What to do with a big inheritance
MONEY TALK
Dear Liz: My husband and I just inherited about $700,000 in a brokerage account. About $300,000 is in municipal bonds. The rest is in various mutual funds with some cash, corporate bonds and other, "alternative" investments. In addition to the inheritance we have $400,000 in IRAs and SEP IRAs, as well as equity in our home. We are both semi-retired consultants who intend to keep working for at least five to 10 years.
We would like to know if we can safely withdraw $40,000 a year from our inheritance to supplement our income and would like some advice about what to do with the municipal bonds, which are from another state, which limits the tax benefit to us.
Answer: You received a potentially life-changing windfall and you're a few years away from retirement. It's time to eschew free advice and pay for objective, personalized counsel about what to do with your money.
Mistakes made in the years before and immediately after retirement can have permanent repercussions. Spend too much, tap the wrong accounts or make investing mistakes, and you could end up broke or living on much less than you'd intended.
You also need someone who can look at your total financial and personal picture to give you the best advice. Your health, prospects for longevity, ability to handle risk and desire to leave an inheritance of your own are just a few of the factors that can affect your financial plan.
You can get referrals to fee-only financial planners from the National Assn. of Personal Financial Advisors at www.napfa.org or from the Garrett Planning Network at www.garrettplanningnetwork.com. Look for a certified financial planner who has several years' experience helping people close to and in retirement.
Getting on track to buy a home
Dear Liz: I'm 47, divorced, with two teenage daughters and a grandson living with me in Los Angeles. I make $40,000 a year.
With the current credit crisis, I'm wondering whether I can ever become a first-time homeowner. My FICO credit scores are under 600. What would be a realistic timetable for getting out of debt, saving for a down payment and raising my scores over 700? Is two years enough time?
Answer: You don't need 700-plus FICO credit scores to buy a home, even in today's tough borrowing climate.
But your current scores are low enough to indicate you're having ongoing problems managing your finances. Scores under 620 are poor and typically mean serious, recent credit problems.
