Know your options for money help

Nearly everyone has become more aware of the importance of providing for retirement. It's difficult to escape the advertising blitz extolling the benefits of Individual Retirement Accounts or the time and effort spent by corporations explaining Keogh Plans versus other investment opportunities.

The "plan now" theory is a good one. It not only educates people regarding the plethora of avenues available, but it also will reduce the anxiety on the day the stable, reliable, weekly paycheck no longer is around. Planning for retirement helps people substitute that familiar paycheck with other funds.

But I don't think enough has been said to seniors who suddenly find themselves outside the normal planning road. For example, suppose a retired couple suddenly receives a chunk of money they did not expect. It happens all the time. Without any advance notice, the couple has been "cashed out" of the one rental home they had held for 10 years as a hedge against inflation.

And, when it comes to over-eager marketing pitches, seniors often are leery and confused over the intent of strangers recommending they change their financial plans. They think "What if something happens to me? I am going to need this money at what point in the rest of my life?" The issue is huge, especially with the past three years of health-care change.

I was acquainted with a similar experience not long ago. I had a friend who, in 1997, purchased a modest condominium in Palm Springs from a retired couple in Omak, Wash. The friend, envisioning a future vacation/retirement retreat, bought the property for $130,000 and paid a down payment of $40,000. The retired couple carried the financing for the $90,000 balance.

The couple wanted reliable monthly payments to supplement their income realized from a small downtown tavern. They did not care about possibly a balloon payment after three or five years and hoped the loan would go its 15-year term.

Although the rate on the loan was in line with today's rates, my friend was tired of the drain the monthly payments made on his income. He had saved enough money to pay off the balance of the loan and contacted the couple to see if they would discount the loan amount for cash.

When my friend finally located the contract holder, he learned the husband had died two years ago and the widow eagerly awaited the monthly contract payment. She wanted nothing to do with a cash-out even at full value, despite the significantly higher earning potential of the lump sum. She pleaded with my friend to continue the monthly payments.

According to financial planners, that philosophy is not uncommon among seniors. Many seek predictability and are uncomfortable with change. Some of the people facing this type of situation remember what the Depression did to their families. They have also seen their share of stock market crashes.

Some people would put that lump sum in a passbook account while others would put it in the stock market and try to make a killing. Most, however, find an option in between those two. Often, retirees prefer tax-free investments even though that road might not be the best for their financial situation. Many of them feel they have paid taxes long enough.

Local banks, community centers and senior centers now offer free financial programs geared solely to seniors. The sessions are an attempt to explain the variety of financial choices and options now available and guides seniors to appropriate representatives and resources.

It might even give you some options about where to put the $90,000 that just dropped in your lap.

Tom Kelly's new book "How a Second Home Can Be Your Best Investment" (McGraw-Hill, $16.95) was co-written with John Tuccillo, former chief economist for the National Association of Realtors and is now available in local bookstores. He can be reached at news@tomkelly.com.

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