means that you have been there long enough to realize (and take with you if you like) the full value of your account. As far as the options available to you with respect to these funds, there are many. The one that is the best fit for you really depends on your specific financial make-up. You have listed some of the options, but you might also wish to evaluate the benefit of establishing a Simple IRA or Individual 401(k) plan in your new business. I would suggest that you consider meeting with a Certified Financial Planner(tm) Practitioner. Here is a good place to start: www.seattletimes.com/yourmoney

Best of luck with your new business!

We have a fico of 810. No credit card debt. Own cars. House appraised at $540,00 with a $396,000 mortgage.(6.4 interest rate) We have an interest only payment of $2500.00 (includes ins. and taxes) Kids just finished with college. Only have $135,000 saved for retirement and we're 52. Make $115,000 jointly a year.What are your recommendations?

— Jill

Hi Jill -

Congratulation on the excellent way you have managed your debt!

Now that the kids are through college (and supposedly on their own - financially) it is time to focus on your retirement savings. You should have two major objectives: save as much as you can and pay down as much of the mortgage as possible. The starting point is to maximize your contributions to your employer sponsored 401(k) plan.

Then I suggest you pay off your mortgage over the next 15 years. Your monthly payment will be $3,428 for principal and interest plus tax and insurance. This assumes your interest rate of 6.4% will be fixed for the life of the loan. If it will vary you will want to look at a mortgage calculator. You can find this by going to www.seattletimes.com/yourmoney.

If you have additional money you can save I suggest you fund a Roth IRA. For the 2006 tax year you and your husband can fund $5000 each into a Roth. The contribution must be made by the April 17th deadline. You will also be able to make a 2007 contribution starting immediately.

Between overtime and 2 paychecks, my husband and I unexpectedly made over $160k adjusted gross for 2006. We usually do Roth IRAs but gather we are over the limit. What other way can we save for retirement? We are in our early 50s, have maxed his 401k and have low debts.

— J.

J: Congratulations on your hard work! Double check to make sure you are not eligible for the Roth. If not, you can contribute to non-deductible IRAs. You will not get a tax deduction, but your money will grow on a tax deferred basis.

For more ideas, I would really encourage you to seek the assistance of a Certified Financial Planner practitioner and/or a CPA. You can visit www.seattletimes.com/yourmoney for help in finding a planner and most provide a free initial consultation. Take advantage of it.

I invested 2016.84 in a mutual fund on 04/09/1996. In order to calculate the annual return form the date of purchase until today, What is the standard formula?

— Bruce E.

Bruce:

One quick way of determining this answer is to:

1. Take the current price

2. Subtract the purchase price

3. Divide by purchase price

4. Divide by the number of years you have held the investment

In addition to the above formula, if the mutual fund paid any dividends or capital gains that you reinvested, those have to be included in the calculation you use.

Hope that helps and good luck. If you need further assistance, you may wish to consult and retain the services of a certified-financial-planner practitioner. Here is a good resource: www.seattletimes.com/yourmoney

Good luck

My husband and I got married last year - second marriages for us both. After doing our taxes, our AGI came in at $163,000 - too high for most of the deductions we are used to taking (Roth IRA, student loan interest, even full mortgage interest). What are the best ways for a two-income (both from traditional jobs) family to minimize their AGI?

— Heather

Heather: The best way to minimize AGI is for you both to contribute fully to your retirement plans. It would be difficult for me to provide more ideas without knowing more about your situation. With that said, if investment income contributed to raising your AGI, perhaps utilizing some tax-deferred investments (i.e. cash-value life insurance or annuities) would be beneficial.

Each person's personal situation, and tax situation, is unique. I would really encourage you to seek the assistance of a certified-financial-planner practitioner and/or CPA. You can visit www.seattletimes.com/yourmoney for help in finding a planner and most provide a free initial consultation. Take advantage of it.

I have a decision to make about taking a pension. I am 61 and my wife is 58. I can't take a lump sum based on plan rules. Should I take the single life annuity at $845/m; the 50% joint and life annuity at $772/m, or the 100% joint and life at $710/m? All are with COLA. I am assuming that we both will have the normal life span - not longer. What are the factors that I should use to make this decision? I also need to decide when to take the pension - at 62 or later. The amounts above are for age 62 - the respective numbers for 65 are $990/m, $894/m, and $815/m. How should I decide the answer?

— Dennis O.

This is a great question, Dennis. But, unfortunately one that is very difficult to answer based on the information provided. You should consider meeting with a certified-financial-planning practitioner who specializes in this kind of issue. You might begin your search at www.seattletimes.com/yourmoney. The answer will depend on other resources you have and the retirement income you will need to be comfortable.

The selection of the optimum age to elect payments is often dependent on how long you think you will live beyond the actuarially expected lifetime. In other words, it's difficult to know. More often than not the answer is really dependent on other sources of income you might have to support your needs up to the age you start drawing your pension. And on whether you plan on working up to that date.

As for the survivor benefits, you may want to explore life insurance as an alternative. If you are in great health and can qualify for the best rates, it may make sense to buy a life-insurance policy that will provide equivalent benefits and then take the single-life-annuity option. The life-insurance option has some additional risks that you should keep in mind. One - depending on the type of policy selected, the policy may fail to perform as projected. Another - you will continue making premium payments. If you fail to continue premium payments or run into problems that preclude those payments, you could jeopardize the benefits that your spouse may be counting on.

I am considering changing careers and becoming a financial planner. I have good degrees from good schools, including a PhD from an Ivy, but none of the degrees are in anything close to business. Can you recommend a path towards a career in financial planning, or will it be too difficult given my lack of formal education in the field?

— James

Hi James,

Here is the best resource I would direct you to at this time: www.cfp.net

There should be some great information in helping you get a good direction and getting your questions answered. You might also look for opportunities to participate in informational interviews with financial planners in the Seattle area. Checking with area community colleges and schools (i.e. City University, South Seattle Community College, for example, have certified-financial-planning designation programs), as well as the National Financial Planning Web site (www.fpanet.org) may be helpful. Good luck.

My family and I and recently bought a home and have a 1 year old. In the past we were able to do our own taxes. With all of these changes I am having less confidence it doing it myself. Does it make better sense to seek a professional for help?

— Joel

Joel:

As a financial-services professional myself, I may be a little biased but I can tell you that I am happy to pay a CPA to do my taxes. I am a certified-financial-planner practitioner and I do not have a complex tax situation.

