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Financial expert Michelle Singletary answers questions about personal finance and the economy.
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Growing Retirement Funds
Q: I'm a 52-year-old disabled lady on Social Security. When I was working, I was able to save around $30,000 in a retirement fund. Currently, it is still with the company. What is the best way to grow this money? I have lost several thousand dollars because of the stock market. Is it better to roll it over to an IRA? This is my only savings. I'm driving a 1995 car, and I will need this money for a car one day. I don't know if I'll ever be able to work again. If so, it would only be part-time.
Laury, Minneapolis, MN
A: If you are not happy with the company retirement plan or your investing options, then yes, you can open what's called a "rollover IRA."
With a rollover IRA, you decide how to invest the money. (I'll get to that in a bit.)
It's important to know that if you choose to roll the money over into an IRA, make sure the money is transferred directly from the account at your former employer-sponsored plan to the new IRA. If your company managing the employer plan makes the check payable to you, the investment company is required to withhold 20% of the money for tax purposes. And, you are responsible for making up the missing 20% to avoid the 10% penalty for taking a nonqualified distribution before you're 55½. If you replace the 20%, you get it back when you file your next federal tax return. If you can't make up the 20%, it is included in your gross taxable income.
But, here's my main concern. You don't really have a lot of money. And, you certainly can't afford to lose any more of your money, if this is all the retirement savings you have.
No one knows how long it will take the stock market to recover recent losses. So you might consider pulling what you have left out of the stock market, especially if you'll need to use some of the money to buy a car (a reliable used car I hope).
You might consider laddering certificates of deposit (CDs). CD laddering allows you to take advantage of typically higher rates offered by longer-term CDs while maintaining access to some of your money. So instead of buying a five-year CD, you might divide your money into equal portions and buy a series of CDs that mature at different times. For this purpose, you could buy 30-day, 60-day, 90-day or six-month CDs. This way, you don't have to tie all your money up in lower-paying CDs.
You can find the highest yielding CDs at Bankrate.com. On the site, you can also find a CD ladder calculator to help you figure out how to ladder your $30,000.
It's great that you were able to save $30,000, but right now you need to protect that money, since you will need it in the short-term.
(Photo by m kasahara)