Savings Bonds May Not Be Best for 57-Year-Old
Q: I have $7,000 in Series EE Savings Bonds. I am buying bonds through a company payroll deduction at the rate of a $100-face-value bond per week. Is this a good investment? If not, what better way can I defer paying interest on my investments? I am 57 and do not qualify for a tax-deductible individual retirement account. I hope to retire within five years. --G.LC.
A: Whatever savings plan you adopt now should depend heavily on how your total investment portfolio is already divided. Without knowing that key information, it is difficult to offer precise advice. However, our financial planning experts did have some general counsel.
They suggest that if a 401(k) savings plan is offered by your employer, take advantage of it immediately if you haven’t done so already. Most employers offering payroll savings bond purchase plans, our advisers note, generally offer 401(k) plans as well.
As you may know, 401(k) plans are among the best ways to put money aside on a tax-deferred basis--and allow it to accumulate more tax-deferred interest. Further, because of tax incentives offered to business, most employers will match at least a portion of their employees’ savings, meaning that you get even more tax-deferred money in your account. The precise rules of each 401(k) plan vary from employer to employer, but many will allow workers to set aside at least 6% of their pretax earnings in these accounts. Many employers match up to 50% or more of their employees’ savings.
Returning to your savings bond investment, our financial planners note that although these bonds are safe, the interest they pay is generally low. Further, savings bonds do not fully mature for 12 years; bonds bought now will not reach their face value until you are 69.
Perhaps you should consider purchasing a deferred or variable annuity with the money with which you have been buying U.S. Savings Bonds. Deferred annuities offer a fixed rate of return, while variable annuities offer an interest rate that fluctuates with market conditions. The former is generally safer, but the latter generally offers a higher rate of return over time.
Both are available through an insurance broker or financial planner and can be purchased on an incremental basis, as you have been purchasing savings bonds.
One further bit of advice: If you go the annuity route, be sure to thoroughly investigate the person from whom you purchase the contract as well as the insurance company offering it. In today’s world, you cannot be too careful.
In addition, our financial experts further caution you to avoid two-tier annuities, contracts that offer two interest rates, depending on how you want to withdraw your money when your annuity matures. Two-tier annuity contracts offer a higher interest rate to investors who elect to withdraw their funds in monthly installments and a significantly lower rate to those who want to withdraw it in a lump sum.
A single-tier annuity offers a single interest rate regardless of how the investor elects to receive his or her funds upon the contract’s maturity. Many financial experts believe that two-tier contracts with a monthly payout do not serve investors well because many become null and void upon the death of the primary or joint beneficiary, a fact that allows insurance companies to keep whatever funds have not been disbursed to the investor.
Q: I bought my house in 1967 and recently paid off the note. In those intervening years, I Americanized my first name through a legal name change to make it easier to do business in this country. However, the deed to my house is still listed in the name I had when I bought it. Will this make it difficult for me when I sell the house? --E.B.
A: Absolutely not. When you are ready to complete the sale, tell the title company officer handling your sale about the name change. You should be prepared to present the legal documents you received regarding your name change. When it comes time for you to start signing your name on the sales papers, the title officer will ask you to sign the documents with both names. The most likely signature will be: “Joe Smith who took title as Joe Jones.”
Q: Many years ago, my wife and I teamed up with my brother and his wife to buy 40 acres of land. Each couple had a half interest in the property. Recently, we decided to end the relationship, with each couple taking sole possession of half the property. No money changed hands. However, as a result, the county reassessed the land my wife and I have and our taxes increased considerably. Was this handled correctly? --B.D.
A: The answer depends on how the two couples originally held title to the property. If you held the property as tenants in common, our legal experts say only 50% of the acreage that you now hold--the portion that was transferred to you by your brother and sister-in-law--should have been subject to reassessment, because you already had a 50% interest in the property to begin with. If you held the property with your brother and sister-in-law as joint tenants, our experts say, the rules are different and vastly more complex. If this is the case, you should consult your attorney for advice.