Congratulations on the new baby and the house! Now is the time to start thinking about retirement and education funding. I would encourage you to seek the assistance of a CFP practitioner. You can visit www.seattletimes.com/yourmoney for help in finding a planner and most offer free initial consultations.

We am planning to take a family vacation to Wash DC Springbreak of 2008. As a rule of thumb, would it be cheaper if I used the internet and planned airfare/hotel package myself, go to a traditional travel agent who might find better specials, or join AAA and use their travel services and get their discount? Thank You!

— Marilyn P.

Hi Marilyn -

I haven't had experience planning this type of trip but I would be inclined to call a travel agent and see if they have a good package deal. Then call AAA with the same question and finally go on line to make a comparison. It will be a little extra work but you are likely to learn a lot in the process and you'll enjoy your trip more knowing your have explored all the options.

Which is better... putting more on a down payment for a house or funding an IRA or independent retirement account for the year? My husband and I are in our late and early thirties (respectively) and have saved quite a bit toward retirement already thru our jobs and independently (IRA's etc) and have no debt. We also are participants in our employer's retirement plans, with money taken out each paycheck. We are starting to look into buying a house in Seattle, centrally located. Thanks!

— Tanya M.

Hi Tanya,

Thanks for your inquiry. This answer depends on many different situational factors. Here are just a few:

1. Where are these funds coming from?

2. What kind of other retirement accounts are you considering?

3. What is your personal-risk tolerance as it pertains to your currently invested retirement assets?

4. What is the rate of interest on the loan you would be taking if you didn't make the down payment?

5. Are you or your husband self employed?

6. If so, are you looking for additional deductible retirement contributions?

7. If you make additional deductible contributions, what does that do to your potential income-tax picture? You may need to consult a tax adviser on this portion of the analysis.

8. Does that make it more or less advantageous to have this money as a down payment or to put it to another area of your plan?

9. What is your current monthly cash-flow surplus (or deficit)? Is it enough to allow you to pay the increased costs of a higher monthly mortgage if you don't end up using your funds as a down payment?

Obviously, you can see that there are just too many situational factors that go into evaluating and delivering a recommendation on this subject. My advice to you is to seek out and retain the services of a certified-financial-planner practitioner. Here is a good place to start: www.seattletimes.com/yourmoney

Best of luck!

We started a 529 Plan with Fidelity Advisor for our granddaughter (now a sophmore in high school) on 10/04/02 with monthly contributions of $150.00 and an initial payment of $7,191.37. As of 1/31/07 we have contributed $14,981.37 with a present value of $20,115.60. The fund has a miximum of 3.50% front-end charge and an annual fee of .25%. The question: would it be better to roll these funds into the States GET program at $70.00 per unit or leave as is? Also, what about the tax consequences? We would be able to purchase 287 units or close to three years of paid college tuition. What about financial aid considerations?

— Tom

Hi Tom,

It is great that you are saving to help with your granddaughter's college - what a wonderful gift!

I suggest you stay with the Fidelity 529 rather than buying GET credits, everything else being equal. The 529 gives you (and her) much more flexibility. First, if she decides to go to school somewhere other than a Washington state institution, it is easier to apply these funds. Also, the GET money can only be used for tuition expenses while the 529 money is available for a much broader range of qualified educational expenses.

When it comes to filling out the FASFA form (the request for financial aid) this asset should not need to be reported as long as you are the owner. Therefore, it should not have a negative effect on getting financial aid. However, if she attends a private school and is asking the school for aid in addition to government programs, then the 529 may be viewed as an asset expected to assist in her college-education expenses.

My question is about choosing the best retirement fund vehicle for my situation. After a number of years as an employee contributing to a company 401(k) plan, I started my own service business as a sole proprietor. I want to start making retirement contributions. What options are available to me as a business owner, and can you tell me any pros/cons around those options? Also, can I roll my 401(k) money into that new plan or must I keep 401(k) money forever separate?

— Desree G.

Desree:

Thanks for your question. Generally, a solo or individual 401(k) for your business should provide for the highest contribution among Defined Contribution plans. It can very from situation to situation. Establishing a Simple IRA or a SEP IRA are also retirement-plan options for self-employed individuals. I would encourage you to seek the counsel of a certified-financial-planner practitioner. You can visit www.seattletimes.com/yourmoney for help in finding a planner and most offer free initial consultations.

You can usually roll old 401(k) money into a new plan or into an individual IRA

My ex-husband just inherited an IRA. He is disabled and in a low tax bracket. Will he be taxed on it if he: Invests in a deversified portfolio Invests in a small business Invests in CDs. What would you do if it were your $70K IRA?

— Debie B.

Debie:

It sounds like you are asking two separate questions. The first has to do with taxation of the distributions from the IRA. The second has to do with how best to invest the $70,000 in the IRA.

As for the first question, your ex-husband will be required to take money from the IRA each year. The amount depends on a number of things. But he will have to report those distributions as taxable income. He should talk to a CPA to make sure that he knows how much he must take out of the IRA. There is a significant penalty for failure to take the distribution required.

As for the second question... We would need more information to be able to tell you how he should invest the money inside the IRA. You can find help in locating a qualified certified-financial-planner practitioner at www.seattletimes.com/yourmoney

My husband and I are in our mid 40's and self employed. How do we figure out how much money we need to save for retirement? Is there some formula to figure this out? We still have children to send to college, a mortgage, and some business debt. What should be our priorities?

— Ann

Thanks, Ann, these are great questions. There are different rules of thumb. As a planner that has worked with hundreds of individuals, I can tell you that there is no single formula that works for everyone. I usually recommend working on retirement first, but you do have many moving parts and that answer could be off target for your specific situation.

I would really encourage you to seek the assistance of a certified-financial-planner practitioner. You can visit www.seattletimes.com/yourmoney for help in finding a planner. Meeting with an experienced planner can help you to determine how to best understand and prioritize the financial goals you mentioned.

I'm a young, happily single homeowner who's profit (were I to sell) is nearing the max capital gains exclusion of 250K. I can't help but wonder if I should think about selling my home and buying another to allow myself more room to grow tax-free. I know that I can increase my cost basis by remodeling, and I have been planning to do so, but I'm interested in an advisor's insight on whether there's an advantage to selling to reset my basis. I do like my house and neighborhood; there is plenty of remodeling to be done. Thank you.

