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BERKO: Retirement needs require cutting off kids

DEAR MR. BERKO: My husband and I are in our 70s, and we both retired several years ago from the real estate business. My husband has had four stents in the past five years. I’ve started losing my eyesight to macular degeneration, so driving my car makes me nervous. We made good money selling homes, but most of it was spent putting our three kids through college and graduate school. We have lived in the same big home for 44 years and don’t have a mortgage. We have also helped all of the kids buy their homes, and we invest what we can in mutual funds each quarter for our seven grandchildren. We’ve helped the kids buy cars and appliances, and we’re generous to them on their birthdays. Together our individual retirement accounts are worth nearly $720,000 and produce taxable dividend income of $31,000, which is 4.3 percent. We have enclosed our IRAs, which you can see are identical. Our Social Security checks bring in $48,000 a year, so our total income is $79,000, which is pretty good.

During the past two years, our home, health, auto and nursing home insurance costs increased 50 percent. Out-of-pocket medical expenses were 30 percent higher than we budgeted, and other living costs just seem to be rising. We’re always short at the end of the month, and we recently have had to take more from our IRAs than planned. And that’s scary. I’ll be selling my car because I don’t want to drive, which will save us about $5,000 each year. Is there any way you can increase the yield on our portfolio by just 2 percent to give us $14,000 more per year? That would help us out a lot. – SA, Oklahoma City

DEAR SA: Your portfolio has many of the quality issues for dividend growth and income that I’ve recommended over the years. I also see that for quite some time, you’ve reinvested your dividends, as well as the dividends from some preferred issues. And I know, it’s kind of a strange feeling, almost like stealing, when invading your IRA principal, which you’ve been doing for two years. However, I’m sorry to disappoint you, because I can’t improve your income without increasing your risks. I’d be uncomfortable recommending issues yielding over 15 percent, such as TAL International Group, PennantPark, Arlington Asset Investment, Orchard Isle, Nordic American Tankers and hundreds of others. Each would improve your portfolio’s yield, but each would certainly give you a serious case of screaming meemies in this volatile market. And according to my daughter, who is a lawyer, because I have foreknowledge that your spouse has four stents, I could be accused of negligent homicide with those recommendations, especially if one or two failed – and some will! The feeble minds at the Financial Industry Regulatory Authority would be eager to bring legal action because those issues are patently unsuitable. So I urge you to stay the course; you have a swell portfolio, and most additions or changes would not improve your position.

However, there are six reasonable solutions to your problem. 1) Put your husband back to work. Just a couple of sales per year could put you closer to the clover and help with your unexpected expenses. 2) Take in a boarder. In this tight rental market, you might get a lot more for renting a room with kitchen access than you imagine. 3) Downsize. Sell your big home, and move into a mobile home, which you can buy for about $40,000. Then use the remaining cash for current expenses. 4) Immediately, right now, today, stop enriching your kids and grandkids. They’ll be better off if you let them fend for themselves rather than give them money when they have a whim to be warmed. Your behavior smacks of insecurity. Stop buying their love. 5) Rent a weekend booth at the flea market and sell Ginsu knives. 6) Finally, I’m surprised you haven’t considered a reverse-annuity mortgage. There’s lots of bad press about RAMs, but because you folks are knowledgeable, you can easily avoid the potholes and pitholes. If your home is worth $250,000, you’d get about $1,200 a month, tax-free, without personal obligation, muss, fuss or bother.

Please address your financial questions to Malcolm Berko, P.O. Box 8303, Largo, FL 33775, or email him at mjberko@yahoo.com.

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