Your money Q&A
We are two elderly folks, ages 91 and 84, who have not been in the stock market for some time – thank goodness. But we are at a loss to know what to do with some cash we recently got from a certificate of deposit. What is being offered in the way of interest on another CD leads us to believe we’re just as well off to “put it under our mattrress” – more or less.
Name withheld, Coconut Creek
Leave that bed alone! But you might feel like jumping under the covers when you consider that the average one-year CD is paying only 0.7 percent, according to Bankrate.com.
Certified Financial Planner Ronald Myers of Associated Financial Consultants in Fort Lauderdale says if you plan to not touch the principal and pass this money on to your family after death, you could take a little more risk than a government-insured CD. Myers said you could put together a basket of preferred stocks and short-term bond mutual funds and probably come up with a 4 percent to 5 percent yield.
Another idea: A fixed-rate annuity, if you act before the 84-year-old’s next birthday.
There’s a five-year annuity from Lincoln National available to customers up to age 85. Its effective rate is 3.15 percent if you invest $100,000 or more. That beats the five-year CD average of about 2 percent.
Your money would be locked up. If you needed your principal before the end of five years, you’d pay surrender fees - and it could lower the interest you are paid. However, the owner of this annuity is allowed to withdraw 10 percent of the principal in any one year. The same is true for many others.
You can check, too, to see if the money can be taken out penalty-free in the event of death or the start of nursing home care on other annuities.
The interest you receive will be taxable, like ordinary income.
Normally inflation is a problem because it eats away at the purchasing power of fixed payments, but inflation has been extremely low in recent years.
And your risk? The payout depends upon the financial strength of Lincoln National – and you can check the ratings on the company’s web site, www.lfg.com. If it goes out of business, Florida’s state insurance guaranty fund is designed to back fixed annuities up to $100,000.
For more information on that annuity,go here or call: 800 950-2454.
Before you make a decision, there may be similar or even better deals out there, so shop around. But stick to fixed-rate annuities to avoid too much risk and to financially sound firms.
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Your money questions answered
Do you have a question about personal finance? Submit your question for consideration to Harriet Johnson Brackey at 954-356-4628 or sunsentinel.com/moneyquestions. Financial advisors will offer answers online every Monday.