A Financial Planner Can Help With Feathering Retirement Nest
Question: My husband and I borrowed $550,000 to build four poultry houses last year. We now have a surplus of money that I don’t know how to handle. I work outside the home and provide us with insurance, but would like to retire at 55 when I can receive my benefits. I’m 48 now. My question is: Do we pay down on the principal loan, which has a 6.25% interest rate now, or should we invest in stocks? I am investing in a 401(k) and my husband has an IRA. How do I use the $10,000 or more a year we are saving? I also put $100 a week into a savings account. We are able to live off my salary.
Answer: Thank you for providing Money Talk with its first-ever poultry-related question.
Of course, your question is really about debt and retirement, which are far more universal concerns. But feathers and chicken feed obviously got you where you are today, which is in a very good place--having more money than you know what to do with.
You need someone to review your entire financial situation to see whether you’re on track with your retirement investments. That will dictate whether your surplus should go into retirement funds and, if so, how that money should be invested.
Because you’re operating a business and have special tax issues to consider, you might look for a certified public accountant who has specialized training in personal finance. You can find a list of CPA financial planners at https://www.cpapfs .org.
Your comment that your interest rate “is 6.25% now” seems to indicate that you have a variable-rate loan, which could increase over time. You might have a good incentive to either refinance to a fixed rate or pay off the loan quicker than you’d planned. But again, your best bet is to consult a qualified financial planner who can review your situation and give you personalized advice.
For more information on choosing a financial planner, visit https://www.latimes.com/finplan.
Getting Blood From a Turnip
Question: Unaccustomed as I am to writing to a columnist, I had to give you a great, wonderful thanks. Your comment to the questioner who asked about the unpaid balance on a loan to a friend was marvelous. Maybe that questioner needed to learn that it’s not possible to extract blood from a turnip.
Answer: Thank you for the kind words. Most of those who wrote in agreed that the lender shouldn’t pursue the $500 debt he was owed by a friend. But two people disagreed: a lawyer and a bill collector. Here’s the bill collector’s rebuttal:
Question: I cannot believe how you chastised the reader who wanted advice about collecting $500 he lent to a friend. I have been in collections for more than 35 years and have not collected a dime from a person who could not pay. However, I have collected millions from people who could pay and would not pay. Small claims court is an excellent way to resolve the issue. I am willing to bet the friend would find the money to pay off this debt before court.
Answer: You’re probably right. And if you’re the kind of person who would drag a friend to small claims court over $500, you probably have more money than friends.
To repeat: Loans to friends and family often become gifts, whether or not they were intended that way. That’s why it’s a bad idea to lend money you may need someday. If the borrower were a good credit risk, he or she could get money from other sources. The fact that the borrower has turned to you should be a good indication that you’re kissing your money goodbye.
How much fuss you kick up about not being repaid, when you knew the borrower wasn’t a good risk in the first place, says more about you than it does about the deadbeat.
Death and Taxes: Just the Facts
Question: In a recent column you state that “only about 2% of people who die leave estates worth more than $600,000.” This 2% figure has become a mantra of politicians and adopted by journalists, who should know better. The more accurate statement is “only 2% of people pay estate taxes,” but many, many more leave more than $600,000 to their heirs, thanks to inheritance lawyers who find ways and loopholes, via gifts and trusts, to avoid paying the tax. If the tax were abolished, the percentage of the over-$600,000 estates would rise dramatically, far exceeding the 2% figure!
Answer: Yours would be a compelling argument if only the facts would cooperate.
Actually, my original statement was correct. Only 2% of the people who die leave estates worth more than $600,000, according to IRS figures. Many of these people (or rather, their estates) do not pay taxes because their property is passed to surviving spouses. Of the 103,993 estates larger than $600,000 in 1999, for example, only 49,870 owed estate taxes.
Estate planning attorneys can find ways to reduce taxes on many estates, but if you’re rich enough, you’re probably going to wind up paying Uncle Sam.
Liz Pulliam Weston is a personal finance writer for The Times and a graduate of the personal financial planning certificate program at UC Irvine. Questions can be sent to her at moneytalk@latimes.com or mailed to her in care of Money Talk, Business Section, Los Angeles Times, 202 W. 1st St., Los Angeles, CA 90012. She regrets that she cannot respond personally to queries.