— MG

Hi MG,

The answer to your question depends on many different factors. It's wise not to make most financial decisions from a tax-minimization standpoint alone. You have brought up many of the issues that are involved with this decision. However, even though you may be nearing the cap rate, it may still make sense to hold onto your existing property for several reasons. For example, what if you have a current (or future) desire (and resources) to keep this property, rent it out and purchase an additional residence? You would still be holding onto the property and the threshold wouldn't be an immediate issue. If you later decide to sell the property, you could be potentially subject to long-term capital-gains rates (consult with your tax adviser). Or, you may continue to hold that property in your portfolio for years to come. Also, what about the fact that you like your neighborhood and you might have the ability (and desire) to live in this home for the foreseeable future?

Ultimately, I would recommend that you seek out and retain the services of a certified-financial-planner practitioner who can help you evaluate your specific financial situation. Discussing the pros and cons of your options with an objective, outside adviser may both educate and direct you to the decision ultimately best for you. Here is a good starting point: www.seattletimes.com/yourmoney

Good luck!

My wife and I are a retired couple living in Seattle. We anticipate selling our home and moving to a retirement residence in about five to ten years. We want to find a financial counselor who works on a fee-for-service basis who can advise us on how much money we can spend now and still have a comfortable margin on which to live--possibly for many years--in the retirement residence. The retirement residence annual fee increases about four percent per year. We have several sources of income plus a nest egg. We don't want ongoing financial aid from this counselor but do want someone who is really good who is also an expert or specializes in this sort of question. Who would you recommend or how might we find such an advisor? Thank you--I'm sure that multitudes of retirees have this same question.

— Phinneas G.

Hi Phineas -

I think you are right - there are a lot of retirees with the same questions you have. Also, there are several very good advisers to help.

The first thing you want to look for is someone who understands and appreciates that you are unique and is willing to structure and implement a plan that fits you. Then you want to find someone you are comfortable with. There are many outstanding certified financial planners in the Puget Sound area. To find one that fits with your needs start by going to www.seattletimes.com/yourmoney.

I know that there is excellent information available on the FPA link that you will find in the Seattle Times Web site.

My wife moved her 401k years ago to a variable annuity that averages about 3% growth per year. What other options are there for this money? Thanks!

— Joe

Joe: Variable annuities are rarely advisable as a good investment vehicle for tax-deferred accounts such as 401(k). The management expenses tend to be high and your investment choices are limited by the universe of funds offered in that particular annuity. The primary benefit of a variable annuity is the tax deferral but you already have tax deferral with the 401(k). Unfortunately, most variable annuities pay one of the highest product commissions in the industry. Knowing that, you can speculate on your own why you likely ended up funding a variable annuity with 401(k) funds.

Perhaps the reason that your variable annuity is only producing 3 percent (when the broader U.S. stock market had double-digit returns last year) because your investment choices are too conservative? You should consider looking at your asset allocation within the investment choices available in your annuity and determine if a reallocation is in order.

As you're probably aware, with only a 3 percent growth rate, you are not likely to be keeping up with inflation. Without more information, I cannot give you a specific answer, but I would really encourage you to seek the assistance of good certified-financial-planner practitioner who will give you objective advice. Some financial planners are compensated only by a fee that you pay directly (and not for a commission paid to them when you buy something). With either compensation model, you can find qualified planners who are interested in helping you meet your goals. Just do a little shopping and don't be afraid to ask questions. You can visit www.seattletimes.com/yourmoney for help in finding a planner. Generally, planners offer a free initial consultations.

I am a retired 63 year old male with $16,200 a year in benefits from Soc. Security. My wife works part time with an annual income of $15,000. We have no debt and own our home valued at $325,000. Our retirement portfolio of $1.6 million is invested as follows. (cash/cd's 35%) (growth/income funds 32%)(International funds 4%)(bond funds 29%) We are presently withdrawing $30,000 per year from our retirement portfolio. My primary goal is preservation of capital with some appreciation to keep up with inflation. Based on these objectives do you feel the allocation of my portfolio is appropriately diversified to accomplish my goal in up and down markets? Thank You Earl.

— Earl B.

Earl:

Assuming that $30,000 per year increased over time to keep up with inflation will satisfy your needs, even after your wife stops working, your allocation should be fine. One could probably build a case for being a little more aggressive to make sure that there is sufficient growth to ensure that the portfolio outpaces inflation for as long as you live, which could easlily be more than 30 more years. But with your stated objective, it does not appear that you should need to take on more risk.

What do I look for in a CFP to review our assets to determine how it should be allocated and disbursed. We're within 3 years of retirement and have sufficient funds (as per retirement calculators). But I am concerned that we are not making the best usage of our assets at the present time. How much should this service cost?

— Ms. Kidd

Hi Ms. Kidd -

Seeking professional help is a great idea. The retirement calculators are good tools but your situation is unique. The first thing you want to look for is someone who understands and appreciates that you are unique and is willing to structure and implement a plan that fits you. Then you want to find someone you are comfortable with. There are many outstanding certified financial planners in the Puget Sound area. To find one that fits with your needs start by going to www.seattletimes.com/yourmoney.

I know that there is excellent information available on the FPA link that you will find on the Seattle Times Web site.

I have a $100,000 inheritance. My wife and I are 50 and have the one daughter in private College (jr year). What's the best way to invest this money?

— Michael C.

Hi Michael -

I assume by the way you asked the question that you are trying to decide whether to use the money to pay for your daughter's education or save for retirement.

I'll start by suggesting that how much you want to contribute to your daughter's education is a parenting question and not an investment question. However, if you have made a commitment to pay for some or all of her education, the inheritance could be a good source of funds to do that. If you are going to use this to pay for her last two years of school, I suggest investing in money-market accounts, bank CDs and/or U.S. government bonds. These investments will minimize your exposure to the risk of losing your principal with such a short time frame for needing the money.

If you want to use the money for retirement I suggest you start by determining an appropriate asset allocation. This is deciding how much you want to invest in stocks, bonds, cash, etc.. Generally, the more you invest in stocks the greater the return but you'll take on inherently more risk. Once you have determined your asset allocation you will want to decide which investment to use to populate each asset category. I suggest you consider mutual funds since this gives you the advantage of extra diversification and professional management.

