Q. My 401(k) plan now offers some life-cycle portfolio funds. I like the idea that age-appropriate diversification and rebalancing are automatically provided, but I’m concerned that the trade-off might be lower returns than those I’d get if I managed the investments myself.
A.
A life-cycle portfolio fund is designed for people who don’t have the time, interest, or ability to manage their own retirement portfolio. If you’re willing to research, monitor, and rebalance your investments when necessary, then you may want to manage your own portfolio. But if you are not willing or able to do this, then an age-appropriate life-cycle fund with automatic rebalancing may be for you. As for the trade-off, the range of probable returns is small—success depends more on your saving and spending habits over a lifetime.
Q. I would like to phase down my work hours by working part-time with my current employer. Can I do this and begin to draw on part of my defined benefit pension to supplement my reduced income?
A. Probably not. A defined benefit plan begins at retirement. To be sure, you should ask the pension plan administrator in your company whether you are required to be separated from employment to receive a distribution. If that’s the case, here’s something else you might consider: Before you retire, find out if your current employer can hire you as an outside consultant.
Q. I am 48 years old, and my wife, our two children, and I live in Alabama with my mother in the house she owns. Would it be OK for her to take out a reverse mortgage to help us with finances, like education costs and things we want to buy? When she passes away, can she just leave us the house or do we have to buy it?
A. You would be required to pay off the outstanding debt from the reverse mortgage on your mother’s home when she dies. If you did not have enough money to pay off that debt, the house would be sold and you would get the proceeds left over after the debt was paid. But before you take out a reverse mortgage, consider this: If your mother needed to move permanently to a nursing home for health reasons, the debt from the reverse mortgage would come due once she was living outside her home for 12 months.
