Nov 2018


Dear Rick:
I was at one of your recent talks, and I talked to you afterwards about my situation. I have a couple follow up questions I hope you can help me with. Basically, my situation was that I am a widow, retired and turned 70 in September. Monthly, I receive two pensions and Social Security which more than covers my living expenses. Pensions and Social Security bring in about $14,500 a month and it doesn’t cost me more than $4,000 to $5,000 a month to live. I told you that I just can’t take the ups and downs in the stock market anymore, and you told me that considering my situation I shouldn’t invest in the market; that I should stick with CDs. A few months ago, I liquidated my accounts and I have been sitting in cash. You also told me that starting next year when I make charitable contributions, I should use my required minimum distribution. My tax person thought that was a great idea. My follow-up questions are first, I was told that if you invest in an annuity you don’t have to take any required minimum distributions; is that true? My second question is, at the time you told me I should do a CD ladder. I don’t recall the time frame that you said I should use. What time frame would you recommend?

Thank you.


Dear Kathy:
I do remember you, and I remember our conversation. The reason I suggested that you should liquidate your investments was because your health was adversely affected by movement in the market. I don’t care how good an investment is, it’s not worth your health.

With regard to the annuity, unfortunately, that is not correct. If you buy an annuity with your IRA money, that money is still subject to required minimum distributions. The only way that money in an IRA is not subject to a required minimum distribution is if it is in a Roth IRA. Your IRAs are traditional IRAs and thus, buying an annuity would not waive your obligations to take required minimum distributions.

With regard to the laddering of the CDs, my belief is that interest rates are going to continue to rise; therefore, it does not make sense to lock in long term. What I would recommend is that you do a ladder in the CDs where you divide the money equally between CD’s that mature in six-months, one-year, one-and one-half years and two years. By doing this type of laddering you will have money that matures every six months thus, taking advantage of the higher interest rates.

It is important that when you buy CDs you should shop them around. Not only should you consider our local banks and credit unions, but you should also consider out-of-state banks and internet-based banks. As long as the banks are federally insured you are protected and thus, if you can get a higher rate of return, why not? There are many good websites that you can look at to shop CDs. The one that I generally rely on is All the CDs on their website are federally insured.

There is no doubt that CD rates are still low, and one of the mistakes many investors make is that in order to increase their return, they will buy CDs that are not federally insured. In fact, I have seen where many people will buy foreign CDs. I cannot stress enough that if you are buying CDs you are defining yourself as a conservative investor and you do not want to take unnecessary risks with that money. When you buy a non-federally insured CD or a CD issued by some foreign bank you are taking unnecessary risks. Therefore, if you are going to buy CDs, limit your search to federally insured CDs.

I’ve always been a believer that no matter what type of investor you are you have to be comfortable with the investments you’re in. If your investments keep you up at night or make you sick, it is a sure sign that those investments are not for you. Therefore, as investors, I don’t care what the returns are, you should never invest in anything that you don’t feel comfortable with. You will be a much more successful investor if you invest in investments that you understand and feel comfortable with.

Good luck!
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