Depending on when you want to retire, what your income level is and what you have already done to save for retirement, you may want to consider a traditional IRA or a Roth IRA. You can go to www.irs.gov to learn about the limitations of these tax-advantaged options.

My husband is self employed as an architect. We have an office on our property. Last year our net income was +$80,000. We have 2 children, ages 11 & 12 (5th & 6th grade). About $73,000 currently in our IRA accounts. We have zero debt (other than a mortgage ($205,000-1,520/mo-incl. taxes & ins with 27 yrs at 5.85% int. the house currently valued at $700,000.) We only contribute annually to our IRA. Help us to get to retirement! How do we get there? PS We have no life ins or any other type policies. It seems that most of the self employed type plans, Keogh etc carry alot of fees? HELP!!

— Cathy

Hi Cathy,

Thanks for your inquiry. There are many options available to you, and most of them I'm not able to summarize in this type of forum. It really comes down to the specifics of your individual financial situation, of which I only have a few pieces. Self-employed plans might be an option, and you may consider evaluating Simple IRAs and Individual 401(k) plans as other alternatives. In addition, developing a game plan for tracking and maintaining a monthly budget may provide you with additional positive cash flow (of which you may currently be spending) that you may be able to direct toward other areas of your plan. The fact that you have no life insurance scares me especially with minor children. Everything else being equal, I'd consider investigating some low-cost term-insurance policies with at least 10-year terms.

Where? It depends on many factors. Do you have a game plan together regarding how to balance your savings between your retirement needs and your potential desires to help fund the cost of your children's education? Remember that you can take a loan out for college, but you can't take one out for retirement. Overall, I would suggest that you seek out and retain the services of a certified-financial-planner practitioner who can help you to prioritize your goals and evaluate your unique financial situation. Here is a good place to start your search: www.SeattleTimes.com/yourmoney

Good luck!

Does it make sense to pay down debt first or to save to my 401k plan?

— Christina

Christina: Great question but one that, to be adequately answered, requires more information. As a general rule, pay down high-interest debt before funding long-term investments. However, with low-interest debt, such as a mortgage, the opposite advice may make more sense. Another factor to consider is employer-matching contributions. If you are fortunate enough to receive an employer match, it might make sense to contribute to the 401(k) up to the maximum amount that will earn the match and use any additional money to reduce high-interest-rate debt. As an alternative strategy, sometimes people end up accomplishing both goals by trying to fund both goals simultaneously provided no new debt is incurred during this time period.

I'm a former state worker (97-2004), I had contributed to the Deferred Compensation (DCP), I have approx $15,000 in the account. Since I cannot contribute the account, nor manage the funds, what advice would you recommend so I can manage (allocate/choose funds, or purchase stocks etc.) Thanks ahead of time, this is a terrific opportunity you've FPAPS.

— Jimmy D.

Jimmy: In a forum like this we have to make assumptions, so I'm assuming that the Deferred Compensation Program you're referring to is a 457 Plan. If so, you should be able to roll it over into a Traditional IRA and thereby invest in whatever mutual fund/stocks/bonds, etc. in whatever you deem appropriate for your situation. I would also suspect you could find a government Web site which would give you insight into how the DCP assets are managed (i.e. The percent of large U.S. stocks, percent of bonds, etc.). With that information you could conceivably set your asset allocation around the set DCP with other investments that you may have more investment control over (such as 401(k)s, IRA, brokerage accounts, etc.).

I would really encourage you to seek the assistance of a certified-financial-planner practitioner.

Re: the financial planning advice for Mary Bartley Please provide additional information on the 5-6% yielding municipal bonds with a 1% surrender charge. The quoted yield is not consistent with AAA-rated, insured bonds and as such I would think a reference to credit quality would be warranted. If a tax-equivalent yield is being quoted, that should be indicated, though it's hard to see how a person with a $30k/year retirement income (who would likely be in the 15% tax bracket) would benefit by buying muni's. If a muni fund is being described, such information should be included.

— Keith F.

Keith: One problem with an article such as the one in last Sunday's Seattle Times is that we don't know all the details. Therefore I don't think it is appropriate for me to comment on the specific advice this gal was given. I would agree that the yield sounds high and that it warrants a comment as to credit quality (and whether this is a tax-equivalent yield). I would also agree that, since muni's tend to offer greater tax advantages to people in higher tax brackets, it is not clear why this adviser suggested muni's for this client who would, as you point out, likely be in a low tax bracket.

with some talk about recession what can a person do with their IRA's and/or company 401k's when the down trend is evident? Where do you put your investments to try and protect them?

— Mike D.

Hi Mike -

There are several techniques to manage the risk in your portfolios. The one that has the greatest academic research behind it and the longest track record is called asset allocation. You should determine your allocation based on your needs, goals, experience and comfort level with risk. Once you have that set, stay with it (which implies periodic rebalancing to keep your asset allocation on track). As you near retirement and/or your goals change, you may want to transition to a new asset allocation that is inherently less risky.

I always follow the rule that the market should never change your allocation. Only when your life circumstances change should you change your allocation.

I suggest you talk with a certified-personal-financial-planning practitioner to help determine your allocation and help you stay with it. You can find one by going to www.seattletimes.com/yourmoney.

I am six years away from retirement. Other than potentially large medical expenses, what are the largest risks I probably don't realize I will face in retirement? How would you suggest they be mitigated?

— Mike

Hi Mike,

The answer to this really depends on the details of your specific financial situation. Some things you may wish to consider include:

1. How many years do you anticipate you will be drawing down your retirement savings?

2. Is your portfolio positioned too aggressively and is it too volatile as you prepare to take potential distributions from these assets in six years? If so, you may wish to consider moving some of your equity positions to a more balanced approach to fit your retirement income not provided by Social Security, pensions, etc.

3. Is your portfolio positioned too conservatively right now even though you may potentially need your assets to grow for an extended period of time during your retirement years? If so, you may be too risky in the sense that you run the risk of not having your assets keep pace with inflation and this could subsequently erode their purchasing power.

4. You mentioned "potentially large medical expenses." Have you considered whether owning a long-term-care insurance policy is appropriate for you and your situation?

There are many other factors to consider in this discussion, and I suggest that you seek out and retain the services of a certified-financial-planner practitioner. A good resource to start your search is www.SeattleTimes.com/yourmoney

Good luck.

