retirement income

[mysammy]

I am retired and living on social security and interest from retirement savings. I have a $50,000 CD earning 5.3 percent coming due. I need to earn at least 4.25 on this money. I am thinking of investing it in Vanguard's Life Strategy Income. What do you think? It contains 80 percent Total Bond Market and I believe Disney Steve said Total Bond currently is yielding over 8 percent for the year. Would appreciate your suggestions.

[disneysteve]

Total Bond isn't yielding over 8%. It has a total return of over 8%. That's a big difference. The yield is currently 2.15%, well below what you are looking for. VWESX, the Long Term Investment Grade bond fund from Vanguard is yielding 4.62%. Keep in mind, though, that with a bond fund, the yield isn't fixed like it is with a CD or an individual bond. If you really need at least 4.25% to cover your expenses, I would look into individual bonds.

Or, if you want an out of the box suggestion and you won't ever need the principal of this CD, just the income, consider looking into a charitable gift annuity. You donate the money to a charity and they pay you a guaranteed return for life. Since the charity keeps your principal upon your death, they are able to pay a much higher than market return during your life. Plus you get a tax deduction at the time of the donation. For example, if you are 70, you can get a 6.5% return now. If you are older, the rate is even higher.

[Goldy]

Total Bond isn't yielding over 8%. It has a total return of over 8%. That's a big difference. The yield is currently 2.15%, well below what you are looking for. VWESX, the Long Term Investment Grade bond fund from Vanguard is yielding 4.62%. Keep in mind, though, that with a bond fund, the yield isn't fixed like it is with a CD or an individual bond. If you really need at least 4.25% to cover your expenses, I would look into individual bonds.

Or, if you want an out of the box suggestion and you won't ever need the principal of this CD, just the income, consider looking into a charitable gift annuity. You donate the money to a charity and they pay you a guaranteed return for life. Since the charity keeps your principal upon your death, they are able to pay a much higher than market return during your life. Plus you get a tax deduction at the time of the donation. For example, if you are 70, you can get a 6.5% return now. If you are older, the rate is even higher.

Thats an interesting idea Steve.

[kv968]

Or, if you want an out of the box suggestion and you won't ever need the principal of this CD, just the income, consider looking into a charitable gift annuity. You donate the money to a charity and they pay you a guaranteed return for life. Since the charity keeps your principal upon your death, they are able to pay a much higher than market return during your life. Plus you get a tax deduction at the time of the donation. For example, if you are 70, you can get a 6.5% return now. If you are older, the rate is even higher.

Never heard of those, but it sounds interesting. I would be concerned about them defaulting though. I'm sure most won't but there's always a chance. Does your synagogue do anything like this Steve?

I'm just wondering if the charity purchases some sort of insurance (i.e. default) or do they just run the total annuity themselves? And if they do run it themselves are you allowed to look at their books if you were to make a donation since they wouldn't be rated like a bond or anything like that?

[Jwilliamson22]

Why do you say you NEED to earn 4.25%? Have you figured that to be the amount of supplemental income you need? That right around $175 a month. Have you considered working a day a week or starting a small self employment business? $175 a month isn't that much income to come up with. Doing that could free up your investment options and not have to worry your exact return on your principle.

Just a thought

[disneysteve]

Never heard of those, but it sounds interesting. I would be concerned about them defaulting though. I'm sure most won't but there's always a chance. Does your synagogue do anything like this Steve?

I'm just wondering if the charity purchases some sort of insurance (i.e. default) or do they just run the total annuity themselves? And if they do run it themselves are you allowed to look at their books if you were to make a donation since they wouldn't be rated like a bond or anything like that?

At the moment, our temple doesn't do this but I've been pushing them to start such a program. You typically find charitable gift annuities from large institutions - colleges, national organizations, etc. - not small individual charities. They are annuities so I'm sure there is a third party involved.

American Council on Gift Annuities This is the organization that kind of oversees the charitable gift annuity industry.

