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Jill on Money: Debt, Annuities, Portfolio for Wimps

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We started the show with a couple of questions about debt. Bob from IL and his wife are in their early thirties, both work and have a six month old. With $60,000 in outstanding student loans at 6.5 percent, should they use mutual funds and equity from a rental property to pay them off?

John in TX has recently paid off his home and is now seeking strategies to pay down some credit card debt.

Phil in NY wanted to know how to find an advisor who gets paid on an hourly fee and doesn't try to sell him anything. As always, I advised him to check out the fine folks at the National Association of Personal Financial Advisors ( and to ask these .

Questions on annuities continue to pour in from all over the country. A listener in FL wants to know what to do with a fixed annuity once it is past the surrender penalty period next February. Remember that if you own an annuity inside a tax-deferred account, you can open an IRA account and transfer the annuity funds directly into the new account without incurring a tax hit. Then you can create a diversified portfolio of no-load index or exchange-traded funds (ETFs) for a fraction of the cost of an annuity.

Some salespeople will extol the living benefit feature of annuities or guarantees in variable and indexed life insurance contracts, These features impose an extra fee, but they can provide the owner with a minimum guaranteed return, or a minimum lifetime withdrawal amount.

One e-mailer pointed out that "being invested in an annuity, with such a guarantee, from years 2000 - 2010 would have been a better choice than being in mutual funds where you realized no gain in your account value." To which Gary Schatsky, Chair Emeritus of NAPFA, notes, "A freak set of economic events had to occur to make these work." The history of long-term market performance wouldn't support basing future investment decisions on the most extreme conditions.

RoseMarie also has an annuity, which she wants to dump. If her annuity is a non-qualified one, then she might want to consider exchanging it for a lower cost one through Vanguard. Section 1035 of the tax code allows you to swap one annuity for similar one without triggering tax liability.

Kathe is retired teacher, whose financial adviser is recommending that she buy a variable annuity. Thankfully, Kathe is worried that she would tie up her retirement funds without any flexibility, which is one of the many reasons not to invest in an annuity.

Tom from PA gets "physically ill" when the market drops, which is why he has $600,000 in cash. I suggested that he consider my "portfolio for wimps" instead of risking inflation and taxes eating away his precious savings. This portfolio might also work for Clark in KY, who has a bunch of money in CD's.

Jill's Wimpy Portfolio:

-- 15% Cash

-- 20% CDs (with staggered maturities or "laddered")

-- 20% Bond Fund (Vanguard's Intermediate Term Bond Index fund (VFICX), Vanguard Short-Term Investment Grade fund (VFSTX), Vanguard Total Bond Market Index Fund (VBMFX), Schwab Total Bond Market (SWLBX), Fidelity U.S. Bond Index (FBIDX)

-- 15% International Bond Fund T. Rowe Price International Bond Fund (RPIBX) or if you want to assume more risk, T. Rowe Price Emerging Markets Bond (PREMX)

-- 10% Total Stock Market Index Fund (Fidelity Spartan Total Market Index, Schwab 1000 Index Fund Investor or Vanguard Total Stock Market Index)

-- 10% International Stock Index Fund (Fidelity Spartan International Index (FSIIX), Vanguard Total International Stock Index (VGTSX)

-- 5% Emerging Markets (Vanguard Emerging Markets Stock Index (VEIEX) or T. Rowe Price Emerging Markets Stock (PRMSX)

-- 5% Commodity Fund (Harbor Commodity Real Return Strategy (HACMX) or for gold bugs out there, Vanguard Precious Metals and Mining (VGPMX))

We covered questions about bonds from Yogi and Texas Sam and then helped Debbie out with a post-divorce financial plan. Don't forget that even if you are divorced and you were married for at least 10 years, you can collect one-half of your ex's Social Security benefits.

Here are web sites and resources mentioned in this week's show:

-- Jill's Blog

-- NAPFA: National Association of Personal Financial Advisors (fee-only advisors)

-- Best CD Rates

-- The ABCs of Annuities: 6 Questions to Ask

-- The Pros and Cons of Annuities

--Immediate Annuity Calculator

-- Annuity salespeople don't like me

-- Social Security: Manage your account online

-- Social Security estimator

-- When to take Social Security?

--Social Security: File and Suspend

-- Social Security: Double-Dipping

-- Retirement Calculator

-- Financial documents: What to shred, what to keep

-- Estate Planning: the Documents You Need

-- NYT Rent vs. Buy Calculator

Thanks to everyone who participated and to Mark, the BEST producer in the world. If you have a financial question, there are lots of ways to contact us:

Call 855-411-JILL and we'll schedule time to get you on the show LIVE

Send an email:

Tweet me: @jillonmoney

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