Smart Money: Variety of bonds offer tax-free returns for investors

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

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 -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 you won't have to have the money tied up for as long a period of time. If you can manage on roughly $1,000 a week net, tax-free General Obligation Bonds (not Revenue Bonds) may be something you should consider.

Dear Bruce: A few years ago, I took 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.

Dear Bruce: My husband underwent quintuple bypass surgery about 14 years ago. We subsequently hired a handyman to do our snow removal. Now all these many years later, the handyman is still with us. The problem arose last December when his wife left him, and he was on the verge of losing his home. He asked if we could lend him $500, which he would pay back in two weeks. Well, you know the rest. I spoke to him recently, and he said he was going to file for bankruptcy. He said he would pay us monthly installments starting with his next paycheck, but somehow I don't think this is going to happen. We had lent him smaller amounts of money before, and he had always paid us back. I know we shouldn't have done it, but what's done is done. My husband is retired and I'm semi-retired, earning a small income. Do we have any recourse outside of taking him to court? Can we declare this as a loss on our income tax next year? We really like this guy. He has had his share of bad luck. M.D., via e-mail

Dear M.D.: If I were you I would take it on the chin and swallow the $500. If he does declare bankruptcy, you are out of business. If he doesn't include you in the bankruptcy, then it's possible that you may recover. The fact is the kind of money that you are talking about is really not worth chasing even though it may be important to you. You say you like the guy and he's had his share of bad luck; why contribute to that? Learn from your lesson. Money that you cannot afford to lose should not be loaned.

Dear Bruce: I am a new multi-engine flight instructor and would like to provide training in a light twin engine that I could own and fly. M.D., via e-mail

Dear M.D.: You are familiar with fixed-based operators and the expenses, maintenance and insurance problems they encounter. Plus, students can be hard on the equipment while they learn. It's unlikely that a one-owner operator can make it work. If I were you, I would try to work with an existing flight school. Oftentimes, they will enter into lease-back arrangements with the airplane owners.

Dear Bruce: How can I find a reputable term life agent? My husband and I want to make sure our three children are taken care of if something happens to either one of us. We think mortgage life insurance plus $250,000 on each of us would be affordable. Any help from you is appreciated. Onna

Dear Onna: "Mortgage life insurance" is simply a way to persuade people with a mortgage to take out life insurance. My preference would be term insurance, since you are pressed for funds. With regard to finding a "reputable agent," shop around, ask friends, neighbors, co-workers, and use reading materials and the Internet, etc. The term insurance market is very competitive, and rates can vary dramatically. Consider services that help you shop, but don't use them exclusively. Whatever term insurance you do purchase, be sure it is renewable without evidence of insurability which means that if you are ill, the insurance can be renewed and convertible to allow you to convert to whole life in the future, if you choose.

Dear Bruce: I have a friend who is deep in credit-card debt. She is currently unemployed and unable to meet her obligations. She pays $1,200 a month toward credit cards. I suggested she file credit-card bankruptcy as opposed to normal bankruptcy. Is it true that under credit-card bankruptcy it will only appear on your credit history for three years as opposed to seven? After the three years, she can start building her credit up again with secured credit cards. She doesn't own a home and has no other assets. K.W., via e-mail

Dear K.W.: I haven't a clue what you mean by credit-card bankruptcy. I know of no such chapter, and I do not believe it exists. Given the fact that she is unemployed, where is she getting the $1,200 a month to pay on her credit-card debt? Savings perhaps? You didn't say how much she owes in total. If it's a relatively modest amount, it would be a huge mistake to declare Chapter 7. This will stay with her effectively for the rest of her life. I would have no concern about building up credit again at this moment. The first thing she needs to do is to find a way out of her current problem. Of course, we don't know how she got this far into hock and until we lick that problem, all we're doing is putting a band-aid on a cancer.

Dear Bruce: We owe approximately $9,000 on credit cards. My wife and I have almost $45,000 in student loans. We earn almost $60,000 a year, but we never can seem to put any money aside. We are just barely making our payments. We wonder about having children, but since we need both incomes to live decently, we haven't. We seldom take more than one vacation a year, and both of our cars are over 2 years old. We are constantly trying to stem the tide, but so far no luck. Any suggestions? N.C., Topeka, Kan.

Dear N.C.: The solution for your problem is covered in two words. Grow up! You covered it all when you said that you seldom take more than one vacation a year. You've got be kidding you shouldn't be taking any vacations. You and your wife both ought to be working part-time jobs in addition to your regular ones, and every dime should be going to reduce your debt. Since you have the student loans, you have apparently picked up an education somewhere. Are you taking advantage of it? I see no reason why couples like you can't get yourself out of debt. It does mean giving up some things like eating out, vacations and, oh yes ... what a tragedy your cars are over 2 years old. It's time that you got some discipline in your life and acted as adults should. Until that time, you are going flounder around in this financial abyss. It does require discipline and adult behavior.