Nothing is risk-free, of course. Here's an article from the Wall Street Journal from 2009 talking about some potential problems: Donors Find Gift Annuities Can Stop Giving - WSJ.com

[kv968]

Thanks Steve. I checked out that website and the WSJ article also after you posted and that's why I asked you about insurance and did your temple do such a thing. Just wanted to try to get an "insider's" view.

I imagine it would work out for you as long as you run the numbers. I'm just curious, how do you currently raise the money you need and is it for "projects" beyond the day-to-day operations? Do you ever get a loan or do you just wait until contributions reach the level that you need and utilize them? Sorry for appearing ignorant but I am when it comes to religion finances.

[disneysteve]

I'm just curious, how do you currently raise the money you need and is it for "projects" beyond the day-to-day operations? Do you ever get a loan or do you just wait until contributions reach the level that you need and utilize them? Sorry for appearing ignorant but I am when it comes to religion finances.

No apologies necessary. We're all here to learn.

Most synagogues have a dues-based membership structure so members pay an annual fee to belong. Dues, however, do not even come close to covering the expense budget. We also bring in money from religious school tuition, pre-school tuition and individual donations along with various fundraisers and investment income.

To the best of my knowledge, we have never taken out a loan for anything other than the mortgage on the building. If we don't have the money, we don't do it, whatever "it" happens to be.

[mysammy]

retirement income

Thanks so much for the suggestions. I really like the idea of purchasing bonds on the secondary market. I don't know why I didn't think of it as I am a fan of the book "Your Money Or Your Life". My CD is a Traditional IRA. Will I have a tax liability on the principal if I don't roll it over into another IRA account? I know treasury bonds do not qualify for IRAs. I'm so glad, Steve, you had responded to my original question. People like you make this a great site. I have been reading it for years.

[disneysteve]

My CD is a Traditional IRA. Will I have a tax liability on the principal if I don't roll it over into another IRA account? I know treasury bonds do not qualify for IRAs.

That isn't exactly true. You can't buy treasury bonds directly from Treasury Direct in an IRA account. You CAN do so through a brokerage account, however.

I would not cash out your IRA just to buy directly. Roll the money over to a discount broker and buy your bonds from there, but keep it as an IRA account for the tax benefits. Otherwise, you're kind of defeating the purpose of having an IRA.

Thank you for the kind words by the way.

[mysammy]

retirement income

Oh, you have been so helpful! Any suggestions for a good broker? We have Edward Jones and Merrill Lynch in our area. Of course, I could use someone online like Charles Schwab. Not very familiar with brokers, I'm afraid.

[disneysteve]

We have Edward Jones and Merrill Lynch in our area. Of course, I could use someone online like Charles Schwab. Not very familiar with brokers, I'm afraid.

You want to avoid full service plays like Edward Jones and Merrill. They'll rape you on commissions. Schwab isn't a bad choice. E-trade and Scottrade are popular discount brokers also.

The full service brokers are best for folks who aren't doing things themselves and want to pay someone else to manage their money.

[mysammy]

retirement income

Thanks again. Will pick Scottrade after looking at reviews. Next move will be to study the secondary market in the Wall Street Journal so I am knowledgeable by the time CD matures. Am so grateful for this site and you, Steve.

[kv968]

You might want to check out Optionshouse too. Don't let the name fool you, they do stocks as well. They also have a $4 commission compared to Scottrade's $7. KTP has been touting them and I think I'm going to open an account.

I've used Scottrade for years and they're great but I need some cheaper trades (especially with options) and Optionshouse may be the way for me to go.

[kv968]

No apologies necessary. We're all here to learn.

Most synagogues have a dues-based membership structure so members pay an annual fee to belong. Dues, however, do not even come close to covering the expense budget. We also bring in money from religious school tuition, pre-school tuition and individual donations along with various fundraisers and investment income.

To the best of my knowledge, we have never taken out a loan for anything other than the mortgage on the building. If we don't have the money, we don't do it, whatever "it" happens to be.

Thanks Steve. I knew you had dues and figured you collected some from tuition and fundraisers but wasn't sure if you ever got a loan or anything. That annuity route might work out pretty good if something ever pops up and you need a decent amount to fund "it".