Pay down debts to avoid retirement relocation

Dear Bruce: I am a federal employee and will be eligible for retirement under the old federal retirement system. If I should retire next year, my wife and I will have combined annuities of $83,000 per year with an approximate 2 percent cost of living adjustment each year. This works out to somewhere around $5,000 to $5,300 per month. Our house payment with taxes is $2,200. I also have a savings account with $60,000 saved. I have $30,000 in credit card debt and $8,000 owed on a car I just purchased. My dilemma is this: To pay off my debts, which I need to do to be able to comfortably retire, I can either sell my home ($280,000 equity) or use my savings account.

Since I live on the coast of California, and home prices have escalated insanely, I have been unable to find a cheaper retirement-priced home in this area. Our children have moved to Arizona, but I am a lifetime resident of the coast of California, and I am reluctant to join them. Would I be better off to pay my debt with my savings account or sell my home? Or is there something else I haven’t thought of? – Reader in California

Dear Reader: You are caught between the proverbial rock and a hard spot that many folks find themselves in. On the other hand, you have a very substantial income under your retirement plan. You mentioned that you’d like to stay where you are, and if it’s at all possible, I’d suggest you do so. I’m reasonably confident that your savings plan is not generating anything close to the amount of interest that your credit cards and car are demanding of you. Given that, it very likely would pay you to retire your debts, recognizing that you may have to alter your lifestyle just a bit. I am very sympathetic to the idea that you want to stay put, and if you make these adjustments, I suspect that at least for the time being, you’ll be able to do so.

Dear Bruce: Help! We are an older couple, and as of this year, I am not well, so traveling is out. A few years ago we fell for a time-share pitch, which sounded good with a high-powered salesman. Several months ago, I placed it for sale with a company in the same town the timeshare is located. You send them a check and then you wait and wait and wait. I called them recently, and the man asked if I wanted to come down on the price, and I said yes. I haven’t heard from the company since. I often get calls from people wanting to know if we want to sell. When I say it is already listed, they are no longer interested. Is there any way to get rid of it and the monthly maintenance fee? We are not wealthy, but we are able to get by. However, we really need to get rid of it. Do you

have any idea what we can do? – D.S., Charleston, Ill.

Dear D.S.: You are singing a very familiar tune. You got sucked into a timeshare and you can’t get out from under it. The company that solicited you primarily is interested in getting your upfront money. Unlike traditional real estate offices, the time-share resellers want something on the order of $400 before they’ll take a listing and then you’ll be holding your breath until you get a response. The guys who are soliciting you are in the same business. As soon as they find out someone already has hooked you, they’re gone. Unhappily, the secondary market for timeshares is close to nonexistent. You might be able to make a deal with the time-share people to allow it to go back to them. In some cases, they will sue you for the monthly maintenance fee. You really ought to consult an attorney to find out precisely what your options are under the contract. Unhappily, there are tens of thousands of people just like you who were sold by glib salesmen on a deal that is seldom a good thing for most people.

Dear Bruce: I have not withdrawn any money from my individual retirement accounts since 2002. I went back to work in the spring of 2002 and did not need to use any of my mutual funds, which were losing value anyway. I have money to invest now. My mutual funds are now at 7.6 percent for the year, which is better than my bank. Would you suggest a Roth IRA, my mutual fund or some other investment? – H.W., Tecumseh, Kan.

Dear H.W.: You asked would I suggest a Roth IRA or your mutual fund. They are not exclusionary. The Roth IRA is allowed preferential tax treatment on the profits that your mutual fund might earn. Put another way, when you open a Roth account, you have to select an investment vehicle through a third party. If you are comfortable with your mutual fund, you have every right to use that. However, you might want to diversify, taking into account the “all the eggs in one basket” theory.

Dear Bruce: We are paying off our home. We owe $10,000 on the remainder of the mortgage at 8.65 percent. We are getting a much smaller return on our IRA. Would we have to pay tax on the money if we were to take it out of our IRA to satisfy the mortgage? – D.G.,Bristol, Va.

Dear D.G.: At the very least, you will pay tax on the withdrawal. If you are not at least age 59, you also will pay a 10 percent penalty on an early withdrawal. The younger you are, the less this seems wise since you are giving up a shelter, which could work for you for a number of years until you are 70. Not a real smart thing to do. You might wish to consider refinancing if your credit is good, since you are paying higher interest than necessary at the current rates.

Bruce Williams is a national radio talk show host and syndicated columnist.