Mailbag for Friday, June 8, 2007

Chris Farrell answers your financial questions.

TESS VIGELAND: Hi, I'm Tess Vigeland. And the gentleman seated to my virtual right is our own financial whiz, Chris Farrell. Hi, Chris.

CHRIS FARRELL: And a virtual hello to you, too.

VIGELAND:
All right, are you ready to answer some burning questions?

FARRELL:
Oh, you know, Tess, I love burning questions.

VIGELAND:
All right. Well, before we get to them, please do take down our Web site address, it's Marketplace.org, click on the contact button. Or you can give us a call, we're at 877-275-6669. That's 877-ASK-MONY. And Jay is on the line from Rock Hills, South Carolina . Hi, Jay.

JAY:
Hi.

VIGELAND:
So, I understand you're facing a major career change. Tell us about that.

JAY:
That's correct. I've been for the same company for 31 years and we are about to be purchased by a current competitor.

VIGELAND:
Mm.

JAY:
And in that process, it is very likely that I'm going to be squeezed out.

VIGELAND:
And when might this happen?

JAY:
It's going to be July 1st.

VIGELAND:
This is happening very soon then.

JAY:
Correct. We've known about it for some time, but it's, it's now actually happening.

VIGELAND:
So what's the situation for you?

JAY:
Well, I'm 60 years old and I'd always plan to retire at 62, but this is a situation where I'm highly compensated, and I'm presuming that I'm unlikely to find a position within the next couple of years with a conquerable pay. So, I'm considering whether or not I should take a lower paying job and potentially hurt my ultimate Social Security benefit.

VIGELAND:
Hmm, do you have severance package coming?

JAY:
There is a severance package, yes.

VIGELAND:
And do you think that you could last those two years until retirement through severance and whatever savings you have?

JAY:
Absolutely.

VIGELAND:
Well, Chris, is it a good idea to take a job?

FARRELL:
I think it would be a good idea to take a job. The way the Social Security calculation goes is it looks at your entire earnings history and then it adjusted for inflation, and it chooses the 35 best years.

JAY:
Oh, so it's not the most recent years.

FARRELL:
So, no. That is, you know, where that, I think where that comes from, if you look a lot at the old fashioned, we called it define benefit pension plan, the pension plan you work for so many years, and then you get a payout based on how long you've been at the company, typically, those are based on, depending on the plan, the last two to five years. But for Social Security, it's your 35 best years, adjusted for inflation, and then index. So they come up with a monthly average figure. You can go to the Social Security Web site and they have an online calculator. It's very good. The one thing you get from the Social Security Administration, your earnings history, your sort of benefits history they give you.

JAY:
Right, I get that every year.

FARRELL:
Right. You have to fill that information in, on the online calculator because it's not linked to the Social Security computers and your earnings history for privacy and security reasons, but you can, you know, you can plug in the numbers and you can see what your benefit is going to be.

VIGELAND:
Okay, well good information about Social Security payments, Chris. Does that help you out, Jay?

JAY:
It certainly does.

VIGELAND:
Terrific. Well, best of luck and enjoy your retirement.

JAY:
Well, I'll have to put it off another couple of years now.

VIGELAND:
Yeah. Well, then, I should say good luck with finding your next job.

JAY:
All right, thank you very much.

VIGELAND:
Take care.

JAY:
Bye-bye.

VIGELAND:
And let's hit the e-mail bag. We've got Matt writing in from Turner's Falls, Massachusetts. And he wants to know our thoughts on something called target date mutual funds.

FARRELL:
I like target date mutual funds.

VIGELAND:
Okay, well, there you go. I think we're done.

FARRELL:
There you go. OK.

VIGELAND:
Well, let's do a little explaining for everybody. He's 28 and he wants to get a little more proactive about his retirement savings, but doesn't want to become an expert in the stock market. In fact, he doesn't even wanna try to become a, a hobbyist. So, let's start, first of all, with the definition of target date mutual funds.

FARRELL:
All right, let's keep it real simple. A target date mutual fund is a very conservative strategy for saving free retirement. So, you start the fund with a very clear idea of age you'd like to retire, that's key, and then the types of investments you're comfortable with. And as you get closer to your retirement date, the fund goes away from the riskier investments and towards more safe or conservative investments.

