SMART MONEY: Don't be hasty when moving 401(K)
April 21, 2013 1:50 AM

DEAR BRUCE: I am 54 years old, and I left my 401(k) with a former employer. However, in examining it more closely, I saw there were a couple $800 losses (quarterly) in a three-year period. I haven’t called them, thinking they might say anything just to keep my money invested with them. It had almost reached $80,000.

My wife says to sit tight, that the economy is tough and it’s not just me it’s happening to. It may get worse before it gets better. She withdrew the $60,000 for her 401(k) a few years ago and has no retirement money, plus we got hit hard with the penalties from the IRS.

Should I contact my banker and see about rolling the money into a no-penalty CD or program to gather interest instead of having a loss? — R.M., via email

DEAR R.M.: Your wife may be right in suggesting you should keep the money invested where it is. The fact that you had an $800 loss a couple of times is not a big deal. How about the times when you had a decent return? Since you haven’t contacted your 401(k) managers, I suggest you sit down and talk with them. Your $80,000 is nothing to sneeze at, and they should make plenty of time for you. Ask what they are planning for you and how much your investment has earned in the last three or four years. After you get some answers, you can decide who is going to handle your money.

As for your wife, she took $60,000 from her 401(k) and has no retirement money. What happened to that money?

DEAR BRUCE: My husband and I are 73 and 74. We own our home outright. Presently, our Social Security and small IRA give us an annual income of about $40,000. We own our car. We have some small bills. Living on this income is excessively tight for us. In today’s market, our home is worth about $150,000, although it could go higher as the economy improves.

Do you think a reverse mortgage would be beneficial for us? I don’t know if we will be able to come up with enough this year for our property taxes of about $1,700. Plus, we have long-term care insurance, car insurance and property insurance to pay every year, of course. Then we have prescriptions and medical care. (My husband needs $1,300 worth of dental work.) There are gifts, Christmas, etc. Can you give us advice? — S.M., via email

DEAR S.M.: I think a reverse mortgage is going to be nothing more than a Band-Aid on your problem.

At your relatively young ages, a $150,000 house might result in $70,000 to $80,000 in proceeds from a reverse mortgage. What’s going to happen when that money is depleted? How are you going to augment your $40,000 income?

It might be better to sell your home and rent a smaller, less-expensive place. Let’s assume that you sold your house for $150,000 and netted $140,000 after expenses. Those proceeds could be invested in the marketplace, conservatively yielding a 5 percent return. That would give you $7,000 a year for additional income. That should be adequate for you to live in a small apartment. You would then reduce your insurance payments and eliminate property taxes and the other expenses of maintaining a home. It’s not a very pretty picture, but I think it would be far better than going into a reverse mortgage.

Send questions to or to Smart Money, P.O. Box 7150, Hudson, FL 34674. Questions of general interest will be answered in future columns. Owing to the volume of mail, personal replies cannot be provided. The Bruce Williams Show can now be heard at on the Made in America Broadcast Network.

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