We are interested in starting a MSA or HSA to cover medical expenses with pre-tax income. What is the difference between the Archer MSA and the Health Savings Account, and how should we decide which is best for us?

— Jamie M.

Jamie: Individuals may have medical-savings accounts from past years, but you cannot start new ones.

I will need income for approx. 30 years in retirement, beginning 2 years from now. I realize there are a lot of variables, but is there a formula or a calculation that can give me a general idea of actual spendable $$--after taxes, fees, charges, inflation, etc. etc.---from taxable and IRA investments that are currently valued at approx. $500,000?

— Emily

Hi Emily -

Congratulations on your pending retirement and on saving to prepare!

There are formulas to help you determine how much you can draw out of savings to last throughout your retirement years. However, they are very complex. I suggest you go to www.seattletimes.com/yourmoney and follow a link that has a retirement calculator. I believe there is a link to Smart Money where you can find the calculator you want.

One of the questions you will be asked is what rate of return you are going to assume your investments will earn (before and during your retirement years). I suggest you start with 4 percent and then experiement with 5 percent and 6 percent. Keep in mind that the higher the assumed rate of return the greater the risk, everything else being equal. Obviously you want to be conservative with this but be careful not to be too conservative. You want your income to keep up with inflation that has historically averaged 3 percnet but has been as high as 12 percent plus.

Your alternative of trying to determine all the variables and assumptions (that your retirement future is riding on) is to hire a certified-financial-planning practitioner. Many specialize in retirement planning which should give you more confidence and peace of mind that your retirement plans will be secure.

Is it true that single tax payers can exempt only$250,000 from capital gains on home sales but married couples can keep $500,000 tax free? How can a single person keep home profits for a downsize home or a nest egg?

— Jean

Jean: An individual can exclude $250,000 and a couple (two individuals) can exclude $500,000. If you made more than $250,000 on your property, consider yourself very fortunate. You can also feel very fortunate that the maximum long-term capital-gains rates are currently very low: only 15 percent.

I would really encourage you to seek the assistance of a certified-financial-planner practitioner to help invest your profits. You can visit www.seattletimes.com/yourmoney for help in finding a planner.

I'm a sahm and my husband works making over 100k per year. we have two children ages 14 months and 3 yrs. We have no debt except our mortgage. We already have retirement accounts. My questions are: 1) should I rollover my old 401ks to IRAs (roth or traditional) ? 2) we may be eligible for Roth IRAs this year. Should we invest in a Roth instead of a traditional IRA? 3) what are best 529 college funds ?

— Rita

Hi Rita,

Thanks for your inquiry. Depending on your situation, you may consider rolling over and consolidating your old 401(k)s to an IRA. Rolling the 401(k)s over may consolidate your accounts, making them easier to track. In addition, you may be able to gain access to other methods of investing your assets, outside the confines of your old 401(k) plans' investment universe (most 401(k)s have a set list or "universe" to choose from). IRAs, giving you much wider investment choices, can usually increase the diversity of your holdings substantially. However, you will want to consult with a qualified adviser to help you in evaluating your investment choices.

In addition, if you are looking to roll over your old 401(k)s to a Roth IRA (which may or may not be a recommended option for your specific situation), you would need to first establish a Traditional Rollover IRA and then convert that account to a Roth IRA. In tax year 2007 you wouldn't be eligible to convert a Traditional IRA to a Roth IRA if your adjusted gross income is over a threshold of $100,000. Also, depending on your tax-filing status, you may be eligible to contribute to Roth IRAs in tax year 2007. However, to address this question (in addition to the college-529-plan inquiry), I suggest that you seek out and retain the services of a certified-financial-planner practitioner. To begin your search, here is a good resource you should review www.seattletimes.com/yourmoney

Good luck!

My wife and I opened up a Roth IRA when we both started our careers after college. Since then, our income has exceeded the Roth IRA limits. We would like to still continue contributing to an IRA so should we now open up a regular IRA and contribute to that? Can we have both a Roth IRA and regular one? What is the best way to handle this situation?

— Victor

Victor: Yes, you should still be able to contribute to a traditional IRA. Your investments inside the traditional IRA will still benefit from tax-deferred growth, and, if you are not covered by an employer-sponsored retirement plan (such as a 401(k)), you may be able to deduct the amount contributed. You can have both types of IRA's. You can open a traditional IRA through the same custodian that you use for your Roth IRA, or any other institution that offers IRA custodial services.

I am 56 years old, divorced, 2 children - 1 in college. I just moved to the Seattle area and took a bath on my house in PA. I thought I would be out of debt, but the value fell so badly I still have a fair amount of debt. I am renting, owe about $9500 on a loan to my 401k for moving expenses and about $15,000 in credit card debt. I also am spending about $7000 per year towards my son's college expenses and owe $4100 toward my other son's school loan. I have about $1200 a month left over after expenses. Do I work to pay off the credit card debt or the 401k loan first?

— Kathy W.

Kathy: The first thing you will want to do is call your credit cards and ask for lower rates. It can't hurt to ask.

The credit-card interest is paid to someone else (unlike your 401(k) loan). Consider paying off the credit card first.

The larger question is how are you going to meet your financial goals? A student can take out a loan to pay for college, but you can't take out a loan to pay for your retirement. It sounds like you really need to reduce your spending (and/or increase your income), get your financial situation back on track and see if you can focus more on your own looming retirement needs.

I am late in planning for retirement (50 yrs old) and am confused about roth IRAs. What is the advantage over keeping money in an high interest savings account. what other methods do you suggest, like mutal bonds etc for us late starters

— D.M.W.

Hi D.M. -

The first thing you want to do to build up your retirement savings is invest the maximum you can into your 401(k) if your employer offers one. Then, if you have additional funds to invest, consider either a traditional IRA or a Roth IRA. The traditional IRA allows you to invest money you have not paid taxes on. It will grow tax-deferred until you take it out (assuming current tax laws don't change). When you do draw money out of your traditional IRA you will pay tax as ordinary income. The Roth IRA allows you to invest money you have paid tax on. When you take the money out of the Roth IRA it will come out tax-free (provided the account has been open for at least five years).