VIGELAND:
Okay, so these are the kinds of funds where you say, I'm just gone leave it alone, I'm not gonna bother about rebalancing it every year, or anything like that.

FARRELL:
Exactly, does all that automatically for you. There's a couple of things to be aware of, however. You don't have to become a stock market expert, but you still have to look a little bit. What's the fees, what's the diversification, are you comfortable with what investments are being made, et cetera, et cetera, et cetera, but you don't have to become an expert on the market, but you are going to have to do some homework.

VIGELAND:
Is this what we refer to when we talk about a lazy portfolio?

FARRELL:
Yeah, it's a lazy portfolio. And you know what? There's nothing wrong with being lazy about the - this is a portfolio for people who, you know, work a lot and to involve in their community, and maybe their other family or their friends. And, you know, they like reading novels, not prospectuses, I mean, if that's you, these are the kinds of portfolios, you should seriously consider.

VIGELAND:
All right. Well, if you want that warm and fuzzy feeling that having you finances in order gives you, we can help. Click on the contact button on our Web site. It's Marketplace.org, or call us at 877-275-6669. That's 877-ASK-MONY. Let's go to the phones again. Emily is on the line from Minneapolis, Minnesota. Hi, Emily.

EMILY:
Hi.

VIGELAND:
How are you doing today?

EMILY:
Wonderful.

VIGELAND:
And what's your question for Chris today?

EMILY:
Well, I am a homeowner, my husband and I own a home in uptown, which is a portion of Minneapolis that's pretty prominent. And with no formal experience in real estate myself, I'm wondering if my husband has a good idea or not.

VIGELAND:
Okay, and what's his idea?

EMILY:
There's a house down the street from us that is in foreclosure and he would like to purchase it with the intent of renovating and placing it back on the market.

VIGELAND:
What's it listed for?

EMILY:
It is actually listed for $275 and typically, homes in our area run right around $500 to $600,000.

VIGELAND:
And does it look like a fixer-upper or just move in and you're all set?

EMILY:
Definitely, a lot of work to be done.

VIGELAND:
Okay, so you would be putting some money in for renovations.

EMILY:
Yeah, we're gauging about at least $100,000.

VIGELAND:
And how would you be purchasing the house?

EMILY:
We would probably have to use the equity that exists in our home.

VIGELAND:
Okay. Well, Chris, this is a question that's coming up more and more often.

FARRELL:
Yeah.

VIGELAND:
As, as foreclosures go out, people are interested in possibly getting those properties at a, a bargain rate. What's you thought about this?

FARRELL:
I wanna toss one other question. Now, if I was buying this home, this fixer-upper, considering the damage that I can do with a hammer and a saw, I'd put you in bankruptcy in a fairly short period of time.

VIGELAND:
So don't hire Chris as a contractor.

FARRELL:
How about your husband?

EMILY:
My husband, actually, is a professional in the field.

FARRELL:
That's absolutely fascinating, because where the edge comes in. Obviously, he knows how to use a plainer and all those things, some sort of making up these terms. I'd walk through a hardware store once or twice, I really have. So, yeah, he can do that. So, it, this is even more than sweat equity, he has a lot of knowledge. So, in the area that you're talking about, uptown. Most people around the country aren't gonna know where uptown is, but it's a very nice section in Minneapolis and it's kind of hip. And so, obviously, I hang out there a lot, too.

EMILY:
I don't know. I haven't seen you around much lately.

FARRELL:
So, in that sense, I really think that you do have an edge. So my questions would be, one, is purchasing the property in foreclosure, making sure that you get as much knowledge as you can, that there aren't any hidden leans that might cause a problem. So, there, your husband, if he doesn't have that kind of knowledge, you may want to hook up with a lawyer or get, at least get some advice from a lawyer so that what he's doing is getting a property free and clear, and then he's gonna add the human capital knowledge. The other side of the question is, you are taking a risk on the debt side...

EMILY:
Right.

