Keeping finances separate may incur added tax

Dear Bruce: I recently married, and my husband and I have a prenuptial that keeps everything separate. We are both in our early 50s. We keep all monies, accounts and investments apart, as they were before the marriage. We would like to also continue filing separate tax returns (as we did before the marriage). Can we file as “single,” or must we file as “married filing separate”? We are committed to keeping all our finances independent of each other. —R.P., via e-mail

Dear R.P.: I understand what motivates your thinking, and I have no problem with it. You will, however, have to file “married filing separate.” End of story.

There will likely be some penalty or additional tax because you’re not filing a joint return. If you are determined to keep everything separate, you may very well choose to pay the additional tax.

Reverse mortgage may beat annuity

Dear Bruce: I am a 75-year-old widow with little income. My modest home is paid for. I have $40,000 in certificates of deposit, but interest rates are dropping to the point where I can’t live on the small checks anymore. I have had several salesmen trying to sell me annuities, which will pay a higher interest rate. But are they safe? They are not federally insured. I hope you can help me. —Reader in Arizona

Dear Reader: Annuities are an insurance contract, as safe as the insurance company that issues them. The troublesome part of annuities: If you need to withdraw your money, the penalties can be severe. I don’t know that you are going to get enough interest to accomplish what you have described. Even though you called your home modest, there may be enough equity there to justify a reverse mortgage. This would allow you to stay in your home for the rest of your life but provide a bit of income, which has no restrictions and absolutely no risk. Even a 2 percent or 3 percent raise from the interest you can get from the annuity is not likely to make much of a difference in your lifestyle. A 3 percent difference would only amount to about $100 a month. A reverse mortgage may be the way to go. Check with your local bank. I’m sure it can steer you in the right direction.

Timing key to bridging finance gap

Dear Bruce: My in-laws are moving out of their single-family home and into a condo. They are being forced to close on the condo before closing on their home. This means they need to come up with the money to buy the condo before getting the equity out of their home.

Are there any special financing arrangements that can help them survive this difficult situation? —P.Q. in Nevada

Dear P.Q.: You are talking about a bridge loan, which gets people over the hump from the time they buy their new place to the time they sell the original one. The problem with this scenario: If the original home doesn’t sell for a long period of time, the costs can be extraordinarily painful.

Advice is relative

Dear Bruce: Time and again, I have read where you have told people not to prepay their home mortgages. I just refinanced mine, and I’m 65 years old. I pay extra every month, so I will not be paying on it for 15 years when I’m 80. —Reader in Pennsylvania

Dear Reader: Advice changes with the times and the age of the individual to whom it is given. When one reaches your age in life, there’s a great deal to be said for having a home paid for – if only for a sense of security. For young people, the more money they can borrow against their home, which is tax deductible (if itemized), makes sense in the long pull because they can invest it elsewhere.

No risk retirement equals low return

Dear Bruce: My wife and I are ready to retire. We feel our investments should sustain us sufficiently for the duration. We are very concerned with the future of the market for various reasons, some more obvious than others. Therefore, we would like to live off our investments without any risk. We do not expect to increase our portfolio but only to live off the interest. We have nearly $600,000 in our portfolio, which is a mix of mutual funds, stocks, annuities, CDs and a 401(k), with no outstanding debts and no mortgage. If we were locked into a guaranteed 5 percent, we would be fine with no need to worry. Is this possible? How and where can we get a lifetime guarantee on our portfolio? Is there such a thing? —S.N., via e-mail

Dear S.N.: While I understand your infatuation with no risk, it is not, in my opinion, a reasonable way to go. The facts are that, in the event you are prepared to take no risk, you are condemned to a very low return. It is true there are currently guaranteed instruments paying about 5 percent, but there is no way I know of, other than an annuity, you can lock in for any substantial period of time. I do not recommend an annuity.

The marketplace has historically returned 10 percent (doing much better right now), and I think a conservative portfolio is far more to your advantage. If you’re not persuaded to pick the individual securities, you might wish to talk to a mutual-funds specialist. There are hundreds of mutual funds that would meet your requirement for a very low possibility of risk but a far higher return.

Bruce Williams is a national radio talk show host and syndicated columnist. He can be reached at bruce@brucewilliams.com.