There are contribution and income levels that will affect your ability to make these investments. For the 2006 tax year you can contribute $4,000 to either a traditional or a Roth IRA (or a combination of the two types of IRAs). Both you and your spouse can make this contribution. In addition, you can contribute another $1,000 if you are over 50 years old. However, if your income exceeds $75,000 and you are married filing jointly, you should be able to make a deductible traditional IRA contribution. For Roth IRAs you can not contribute if your income exceeds $150,000 (filing jointly). To learn about other restrictions go to www.irs.gov.

Once the money is in the traditional or Roth IRA you can invest it with very few restrictions. Generally it is a good idea to determine an appropriate asset allocation and then build a portfolio of mutual funds and/or individual stocks and bonds. I suggest you contact a certified-financial-planner practitioner to help with this. For more information: www.seattletimes.com/yourmoney.

Can I have a Consumer Law attorney negotiate a lower interest rate with my credit card companies instead of consumer credit counseling companies?

— Dave

Dave: I hate to give you this answer, but that is a legal question and none of us are attorneys (nor with a consumer-credit specialty). You would want to consult with a consumer-law attorney.

Is there such a thing as a financial planner for someone that does not need help with investments or have a portfolio. I just need help with basic budgeting and help with seeing if I am ever able to purchase a house in the future, and maybe also 401K questions. I don't have alot of money to pay for this assistance though. I don't have alot of debt, so don't think I would see a credit counselor. thanks

— Lore

Hi Lore,

There is indeed. You will want to interview several of them prior to setting up an initial interview, as many of them run their practices quite differently. A good place to start your research is: www.seattletimes.com/yourmoney

Good luck!

I put some money into my traditional IRA for 2006, then discovered that I cannot deduct it because I made over the allowable amount for the year. Is it legal, and if so, would it make sense to open up a Roth IRA and move the money to that account, or should I just leave it where it is, in the Traditional Account? I plan to retire in 5 years, but won't need the money for 20 years or so.

— Linda

Hi Linda -

Good question and the answer is yes-maybe.

If your income is too high to make a tax-deductible traditional IRA contribution it would be a good idea to put the money into a Roth IRA. However, make sure your income is not too high to make the Roth contribution. For the 2006 tax year your ability to make a Roth IRA starts to phase out if you are married filing jointly at $150,000. If you are single your phaseout starts at $95,000.

There are also questions you will want to consider concerning what your tax bracket likely will be when you are retired and what are the potential tax ramifications for those who may inherit your savings. To get help with this I suggest you contact a qualified certified-financial- planner practitioner and/or a CPA. You can get additional information at www.seattletimes.com/your money.

We were just about to take a $10,000 normal distribution from a traditional IRA when I realized that the withdrawal would likely add $1,500 to our federal income taxes for this year, because we continue to receive income from employment and other sources. Another source of the $10,000 would be to borrow from our brokerage account and the interest would run about $100 per month. We could pay off that loan over the course of the next three months as we intend to selectively sell some securities. We might wind up with total interest payments of $200 to $300. If we assume that our taxable income will be lower in future years, would borrowing from our brokerage account be a better way to go to raise this $10,000? We do not have to begin periodic distributions for a few more years. Thank you.

— Woody P.

Hi Woody,

Thanks for your inquiry. There are many factors to consider when addressing your question. A few of them you have already brought up, but a further examination of the rest of your financial situation may be needed to be sure you make the best decision. Due to these questions and other situationally specific needs you may be subject to, I recommend that you consult with and retain the services of a certified-financial-planner practitioner. Here is a great place to start your research process: www.seattletimes.com/yourmoney

Good luck.

I want to redeam shares from a mutual fund (not in a tax deferred account. I know there is a time to do this so that I am not hit with a capital gains bill without the real gain. What do I look for to do this right?

— Mary S.

Hi Mary

You can find yourself paying capital-gains tax on money you invested rather than on actual gains if you invest close to the point when the fund makes distributions. For example, if a fund makes a capital-gains distribution in late December (which is typical) and you invest in mid-December you will likely find that the fund is, in effect, returning your capital to you and you have to pay tax on that.

It is difficult to give you a rule of thumb concerning when to make the investment as funds vary. However, many advisers will suggest that you do not invest in a fund within one quarter of a distribution. However, if the fund makes quarterly distributions you may be comfortable investing within one month.

In general, after you have made the investment you should plan on holding it for at least three years. There may be circumstances that would cause you to sell this sooner but plan on holding for the long-term. Think of it like growing a tree - if you keep pulling it up to check the roots, it likely will not grow well.

Sold house to a developer, closing 5/08. Still have $173M mortgage. Should I apply the $35M earnest money to the prinicipal or put in a CD?

— Jack P.

Thanks for your question Jack. It is difficult to answer that question with the information provided (ie. Do you have an adequate cash reserve? Do you have other big expenses on the horizon?) and without the context of your overall financial situation. In simple terms, I would look at the after tax interest rate you would earn on the CD and compare it to the rate you are paying on your mortgage loan after adjusting for any tax benefits you receive. If the net cost of the mortgage was higher than the after tax CD rate, I would be inclined to pay it down on the mortgage.

However, I would really encourage you to seek the assistance of a Certified Financial Planner practitioner. You can visit www.seattletimes.com/yourmoney for help in finding a planner. Some of the questions a planner might have would include what the specific rates of the options are, whether you need the cash available for an emergency fund, your tax situation and whether you are making the most of tax advantaged saving opportunities such as a 401(k).

What is your advice for someone in their late 20's who want to speculate in the stock market? I have several thousand dollars and have done my homework about investing, but am looking for a good way to find a company with great growth potential among many that don't seem to have much potential out there. Thanks.

— Sean

Sean: My suggestion is to not speculate on one or two individual companies. I prefer investing in a broad range of companies and industries by using an index mutual fund (or Exchange Traded Fund) and/or a well-diversified actively managed (but low-cost) mutual fund, especially for small investment amounts. Consider using an independent rating service, such as Morningstar, Bloomberg or Standard & Poor's, to assist you in choosing mutual funds (or individual stocks). Good luck.

I am a married 33 yrs old man and want to start a retirement account. I currently earn $100k/yr gross. I currently do not have any retirement account of any type. I want to start 401(k) or a Roth 401(k) account. My employer does not match any 401(k) contributions and currently is not offering Roth 401(k) either. At retirement age I expect to be in the same tax bracket as I am in now. Given the current circumstances what would be your advice to start building a retirement account. My own research and knowledge favors opening a Roth IRA but due to the $4000 annual maximum contributing limit, I am not sure if I will be able to reach the goal I envision. I am confused and want to know if this is the right way to go.

