Financial Q&A: Investing an inheritance on the brink of retirement

Submit your question to Steve Dinnen at: money@csmonitor.com

from the August 18, 2008 edition

Q: I am 62, retired, and will begin receiving my Social Security check in November. Between my retirement and Social Security, I will get about $2,500 per month. My husband, also 62, will work two more years and then retire, but get 80 percent of his present salary for five years before going on his TIAA-CREF retirement. This summer, I will inherit about $320,000 from my mother's estate. Any suggestions as to how to invest and preserve that money?

P.P., Bloomington, Ind.

A: To Peter North, a financial planner in Bath, Maine, there are many more moving parts here than meet the eye, such as understanding your expense needs, financial goals, and risk tolerances. But if someone approached him with a similar scenario, he says that he might suggest reconsidering starting Social Security at age 62 and instead wait until full retirement age (probably age 66).

Typically, Social Security uses 0.5 percent per month as a "yardstick" for adding to or subtracting from the targeted benefit amount at full retirement age. But Mr. North thinks the calculation is actually closer to a 7 percent return for waiting, which tends to create a break-even age in the mid- to late 70s.

If you do postpone Social Security, North says, set aside some of your inheritance money in laddered certificates of deposit to cover the next three to four years of expenses. The remaining amount should be invested broadly to accomplish diversification and should be balanced with your husband's TIAA-CREF investments.

Q: My husband had to go on disability a year ago, and now our home is moving toward foreclosure. Although we received a medical forbearance from the bank, our credit is still affected as if we had no disability situation. Should we be looking for a bankruptcy attorney? Or are there any advocacy or support groups that can help guide us through the financial changes that come with dealing with a medical disability?

D.W., via e-mail

A: Contact a good bankruptcy attorney.

Beyond that, Rick Shapiro, a certified financial planner in West Hartford, Conn., says that tax issues also are important. Internal Revenue Code Sec. 104(a)(2) provides that certain payments for sickness or injury are not taxable assuming that the employee paid for the benefit after-tax (e.g., workers' compensation is, by definition, not subject to income tax). This can be very tricky, so that should be looked at by a tax specialist.

As far as the credit report goes: With foreclosure imminent, Mr. Shapiro would place that issue on the back burner. And for support groups, there are tons of them around, for seemingly every disease and illness known to man. Check online, or with your caregiver or hospital for contact information. Surely someone at such a group will be able to provide support and advocacy.