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Questions: Job security drives saving plans

Answers to your personal finance questions

By Helen Huntley, Times Personal Finance Editor
Published January 6, 2008


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You asked

As I reviewed my savings strategy for 2008, I felt that I should limit my exposure to the stock market. I am 49 years old, single and make about $155,000 a year. I have about $100,000 in high-yield savings and money market funds and about $150,000 in equity index funds. I plan to pay off my mortgage $57,000 this year and I have no other debt. My pension at age 62 will be over $5,000 per month, and Social Security about $2,000, if it is still around. Should I max out my deferred-compensation plan or should I put less in stocks and more towards fixed saving vehicles?

What are the odds that you will keep your current job until age 62 and earn that great pension? If your job and your pension are secure, you should be fine regardless of your asset allocation, assuming you don't become disabled. If your job and/or pension are not secure, your retirement savings are low for person of your income and age.

A pension can be considered a substitute for fixed-income investments, allowing you to take more risk and hold a larger percentage of your portfolio in equities. However, you shouldn't take risks that cause you to lose sleep at night. Striking the right balance can be difficult. Because you have substantial income and 13 years until retirement, you are in a great position to benefit from professional investment advice. One source for referrals is the National Association of Personal Financial Advisors (www.napfa.org).

Using the deferred-compensation program makes sense because of your high tax bracket, assuming you have acceptable investment options. For savings outside that program, tax-exempt bonds would be an option to consider.

Even though I use the standard deduction on my tax return, am I able to offset any capital gains with margin interest paid to my broker?

No. Investment interest is deducted on line 14 of Schedule A, which is the list of itemized deductions. If you don't itemize, you don't get it.

A note for those who itemize: Investment interest is deductible only up to the amount of net investment income you report. You can elect to count net capital gains or qualified dividends as part of your net investment income.

However, that reduces the value of the deduction, since qualified dividends and capital gains would be taxed at reduced rates (5 or 15 percent in 2007).

I remember hearing on TV or reading in the paper that there is a site to receive a free credit report annually. Would you happen to know what it is?

Checking your credit report is a great way to start off the new year. Go to www.annualcreditreport.com or call toll-free 1-877-322-8228. You can get a free report once a year from each of the three primary credit bureaus.

When you get it, check it for accuracy. Look for accounts you never opened and addresses where you never lived, both possible signs of identity theft.

Next week's question

What's your financial resolution for the new year?

To ask a question, make a comment or answer the Money Question of Week, e-mail hhuntley@sptimes.com or write Helen Huntley, P.O. Box 1121, St. Petersburg, FL 33731. Visit her MoneyTalk blog (blogs.tampabay.com/money) for more money information.

[Last modified January 4, 2008, 20:52:59]


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