FARRELL:
..at a time when the market is slow. And I'm in a camp that does not think that the housing market is going to collapse, but I don't see the housing market turning around anytime soon. What if it just takes longer, you end up owning this property longer. What's the downside? Run the numbers on the downside? This is a business, you're no longer a homeowner. You are now in a business. What could go wrong and how able are you to withstand that downside? It's a risk reward question.

EMILY:
Right. And the questions from my standpoint is, while my husband is an expert in his field, he's not en expert in the finance area, and I'm not either.

FARRELL:
Right. And so that would really, that would make me nervous. The other question I would raise, just as, you know, we're sort of thinking about this, you know. Is there someone who could come in as a partner that you trust, that might be able to spread some of the financial risk? And the other thing would be, okay, maybe this is not the right move, maybe this is a little bit too much risk, but maybe this is an area to start investing in. So, maybe this is the one you're gonna walk away from. But, if your husband is willing to do this type of thing, you know, may be start off a little smaller, learn what are the tradeoffs, how does this really work, and over a period of time thinking about this as an additional business, an additional cash flow, that you're gonna gain some expertise and, but because it's a partnership, I have a feeling you both need to be comfortable with it.

EMILY:
It sounds like that's true. And we had actually considered a partnership and, so that's nice to hear that that's the recommendation as well possibly.

VIGELAND:
Okay. Was that help out?

EMILY:
Yes, thank you so much.

VIGELAND:
You're most welcome. Thanks for the question.

EMILY:
All righty.

VIGELAND:
Take care. Well, you went all of the negative headlines going about real estate these days, people are still willing to risk their fortunes on it. If you're on the fence, give us a call, we'll try to make it clear and simple. It's 877-275-6669, that's 877-ASK-MONY, and we spell that as M-O-N-Y, or visit our Web site, Marketplace.org and click on the contact button. This is Marketplace Money from American Public Media. All right, one more reach into the e-mail bag, Chris. Shaylus (PH) wrote in from Cincinnati, Ohio, and he got a call from a company about a year ago that claimed to have found assets worth about $3,000 based on his old address.

VIGELAND:
Well, the address wasn't 100 percent accurate, it was pretty close, so he contacted the treasurer of the state that he used to live in, but couldn't get any sort of answer. The company says for a 30 percent fee, they'll recover the assets for Shaylus (PH). He knows it sounds like a scam and it certainly does. But is there another way to find lost assets if they're really out there?

FARRELL:
I got the simple, simple way to do this. You go to Unclaimed.org. This is a government Web site, and you'll have a link and the information to, a link to MissingMoney, Missingmoney.org, which is where you're actually do your search. You don't need to pay anybody to do this. You can do it yourself. It's very simple. You get all the information you need and don't pay somebody else to do a search.

VIGELAND:
And is that a national database of unclaimed assets?

FARRELL:
It is. What it is, is that, that is the database of all the people in the various states that are in charged of unclaimed assets. They don't actually own MissingMoney but that is approved by them. And so they will send you to MissingMoney. And then, as an individual, you click on individual assets and then you do a search. And it really is the best way that I know to go about finding out whether or not you have some lost assets out there.

VIGELAND:
What about these things that you get in the mail or in e-mail where they contact you and say that they've found the properties? Is there any reason why you would actually work with these companies? Or is it purely a scam?

FARRELL:
I have no idea if it's a scam. I think, it's, you know, I don't think it's a good use of your money. I don't see why you would do it. I have no ability, frankly, to judge whether or not this is a legitimate company or not a legitimate company. But what I do have, and what I've just given, is a legitimate avenue to find these lost assets. That's the route I would go. Where you do start paying more money is when you get into a different world, where there may be among wealthy people, their search for certain assets, and you're hiring out some real skilled forensic accountants to find things. But when you're just getting something in the mail or an e-mail, my assumption always is, this is not a good deal.

VIGELAND:
All right. Well, Shaylus, we wish you luck and hope that you find that $3,000 that is owed to you. Unfortunately, those are all the questions we can take on this week's show. But please do leave your question for a future program on our voice mail. It's 877-275-6669. That's 877-ASK-M-O-N-Y or visit our contact page on our Web site Marketplace.org. Chris, thanks again.

FARRELL:
Thanks a lot.

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