More on Money Question

After I posted the Money Question from a reader yesterday, several people have commented with their recommendations. For example:

Savvy Steward said: “One option is to either apply it to her mortgage so that she will be debt free sooner, or if she already has the house paid off, invest the money into a facelift/project for the house.” Moom suggested that “Taking the question at face value – this money isn’t needed now but assuming the mother doesn’t have anything in long-term self controlled assets – I would open a Roth IRA and invest in one of those target funds for 2025 or so.” And TFB recommended: “If $1,100 is all Mom has, there’s a much bigger issue than what happens to this $1,100. If Mom has other money and she already has a good investment plan in place, just blend it in. If Mom has other money but doesn’t have a good plan, she needs a good overall plan first.” Krugergold even came up with a money flow chart on where the money should go.

While these suggestions can all be applied to the situation in question, they are based on some kind of assumptions as the question itself is very short without much detailed information. That prompted me to go back to the reader and she indeed provided more on the “big picture”:

… this $1100 that she has is all she has. She had about $700 in the bank. Which is why I didn’t want her to use that $1100 but wanted it to stay there for emergencies. She is really bad off. She doesn’t have great credit, nothing stashed and no real assets. I think I have more assets than she does. So I just wanted to let you know that. I’m thinking if everyone knew this is all she had they would probably suggest she leaves it for an emergency and start off with an IRA contributing the max… See, this is why I was so reluctant about helping her because she is just in a hole as far as retirement but I am determined to help her. But she has to want to stick with it….

Now that we know the whole story, do you have a better suggestion for the reader?

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3 Responses to “More on Money Question”

  1. majic |  Apr 12, 2007 at 11:29 am

    Thanks for the link back! It’s interesting to see how such a seemingly simple question can be approached and answered so many ways.
    The thing is – all of them are correct depending on circumstances!

  2. The Sun |  Apr 12, 2007 at 12:53 pm

    It’s true that without knowing any background information, people will approach the problem differently and the answers can be far apart from each other. Hopefully the reader can find an answer that fits best her situation.

    BTW, I really like your chart.

  3. Savvy Steward |  Apr 13, 2007 at 5:13 pm

    50 years old and $700 saved. That’s a tough one. I still want to know more info. Any expected income from Social Security or pension?

    If not, maybe direct that $1100 towards an immediate annuity and then she needs to start working. More and more people are delaying retirement and working into their seventies. Of course, this probably means that her retirement will be shortened.

    I think the biggest issue for her is unexpected expenses and how she will pay for it. Whether medical expenses or other things, she’ll want a bigger buffer.