Dear Liz: My wife and I own a home with $61,000 left on the mortgage. I have a 401(k) with about $30,000 in it and she has a pension plan. We are both in our 50s. We stand to inherit around $180,000 in cash and a condo worth about $250,000 from her mother, who is dying. We have no other debt. I want to use the cash to pay off the mortgage, then stick about $100,000 in a retirement account, then remodel the condo and rent it out. My wife wants to sell the condo because of negative memories and bank the money to use for the kids' college fund in a couple of years.
My argument is that with our regular income, plus the burden of the mortgage lifted, plus the monthly rental, we should be able to fund college costs on an ongoing basis. But if we liquidate, then in six to eight years we will have no college fund left, no condo and no additional income stream. In addition to all of this, I have home repair and remodeling skills (I remodeled our bathroom, new plumbing, new tub, etc. by myself). She thinks I've got too much on my plate already (I own my own tech consulting business). My counter is I can hire a property management firm if need be. What do you think?
Answer: It's possible, but unlikely, that you will inherit from your mother-in-law. She probably will leave her money and condo to her daughter, who can (and in many cases should) keep the assets as separate property. Ultimately, your wife will make the decisions on what to do with her inheritance.
Being a landlord, even with the help of a good property management company, is not for everyone. Tenants can be demanding, destructive and litigious. Remodeling, repairs and maintenance can get expensive. Although you may be proud of your do-it-yourself skills, your wife is probably right to question how much time you'll be able to devote to this property when you're running your own business. Perhaps that bathroom took a lot longer than you expected, and she realizes that similar delays with the condo could mean months of expenses before she'd receive any rental income. Being a landlord may just be more stress than she wants to inflict on herself and on your marriage.
Fortunately, she could generate an income stream by investing the money instead. Stocks and bonds won't call her in the middle of the night, demanding that their toilets be fixed, and a well-diversified portfolio probably will earn a better return over time than real estate. Using at least some of the money to offset college costs could be another smart move. A fee-only financial planner can help her sort through her options, including determining how much college is likely to cost and how much of it she wants to pay.
You may want to consult the planner as well. If you're in your 50s, you should have at least six times your income saved in that 401(k) according to Fidelity Investments, which has developed handy metrics for retirement readiness. Given how far behind you are, you probably should focus more on generating income that can be stowed into retirement funds rather than on burnishing your plumbing skills.
How to improve your FICO score
Dear Liz: My FICO score is just under 800. The reason given that it is not higher is that I don't have any non-mortgage leases. What would be the cheapest way to remedy this without buying something expensive?
Answer: When you get your credit scores, you may be given sometimes-vague reasons for why they're not higher or lower. The "reason code" you saw probably said something like "no recent non-mortgage balance information." What that means is that you haven't been using revolving accounts such as credit cards. To get higher scores, you'd need to dust off your plastic and use it once in a while. (You don't need to carry a balance to get or keep good scores, however. You can and should pay credit card balances in full each month.)
Any improvement in your scores is likely to be modest, however. Your numbers are already high and the factor known as "mix of credit" — which means responsibly using both revolving and installment accounts — accounts for just 10% of your FICO scores. Plus, there's no real point in having scores over 800, other than to brag about them. Once your scores exceed 760 or so, you're already eligible for the best rates and terms.
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