— Saabdesi

Hi Saabdesi

Given your long-term horizon and your assumption that you will be at the same tax bracket at retirement, a Roth IRA makes most sense as the earnings will grow tax free. A caveat is that the IRS may change rules on the tax-free nature of Roth IRAs in the future. This may seem unlikely but tax laws do change. Do the 401k after the Roth, so long as the funds are of good quality. Stay conscious of the income-tax-level phaseouts which might prevent you from being able to contribute to a Roth IRA (See www.irs.gov).

My husband (retired 59 years old) and I (58 years old - will retire in 2011) have a traditional IRA. I would like to start a ROTH IRA. I know there are limits that can be tax deductible per year, but does that mean there are limits to the amount of contributions that can be put into the ROTH IRA?

— Victoria B.

Hi Victoria,

Contributions to a Roth IRA are not tax-deductible, but withdrawals are tax-free for accounts held for five years, based on current tax law (always subject to change). The limit for someone over age 50 is $5,000 per year for 2007. There are income limits for Roth IRA contributions. The phaseouts are $156,000 to $166,000 for joint filers.

Can you give tips/pitfalls of student loan consolidation?

— Laura

Hi Laura,

I am not an expert on this issue, but I think you need to simply look at the interest rates and terms of the consolidated loan. If the rates are better or the loan allows you to lock into a reasonable fixed rate and the terms are fine, then there's no reason not to do it. However, be aware that the government's student-loan terms are likely to be more lenient. For example, some government-loan programs let you defer payments for a period of time during times of unemployment . I doubt you'll find such leniency with consolidated-loan programs.

Is it better to pay as much towards debt and hold off on 401k planning or put aside money for 401k?

— Lisa

Hi Lisa,

I would take advantage of any matching your company provides and contribute to the maximum amount they will match. As an example, if your company matches 50 cents on the dollar, up to 6 percent, then try to contribute 6 percent. Then pay off your debts. This assumes that you have sufficient cash flow to do this. An alternate strategy is to try to contribute something to retirement and something toward debt so that both goals make progress … but try hard not to add any new debt during this time.

I have a small inheritance (At the moment it is trickling in.) It nees to be for retirement, 2 kids college,& mortgage. I would like to use a bit of it for a family vacation. I need a plan and investing education and what to do with what is trickling in. What do you recommend?

— Collin T.

Hi Collin,

I suggest you hire a certified-financial-planner practitioner unless you feel you can handle (or learn to do) this yourself. Walking you through the many choices and options that best fit you and your family's situation is exactly what the financial-planning industry provides. For a list of resources go to www.seattletimes.com/yourmoney.

My wife and I have about $600,000 in liquid assets, with no debt except a mortgage that we cover with current income. We are both 30 years old and should not need to use any of the $600k until retirement (we already have a house, and each have good jobs that more than cover expenses). What allocation would you recommend for the $600k? Given our long time horizon (20-25 years), we'd like to grow it so that we can retire early and comfortably. Thanks for your advice.

— James

Hi James,

The allocation depends on your risk tolerance as well as time horizon. Your time horizon is long but what is your risk tolerance? If you have a high risk tolerance, an allocation such as 90 percent to 100 percent in stocks is fine, given your long time horizon. But 70 percent to 80 percent is also reasonable if you have a lower risk tolerance. There are no lack of online asset-allocation tools available if you decide to do the work yourself. Alternatively, you could hire a financial adviser to tailor an asset allocation that best fits not only your risk tolerance but also your past investment experiences and periodic, on-going portfolio reallocations. Make sure you have an emergency fund ready for rainy days! All the best.

Hi - My name is Lee - I have 3 questions! Can I ask that many? I am married, I'm 41 and my husband is 43. We have two children, ages 2 years and 3 months. I worked part time last year as a web developer but will probably not work this year. My husband's salary is 82,787 (line 1 of W2). We deposited 15,000 into my husbands 401k last year, and will put 4,000 into my IRA before the April deadline. 1) Do we need to diversify our investments in my husband's Rollover IRA and company sponsored Voluntary Investment Plan (401k)? Right now the IRA is 100% in stocks (balance 167,600), and in his 401k we have 41% in the S&P 500, and 59% in Boeing stock (balance 167,750). 2) How can we invest about 35,000 we now have in CDs? We made some money when we sold our home in California and moved to Seattle, and currently have about 65,000 in CD accounts getting about 4% interest. We would like some advice on how to invest about 1/2 of that, thinking that we should keep about 30,000 as a safety net. We have been thinking of buying a piece of property somewhere, that we could use for camping and possibly build on in the future. 3) How much life/disability insurance should we have? My husband is a private pilot and we both ride motorcycles recreationally. Currently we have Basic Life Insurance for my husband at 2.25 x base annual salary (184,000), Short Term Disability at 80% of weekly salary, and no Long Term Disability. Those are all provided by Boeing and we are not paying for any additional coverage. If we need more, should we get it through Boeing or an external provider? Our other savings are: 15,000 in a 529 plan for our older daughter, opened last year 15,135 in a Roth IRA in my husband's name 14,186 in an IRA in my name 167,600 in an IRA in my husband's name 167,750 in a Boeing Voluntary Investment Plan Our debt is: 222,000 mortgage, with 1,800 monthly payments 24,000 airplane loan from IRA, with 500 monthly payments 16,261 in subsidized student loans that are not accruing interest - I will finish my MBA program next year and will need to begin payments after that. We seem to run a little short each month, either by 200 or 400, which we get out of savings.

— Lee

Lee: You have asked all the types of questions which would be much better answered through a comprehensive financial relationship with a certified-financial-planner practitioner. The process of interacting with an experienced professional will guide you through the decision-making process for each of your questions. You will learn your various options and choices so that the tools and solutions you ultimately settle on are tailored to you, your family and your specific, unique situation. In spite of Boeing's stock doing well (and one of our home teams!), it would seem to be more prudent to be better diversified. Using asset-allocation tools as your guide is something you can do on your own or through the coordinated effort of you and your financial adviser. Lastly, you did not address how closely you are monitoring your family's spending. Can you track and perhaps reduce your spending? Running a deficit each month may be necessary until you finish your MBA and return to work outside the home.

