Man with health issues must make his assets last

Dear Liz: I have a brother-in-law who has a very hard time finding employment because he has frequent seizures. He is 59 and needs about $40,000 a year for living expenses, including high health insurance premiums because of his condition. Thanks to a recent inheritance and some good investing when he was younger, he has about $1.3 million in assets. However, he has little chance for further meaningful employment, so he needs to live off of his investments. What is the best way for him to stretch his assets? Would a fixed annuity be a wise thing for him to invest in? Would a mix of an annuity and regular investments be a better bet? Or should he look at just a mix of fixed income and equity investments?

Answer: Any of those options could work, or could be a disaster, depending on the details of his financial situation.

A fixed annuity, for example, could give him a monthly check for life, with inflation adjustments if he chose, but he would have to commit a big chunk of his available funds to get the kind of return he needs. He also would be buying the annuity when interest rates are quite low, which means he would get a smaller payment than if he bought when rates were higher.

Investing outside an annuity would give him more flexibility, but no guarantee he’d get the kinds of returns he would need to last him for life.

His best bet is to consult with a fee-only financial planner who can review his options and suggest the best course for him. He can get referrals to fee-only planners from the National Assn. of Personal Financial Advisors at www.napfa.org or to fee-only planners who charge by the hour from Garrett Planning Network at www.garrettplanningnetwork.com.

One expensive credit score point

Dear Liz: I’m a Realtor with a client who has a 719 credit score. If we could get that score one point higher, he could save $5,000 on his home loan. His score was 45 points higher four months ago, and the only change was that one lender pulled his credit a month ago. Can we dispute the huge drop given that nothing else happened? What else can he try?

Answer: It’s extremely unlikely that one inquiry dropped his score by 45 points. Chances are something else changed on his credit reports. Check the balances and credit limits his credit card issuers are reporting. Any narrowing of the gap between the two (such as higher balances or lower limits) could have contributed to the sudden drop.

You can’t really dispute a credit score drop, but if incorrect information is being reported by his lenders, you can dispute that.

In any case, he should be able to boost his score by getting those balances down, preferably below 10% of his credit limits. Even if he pays his balances in full every month, he needs to be concerned about his credit utilization, since the balances reported to the credit bureaus are typically the balances on his last statements.

Think long before taking settlement

Dear Liz: My wife and I have never recovered completely from my being laid off a couple of years ago and then taking a job at a much lower salary. Because of late charges, over-limit fees and higher interest rates, we never seem to make any progress in getting out of old debt. We have just been offered a settlement amount by one creditor on a debt for some windows. It will reduce what we owe from about $7,500 to about $1,900. With a 30% interest rate and over-limit fees each month, we were getting nowhere in paying this off. Should we accept this offer? Our credit scores are already shot.

Answer: If you can’t pay off the debt and your scores are already in the tank, a settlement can seem tempting. But there are some things you should know.

Your scores probably will suffer further damage, because a settlement is considered a major black mark on your credit.

Also, the forgiven debt may be reported to the Internal Revenue Service as taxable income to you, which would increase your tax bill. Some creditors have been known to sell the unpaid debt to collectors, so you would want to be sure to get the creditor’s promise in writing that the debt won’t be resold.

If this settlement will help you pay down your other debt, it might be worth doing. If, on the other hand, you’ll still be overwhelmed, you might be better off filing for bankruptcy instead. Bankruptcy could wipe out your consumer debts, such as credit cards, personal loans and medical bills, allowing you to get a fresh start.

Before you accept this settlement, consider talking to an experienced bankruptcy attorney about your options.

Liz Pulliam Weston is author of the book “Your Credit Score: Your Money and What’s at Stake.” Questions for possible inclusion in her column may be sent to 3940 Laurel Canyon Blvd., No. 238, Studio City, CA 91604, or via the “Contact Liz” form at www.asklizweston

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