Question for the Money Doctors
Question submitted on Feb 23, 2011.
QuestionDear Money Dr.,
I am 66 yrs old, retired with a 401k and a retirement package. We lost a lot of our 401k in 2008 along with many others. The market is up but I am getting very concerned about it. I cant afford to lose more of our 401k. I would like to find another place , safe place, to put some of our money. I dont know much about CD''s, Securities,or annuity''s. Roth IRA''s scare me also. Can you give me some advise, I need help trying to make the right decision? Should I just stay in my IRA. I am with Edward Jones at the present time.
The general rule is that as you are closer to retirement, your investments should be more conservative. Most of your retirement assets at this point should not be in equities. In today's world, there is no place that is totally safe where you can earn income to increase your assets. If you keep funds at a bank in CDs, make sure that you do not have more than the FDIC limits in any one bank. It's also important to plan out when you will need to take money from CDs since you will be penalized substantially if you break a CD before its maturity date. You can set up several CDs in different banks and stagger (or ladder) the maturity dates, so you will always have something coming due. You also need to be concerned with inflation. Right now, inflation is low and so are interest rates. If you lock into a CD for an extended period of time, there is a chance that as interest rates increase, your CD will underperform. Laddering the maturities can also help in this regards.
Annuities may sometimes take away some of the risk with investing since there is a guaranteed return, but again, there can be penalties for early withdrawals, and the commissions paid to acquire an annuity can be high. In addition, your investment depends on the stability of the company issuing an annuity and these are not insured.
Roth IRAs are just another form of retirement account and do not carry any special risk. If you move money from a traditional IRA or 401K account, you will have to pay taxes at the time you convert, so that can be very costly. It may not make sense at your age to convert to a Roth account.
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