If I have a parent nearing retirement that is not contributing to her IRA & 403 (b)plans, should I contribute the $5,000 to her IRA & provide money for her to invest the maximum in her 403 (b) if I have the means and know that I'll need to provide financial assistance to this parent in her retirement?

— Catherine

Hi Catherine,

It depends on how quickly she will pull the money out of the account at retirement. If she uses it up quickly, then there might not be much time for the account to grow to make it worthwhile. You also lose control when you gift money to her to put into her IRA or 403b plan, although if you are trying to avoid estate taxes, then gifting may make sense. If your goal is to maximize her ability to get a current income-tax deduction, then gifting her sufficient money (while staying within the annual gifting-rule amount) to maximize her retirement accounts could be a smart move for you and your parent.

I'm having a basement put in my house that will cost approximately $150,000. I'm able to pay cash for this project, but was wondering if it would be wiser to obtain a Home Equity Line of Credit to pay for this and then deduct the interest paid on this loan on my taxes and keep earning interest on the cash.

— Brian

Hi Brian,

You simply have to compare the interest rate you will need to pay on a home-equity line of credit (variable rate) or loan (fixed rate) after taking taxes into consideration with the return you think you will make on your money. If you are leaving the money in an interest-bearing account, you will probably be better off paying for the project with cash in this interest-rate environment. If you are investing it, then you may make a higher return, but with some risk.

When do you think that it's beneficial to pay a financial planner's commision for assistance with non-retirement investment accounts and is a financial planner's commission tax deductible?

— Mae

Hi Mae

You have to decide if you can do the task yourself. If you cannot, then one option is to pay someone for help. There are fee-based, fee-only or commissioned planners - you will need to decide which works best for you. There are pros and cons to each type of planner. I always think it's best to interview several planners to find a good fit. Commissions are not typically tax-deductible, but if you have a fee-based investment account, the fees may be deductible in certain instances.

Can you recommend a socially conscious mutual fund into which I can rollover an underperforming IRA worth about $15,000? I plan to use the money in ten years towards my grandchildren's education. I do not plan to contribute anymore money into the fund in the interim.

— Carol S.

Carol: The mutual fund, or funds (why limit yourself to just one fund?) you ultimately choose should be based on a number of factors, such as your risk tolerance, past experience, recommendations from a financial adviser who knows you well enough to make recommendations and/or third-party mutual-fund evaluation tools (such as Bloomberg or Morningstar). Further, even between the mutual-fund category of "socially conscious" you will find subcategories of U.S. Large Cap Value, Growth or Blend, Foreign Large Cap, Moderate Allocation, etc. I would try to diversify between a couple of brand names and categories within the "socially conscious" space. However, in this forum, without knowing more about you and your situation, making a specific mutual-fund recommendation is inappropriate.

I'm looking for a good place to "park" about $50,000. 3 month and 6 month CDs could work but I am also thinking about non-taxable bonds. What is a good fund? I make about $21,000 in wages and get about $34,000 in interest, dividends, and capital gains annually. This is the first year I've been in this situation and suspect I'm going to get a big bite in taxes. Thanks for your assist, JKB

— Joyce B.

Hi Joyce,

If it is for a short term, I suggest you check out a high-yield savings account with an online bank. This will probably pay about 5 percent with no penalties for early withdrawal. A good Web site is www.bankrate.com to check for different online banks. CDs are fine, but watch for withdrawal penalties. Nontaxable bonds tend to be more advantageous the higher your tax bracket, so on the surface, based on your income level, nontaxable bonds seem less appropriate for you than investors in higher tax brackets, everything else being equal.

Which to w/d first at retirement? Roth or Rollover IRA? Presently at 15% taxable rate but during retirement 25 to 28% taxable rate because no longer contributing to 403b and spouse now receiving pension and SS.

— Hiro S.

Hi Hiro,
It depends on where tax rates are when you retire. If you consider the rates high and do not want to pay taxes, then draw from your Roth. If you think the rates when you retire are low enough, then draw from your IRA, and let the Roth grow tax-free for future years (or, if you have children, leave it to them so they can inherit tax-free). Remember, there is also what I call "legislative risk": The tax laws change all the time. Future laws could be very different from today's laws by the time you retire (and/or during your retirement). Consider using a variety of investment tools, as you are currently doing, so you'll have more choices available to you when you need to start drawing down your investments for income.

I have 25k in savings and add $400 a month to it, $38k in stocks I add to that when I can afford to, $49k in a 401k (adding $400 a month to it). I am 49 I would like to retire as early as possible. My current income is around $38k a year. I own my own home (duplex). The duplex helps to offset my financial expenses. With Greenspan warning of a recesion by years end what path should I take with my mutual funds and stocks to make sure I'm not hit hard? What sectors would you recomend if any? Thanks.

— Jeff K.

Jeff: You have many good things going already ­­- congratulations! While Alan Greenspan is certainly one of the most high-profile economists around, he is only one of many experts making predictions on the U.S. economy. The fact that you are dollar-cost-averaging (which doesn't prevent losses or necessarily mean your average price will be better utilizing the DCA strategy), especially during volatile markets, prevents you from trying to time the market. Study after study has found that very few, if anyone, can correctly time the market over any meaningful length of time. Therefore, trying to time the market based on Greenspan's recent remarks doesn't seem prudent. Even if there is a market downturn later in the year, you are young enough (and far enough away from retirement), to weather an upcoming downturn … and probably two or three or four more downturns before you stop saving! Keep saving … use an asset-allocation model that fits your profile and risk level and will keep you properly diversified … and continue to spend less than you make. Keep up the good work.

Where can I find the lower interest credit cards discussed in the 2/25 article, is there a list or a website?

— Terrid

Hi Terrid,

I would try to check out the following Web site: www.bankrate.com. The Seattle Times also publishes a list each Sunday (see last Sunday's Business section Page H10 ) of their evaluation of the best credit cards (broken down by whether you carry a balance or not) which you could use to evaluate the current credit-card offers. If you have good credit, you probably receive many, many credit-card offers already!

Good luck.

Our family owns a business that has a lot of risk. If I make UGTM and 529 savings contributions for my child, are her savings protected in case of a bankruptcy by my wife and I?

— Carl

Financial planner: Carl: We are not attorneys so we can't give legal advice. However, I would suspect that since the accounts would be in the name of the child, they could not be attached by a creditor(s). Still, I would highly recommend you pose your question to a bankruptcy attorney to be certain.