SMART MONEY: Marketplace is still a smart bet for retirement savings
DEAR BRUCE: I have been reading everything I can find about investing for retirement, but still don’t know what’s best for me and my husband. We are in our early 50s and have two children. One is a freshman in college, and he has a Roth IRA that he contributes to from his summer job. The other is a freshman in high school.
We believe an inexpensive route is through the junior college transfer method. We have about $25,000 in an ETrade account that we use for tuition. We will add to it monthly to save enough for our second son’s education.
My husband makes $250,000 a year and has stock options and bonuses that we will be able to invest. We have about $60,000 in a 401(k). We have sold some property and will be totally out of debt as soon as it closes. We will probably have one car payment, but no mortgage, school loans, credit cards, etc.
We will have about $100,000 left after the property sells, and I would love to know how to invest it for retirement. We are planning to buy long-term-care insurance as soon as our youngest son finishes college. — T.O., via email
DEAR T.O.: There is very little you say that I disagree with. As to the inexpensive route through a junior college, I find no way to criticize that. However, more and more people are learning about it, and enrolling in a junior college is getting more competitive. If the student does well, he will have no difficulty getting into a four-year institution for the remaining two years, and there are substantial monies to be saved, as you have pointed out.
As to the $100,000 that is being generated by the property sale, I can do no better than to recommend investing in the marketplace. If you invest in solid American companies paying dividends, you should be able to combine the ordinary appreciation of the stock with the dividends to earn a 6 percent to 8 percent return. Some years you may lose money, but on balance, the return that I stated is not an unreasonable expectation.
It seems you guys have a very good handle on things, and you are in excellent shape. I wish you well.
DEAR BRUCE: My son will be graduating from graduate school soon and has found a good job in his chosen field. He wants to move from his student slum apartment to a nicer place. Is there a rule of thumb he should follow for how much rent and utilities to pay as a percentage of gross or net income? — J.J., via email
DEAR J.J.: Congratulations on your son graduating and getting a good job in his chosen field. I am wondering why he has to move from his “slum” apartment to a nicer place. If the apartment is in a bad neighborhood, that’s a different matter. But if he has been comfortable there through college, what’s the hurry?
You can fix it up a little bit, if it’s necessary. Staying there would allow him to start to accumulate some savings, and there is nothing wrong with that.