Dear Mr. Berko: I'm a 79-year-old healthy widower. I'm a retired high-school teacher with wonderful memories, and I still keep in touch with some of my ex-students. I recently sold my house to the family who had been renting from me since 2004, and after all the pages of make-work and paperwork, I came away with a check for $109,000. This family was paying me $1,200 a month. I've been living comfortably in a modest coach house that used to be the garage. For years, my son and his wife have been urging me to join them in their Tallahassee, Florida, home. Their home has a nice "father's area" — with a kitchen, bath, TV room and private entrance — and it sure beats the winters in Detroit.
My problem is that I need about $9,000 a year from the $109,000 I got from the sale of the house. Every year, I take a special journey for six weeks with a couple of male colleagues. All my other living costs are comfortably supported by savings and my pension. At today's low rates, the best I can get on $109,000 without risk is less than 3 percent, which leaves me $6,000 short of the $9,000 I need. I won't ask my son for money, though this is pocket change for him. Apparently, there are many stocks paying 9 percent or better, but I don't have the knowledge to pick the best issues. So I would appreciate any help you can give me to pick the steadiest and highest-yielding stocks. — MS, Detroit
Dear MS: Moving from Detroit to Tallahassee is like moving from Katmandu to paradise. However, if you come across a huge stink that's difficult to place, don't worry about it. That odor comes from the Florida Capitol on Monroe Street, and most residents become used to the rank smell after a few years.
There are plenty of issues that pay dividends of 9 percent or better that I can vouch for today but can't vouch for tomorrow, which is where you hope to spend the rest of your life. I can give you the names of 207 issues with dividend yields better than 9 percent. You may have a remote chance with issues such as Annaly Capital Management (NLY-$11.26), yielding 10.6 percent, Chimera Investment (CIM-$3.33), paying 10.7 percent, and dozens of others with double-digit yields. But I wouldn't take the chance. Short-term Russian and Ukrainian paper will bring you 17 percent and 13 percent, respectively. Long-term Venezuelan bonds bring 35 percent, and there are some mighty attractive yields from Turkey, Argentina and Brazil that knock your socks off. However, the risk factor with these issues is so obscene that you could be arrested for indecent investing, and I could be named as your accomplice.
At a healthy 79 years old, you could easily live to 91 before continuing your special journey elsewhere. So consider putting that cash in a 1 percent certificate of deposit and taking an annual check for $9,000, including $8,000 from principal. In this instance, that $109,000 would last you for 13 years — or perhaps a tad longer if interest rates rise a bit. It's a no-brainer; it's no muss, no fuss and no bother.
A second alternative I sometimes recommend is a single premium immediate annuity. This is a contract in which you give an insurance company a specific sum of money and it guarantees to pay you an income every quarter for the remainder of your life. An insurer would guarantee you, as a 79-year-old man, a 10 percent income on your lump sum, so all you would need to invest would be $90,000. And the insurer would post you a $9,000 check (partially nontaxable) every year, even if you live to be older than Moses or Methuselah. Then you'd get to keep $19,000 in cash for gewgaws, gimcracks and doodads. But there's a caveat: If you were to die next year or four years hence or eight years from now, the insurance company would keep all of the remaining kit and caboodle.
In the end, though, my best recommendation is: Ask your son what to do.
Please address your financial questions to Malcolm Berko, P.O. Box 8303, Largo, FL 33775, or email him at [email protected] To find out more about Malcolm Berko and read features by other Creators Syndicate writers and cartoonists, visit the Creators Syndicate website at www.creators.com.