Dear Mr. Berko: I am 57, am single and made $62,000 last year as a civilian federal employee. Because of a bad marriage, I haven’t been able to contribute much to my retirement plan, which is worth $86,000. I am tired of the winters in Minnesota and hope to retire in Panama or Costa Rica or Baja California, where my limited funds could go a lot further. I have $21,000 in an emergency savings account, which earns only 1 percent; a $12,000 certificate of deposit paying 2.5 percent, which comes due next month; and six stocks (enclosed) with the dividends reinvested, worth $37,000. I’ll also shortly be getting half of the $103,000 netted from the sale of my parents’ home in Duluth; I have to share the money with my sister.
I’d like to invest this money ($51,500) and about half of my emergency savings account ($10,000) for a better return. What stocks or mutual funds are best for me to own? Is my best option a traditional individual retirement account to reduce my taxes or a Roth IRA, which wouldn’t give me a tax break, or should I invest in both? And because I am limited in the amount I can invest in an IRA, should I also invest in an annuity because there is no tax until the money comes out? And soon, I expect to be at the point where I can afford to invest more than 5 percent of my salary in the government Thrift Savings Plan, so please tell me how much more I should invest.
TS, Rochester, Minn.
Dear TS: Yes, those winters are quite an experience in Minnesota. I’ve backpacked the Kashmiri and Nepali Himalayas above 12,000 feet a dozen times and have only seen one case of frostbite. A few Februaries ago, I spent two nights and three days in Two Harbors — some 45 minutes above Duluth, on the northwestern shore of Lake Superior — and my rental car got frostbite twice in two days. Minnesotans enjoy complaining about the cold weather, and some move to Florida or another place in a warm climate if they can. I know a few Minnesotans who did, but within a season of their leaving Minnesota, they missed the cold weather so much they were eager to return. You folks are a very special breed!
I don’t know enough about you or your risk tolerances to provide you with the advice you need. Nor am I able to sit across a table with you to develop a dialogue to give you the personal counsel you should have to define your goals and reach them. You really must have face-to-face time with an investment professional, but unfortunately, most money managers don’t want to bother with smaller accounts.
I have a solution, but it will take a little bit of work on your part. You have six good stocks, worth $37,000, in which the dividends are being reinvested, and those stocks are held by Charles Schwab. So call Schwab and tell the receptionists that you’d like an appointment with a financial consultant. Then sit down with that Schwab broker and tell him what’s on your mind. Ask him the same questions you asked me in your letter. Listen closely to what he has to say, and take copious notes. If you don’t understand some of the responses, you must ask him to explain his comments. When you return home, go over the responses and rearrange those notes in an order that makes sense to you. And if there are some answers that are not clear, call him and ask for better clarification.
Next, visit a Merrill Lynch broker. Go through the same procedure. Then get appointments with brokers at Morgan Stanley and Edward D. Jones & Co. and do it again and again. You may even enjoy the interview process, and fairly soon, you may know enough to have a good handle on your investment alternatives. After you’ve invested this personal time and effort to gain some investment knowledge, write me again, and I should be able to answer your knowledgeable questions.
Please address your financial questions to Malcolm Berko, P.O. Box 8303, Largo, FL 33775, or email him at email@example.com.