Dear Mr. Berko:
I'm 63, and my wife is 61. We have $94,000 cash in my individual retirement account from the sale of Kinder Morgan Energy Partners stock that we need to invest. I'd like to gamble with this money and go for broke. But even though we have a very comfortable retirement plan, my wife won't hear of it. She would prefer that I buy government bonds or mutual funds or some exchange-traded funds that don't have to be actively managed. We have a small $17,000 mortgage on our home, owe $7,000 on one car, have less than $3,000 of credit card debt and own four rental properties without a mortgage. And I'll earn at least $85,000 this year just from my job, so I think we can afford to take some risks. She has never had to work a day in her life, and suddenly she's beginning to tell me what to buy and really getting on my case. Your investment advice would be appreciated.
- TA, Vancouver, Wash.
Dear TA:
Please don't take this anecdote literally, but I've a close friend with an endearing Italian name who's been married to a lovely lady for decades. Sometimes she gets on his case with such fury (and sometimes he deserves it) that he exclaims, "I shoulda had her whacked 20 years ago, and I'd be out by now!"
However, as a second thought, perhaps your wife is smarter than you. Meanwhile, the following suggestion might allow each of you to have your cake and frosting, too.
A recent Treasury Department ruling allows you to invest up to 25 percent of your IRA (or $125,000, whichever is less) in a deferred-income annuity without taking the required minimum distribution when you turn 70 1/2. In the past, most folks used money from taxable accounts to purchase a DIA. Those who bought DIAs in IRAs prior to that ruling had to take distributions before 70 1/2. This reduced the payment amount because there were fewer years to compound a lump sum investment.
Consider using $50,000 to purchase a DIA to keep your smart lady happy. Make her the beneficiary, and defer payments for 19 years, till she's 80.
Today most insurers will guarantee her an income of about $14,000 a year even if she lives to be older than Grandma Moses. The downside is that if she passes before age 80, she gets zippo. However, because some folks are reluctant to give up principal, insurers also offer a death benefit that kicks in if someone dies before receiving the entire investment back. If she selects this feature, the annual payments will be lower, about $10,000 annually. Some insurers will even increase her annual payments by a set percentage (say, 3 percent a year) or by a variable percentage that can be tied to the consumer price index. This is an inflation rider and reduces the usual annual payout by about 15 percent. Annuities have designed more ways to skin a cat than you can swing a bat at!
Now you can invest the remaining $43,000 in ETFs of your choice and aim for the fence with one of the most dynamic industries in the evolutionary future of mankind: biotechnology. In the coming score of years, biotech corporations will have patents on non-carbon-based life forms, organic memory chips and telepathic pathways, cultured body parts (imagine eating wings without growing chickens) genetically created blood, transgenic engineering products, chemosynthesis procedures, XNA and non-enveloped RNA magnetic virions, MAGE platforms, pork chops without the pig, and human skin that won't wrinkle or get sunburn. Biotechnology will have its own Microsofts, IBMs and Apples; it will be a multi-trillion-dollar industry peddling modified life forms, body parts and asexual reproduction (remember Dolly), with everything for sale to your specifications.
So First Trust NYSE Arca Biotechnology Index Fund (FBT-$98.40), up 34 percent year to date and up fivefold since the summer of 2009, may be your Golconda. Holding FBT for a decade will give you some volatile ups and downs, and some of those changes will be hairy and scary. If you prefer individual issues, pick some of the cherries from FBT's $1.6 billion portfolio of 21 stocks - for example, Incyte (INCY-$71.49), Nektar Therapeutics (NKTR-$13.85) and Exact Sciences (EXAS-$22.58).
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Please address your financial questions to Malcolm Berko, P.O. Box 8303, Largo, FL 33775, or email him at mjberko@yahoo.com. To find out more about Malcolm Berko and read features by other Creators Syndicate writers and cartoonists, visit the Creators Syndicate website at www.creators.com.
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Published: Tue, Nov 18, 2014
