retirement

Proper asset allocation for an IRA?

Don TaylorQuestionDear Dr. Don,
I am 72 and my husband is 77. All of our money is invested in a traditional IRA in my name. The account is partially invested in the market (35 percent), partially invested in municipal bonds (20 percent) and there are also some CDs (45 percent) in the account. The approximate value of the account is $225,000. I am very nervous about the market and am very conservative. Do we have our money invested wisely? I've also wondered about fixed annuities.
-- Anxious Alice

AnswerDear Alice,
I'm concerned about you holding municipal bonds in your IRA account for a couple of reasons. First, the IRA account is tax-deferred and all distributions out of the account are taxed at ordinary income rates, so tax-exempt municipal interest income is taxed on distribution. Take a look at an earlier column "Invest muni funds in an IRA?" for more detail.

Second, the municipal bond market has seen prices fall on investor concern over funding issues in state and local government. The municipal bonds in your portfolio may have already taken a hit based on these concerns. You didn't say whether you are in individual issues or invested in a bond fund, but you would want to review these holdings with your investment professional.

It's hard to determine if your asset allocation to the stock market and to CDs, along with your muni bond investment, is the appropriate asset allocation for the account without knowing the big picture on your health, your insurance for long-term care and health, the equity you have in your home and your retirement income picture. The municipal bond and CD investments aren't providing any hedge against inflation. The market portfolio should provide a hedge against inflation, but you're very anxious about these holdings. There may be a better way for you to gain that inflation hedge with less market risk.

I think it would be worth your while to consult with a fee-only financial planner to discuss how your portfolio is invested and your goals for that investment. The Bankrate feature "Financial planners: Not just for millionaires anymore," provides a nice overview on selecting a financial planner.

Fixed annuities can provide a guaranteed income over a lifetime. There are a lot of options in how these annuities are structured. A joint life annuity provides a lifetime income that lasts over both your lifetimes. An inflation rider can have the income indexed to inflation, but it's a very expensive option to add to the policy.

Since the IRA account is already subject to required minimum distributions, or RMDs, you would want to work with an insurance agent and your tax professional to make sure that your choice of annuity contract is appropriate in the IRA.

Get more news, money-saving tips and expert advice by signing up for a free Bankrate newsletter.

Ask the adviser

To ask a question of Dr. Don, go to the "Ask the Experts" page, and select one of these topics: "Financing a home," "Saving and Investing" or "Money." Read more Dr. Don columns for additional personal finance advice.
 

Bankrate's content, including the guidance of its advice-and-expert columns and this website, is intended only to assist you with financial decisions. The content is broad in scope and does not consider your personal financial situation. Bankrate recommends that you seek the advice of advisers who are fully aware of your individual circumstances before making any final decisions or implementing any financial strategy. Please remember that your use of this website is governed by Bankrate's Terms of Use.

News alert Create a news alert for "retirement"

advertisement

Show Bankrate's community sharing policy
          Connect with us
MORTGAGE HOME EQUITY AUTO CDs CREDIT CARDS
Product Rate Change Last week
30 year fixed 4.28%  0.02 4.30%
15 year fixed 3.24%  0.06 3.18%
5/1 ARM 3.41%  0.12 3.53%
 
View Rates in your area Next
Product Rate Change Last week
30K FICO-based HELOC 4.36%  0.02 4.34%
50K FICO-based HELOC 4.06% --0.00 4.06%
100K FICO-based HELOC 3.91% --0.00 3.91%
 
View Rates in your area Next
Product Rate Change Last week
60 month used car loan 2.69% --0.00 2.69%
48 month used car loan 2.92% --0.00 2.92%
60 month new car loan 3.19%  0.01 3.18%
 
View Rates in your area Next
Product Rate Change Last week
1 Year CD 0.93%  0.03 0.90%
2 Year CD 1.13%  0.04 1.09%
5 Year CD 1.76%  0.00 1.76%
 
View Rates in your area Next
Product Rate Change Last week
Balance Transfer Cards 15.71%  0.02 15.69%
Cash Back Cards 16.41%  0.01 16.40%
Low Interest Cards 10.86% --0.00 10.86%
 
Next
advertisement
CD & INVESTING NEWSLETTER

Learn the latest trends that will help grow your portfolio, plus tips on investing strategies. Delivered weekly.

Blog

Jennie Phipps

Prying loose your digital life

Digital companies like Facebook and iTunes make you sign agreements that prevent your heirs from accessing your accounts, but new legislation may change that.  ... Read more

advertisement
Partner Center
advertisement

Connect with us