Question for the Money Doctors
Question submitted on Jan 14, 2012.
QuestionMy wife and I are both on SC. (age: 65& 68) We have a 200 acre farm that we've farmed for 11 years. We have never made enough on the farm to pay tax on the SC. We have sold the farm this month and would like to find an investment that will give us enough interst on $200, to add to our SC for an income for us for the rest of our lives. Can you help with what investments are out there? Also we have owned the farm for 40 years and capital gains will be very high if we don't find an investment to devere it. Can you help?
Thanks for the question. There are a lot of moving parts here, so I'm going to have to make some assumptions. You might be able to defer the capital gains taxes by doing a 1031 Like-kind exchange if you sell the farm and purchase real estate with the funds. I say might because you need to set this up before you actually close on the property. You cannot take possession of the funds; you must use a third-party to hold the funds until you close on the property that you purchase. The tax code specifies that the investments must be like-kind; so if you are selling real estate, you must purchase real estate.
As for the income producing investment; a general withdrawal rate on $200,000 for an investment would be around 5%, or $10,000 per year. That is a reasonable number to use no matter what financial investment you are considering (annuity, after-tax investment account, etc.). Some will give you protection and some will give you better chance for growth, and your choice should depend on your situation and risk tolerance. Generally speaking an annuity can give you protection and a guaranteed income, and an investment account can give you more freedom and chance for growth. If you go with another real estate investment, you could potentially go higher than $10,000 per year if you find a good investment. I hope this helps.
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