I recently got a question from a reader:
I am a 66 year old female who was recently divorced after 43 years of
marriage. I handled all our accounts and was pretty savvy in that
respect. In the divorce I inherited half of a very shattered IRA that is
at a load brokerage house.
I got the house but I must now maintain its mortgage. I also got a small
part of his social security and his pension (which will go away when he
dies). The likelihood of me finding a job is the same as me being a
Dallas Cowgirl Cheerleader.
I need this IRA account to draw on ($169,000 now) monthly until such time
as I decide to sell my home. But I can’t watch this rollercoaster
called the stock market much longer. The broker says I am “moderately”
invested, but I just lost $13,000 in a few weeks time.
The old saw is stay the course, the stock market is the only way to make
money over the long term, etc. Well, do I hang in there, go low risk, or
have a small amount in stocks. Also, the new school is to keep a year’s
worth of expenses for an emergency which I have.
I’ve been thinking about this one quite a bit. It’s a tough situation. Before I proceed, though, I should say that I am not a financial professional, and that all situations are individual, and that while I offer some information and ideas, I am not offering advice. All of this money stuff comes with risk, and what you decide to do is at your own risk. So do your due diligence and study it out. Chatting with a financial professional might help (although this reader said that her fee only advisor was so worthless that her money was refunded).
First, it’s great that you have one year’s worth of expenses saved up. That buys you some breathing room to consider your options. There is no reason to rush into things. You can wait and see if things look to be recovering in the next six months to help your IRA get back on solid footing.
If you are really concerned about the stock market, and your emotional risk tolerance is such that you can’t handle the ups and downs, you could shift into low risk investments that could protect you a bit from stock market drops. Rebalancing your IRA to include more government bonds, jumbo CDs and some dividend paying stocks could help you reduce your risk while providing income. This might be a good idea anyway, due to your age. However, you won’t see the same kind of growth should the stock market pick up.
Another option is an annuity. Many use the money in their IRAs to buy an immediate fixed annuity that provides you with regular income. You have the stability of a low-risk investment that guarantees to pay a set minimum return. There are indexed annuities that offer the security of not dropping below a certain return, but still gain more when the stock market recovers. These can be complex products, though, and come with plenty of fees, and it’s best to consult with a financial professional and a tax professional before proceeding.