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Jewish World Review July 11, 2002 / 2 Menachem-Av, 5762

Bruce Williams

Bruce Williams
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Consumer Reports

Investing $1 million; $ave by paying a portion of your mortgage mid-month and then making another payment at the end of the month? | DEAR BRUCE: I have $1 million to invest. I am 43 years old, and I have invested only in government bonds in the past. I was married for 17 years and haven't worked outside the home in 18 years. I would like this money to work for me and be able to live comfortably on what I earn in interest. Can you help me? -- C.S., via e-mail

DEAR C.S.: Your $1 million could be put into municipal bonds, which would give you about $50,000 a year for 20 or 30 years, totally tax-free. During that period of time, however, those bonds could go up or down dramatically.

There are five-year certificates of deposit in Federal Deposit Insurance Corporation (FDIC)-insured banks that return more than 5 percent. You would need to seek out about 11 banks to ensure that all of your money was appropriately insured. This would give you absolute insurance that no loss of principal takes place and not have to have the money tied up for as long a period of time. If you can manage on roughly a $1,000 a week net, tax free General Obligation Bonds (not Revenue Bonds) may be something you should consider.

DEAR BRUCE: Can you save a lot of money by paying a portion of your mortgage mid-month and then making another payment at the end of the month? -- L.M., via e-mail

DEAR L.M.: You will save money, but the reason must be addressed. When you have a loan, you are renting money. As long as you hold the money, you pay the rent. If you prepay the loan, you use the money for a shorter time, so you pay less rent. But what would the money be doing if you didn't prepay? If it were invested in a growth environment where it grows faster than the rent interest, then you would be wise to hold onto that money as long as you can. You must take taxes into account, both the deductibility of the mortgage interest and whatever income tax might have to be paid on your investment. Because the interest on most conventional mortgages is such a bargain today, it seldom pays to prepay in today's low return world. However, if you are a conservative investor, it may be to your advantage to prepay.

DEAR BRUCE: A few years ago, I took an early retirement from my salaried employment of 20 years. We were promised lifetime medical insurance, which was one of the inducements to retire early. Recently, the company filed for bankruptcy and notified all of the retired salaried employees that the insurance is no longer available unless we pay $260 a month. We cannot live long without this insurance, and there is no way we can pay the premium. Do you have any suggestions? -- J.S., Lexington, Ky.

DEAR J.S.: While $260 a month seems like a lot of money, if it is a strain to find this money in your retirement funds, either you or your wife or both should probably find some type of modest part-time employment to generate at least this amount of money. While this matter is being considered, possibly litigated through a class-action lawsuit, you cannot afford not to be covered. Unless you are disabled, there should be some way for you to take on a modest part-time job to cover this unexpected cost.

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Send your questions to JWR contributor Bruce Williams by clicking here. (Questions of general interest will be answered in future columns. Owing to the volume of mail, personal replies cannot be provided.) Interested in buying or selling a house? Let Bruce Williams' "House Smart" be your guide. (Sales of the book help fund JWR).


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