Motley Fool Answers: Annual Mailbag Edition

By Markets Fool.com

While it's still sort of a thing, the whole idea of a mailbag is slowly receding into the past.

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A mailman might carry one, but physical mail has become markedly less important, yet the concept of a mailbag as a repository for letters -- even digital ones -- remains. In this episode of Motley Fool Answers, Alison Southwick and Robert Brokamp bring in some backup to help them dig through their mailbag.

Sean Gates and Joe Perna from Motley Fool Wealth Management (a sister company of The Motley Fool) join the show to help talk about investing, retirement, and insurance. The group examines how savings and investment changes for younger versus older workers. They also break down how to decide what should go into a 401(k) and what should be invested in a taxable account.

A transcript follows this video

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This podcast was recorded on Sept. 6, 2016.

Alison Southwick: It's the September All-Mailbag episode.

Robert Brokamp: You've been looking forward to it all year long.

Southwick: This is the big one. This is the big one we've been waiting for all year. That's not true at all. Today, we're going to answer your questions about whether to max out your 401(k) or take arms with buying individual stocks. We're going to talk about options for when you're running out of money in retirement, and lots of insurance (like long-term care, and whole life, and all that good stuff).

Brokamp: So, get excited, everybody!

Southwick: If you're lucky, we'll maybe work in some taxes!

Joe Perna: Get some caffeine in your system.

SouthwickWe have fun. All that, and more, on this week's episode of Motley Fool Answers.

SouthwickSo, for today's Mailbag episode, we're going to get some help from a couple of planners from Motley Fool Wealth Management (a sister company of The Motley Fool) and those planners are Sean Gates and Joe Perna. Thanks, guys, for joining us.

Perna: Thanks for having us.

Sean Gates: A pleasure.

Southwick: OK. Let's get into it. I don't know. I don't know what I expected you to say. Maybe "It's an honor to be here" or "I love you guys. I listen to the show all the time."

Brokamp: This will be the highlight of my year or something like that.

Southwick: This will be the highlight of some short amount of time in your life. This will be a good time. So, we'll just get into it. John B. writes: "A friend recently mentioned that it doesn't make sense for people our age, in our late 20s... " Yes, John, that is our age should anyone ask. I am in my late 20s. "... to be investing in a personal brokerage account if not maxing out a 401(k)." He continues: "I contribute 11% to my 401(k) with an 8% employer match. I also contribute biweekly payments to some index funds in a side brokerage account. Does it make sense to bump up my 401(k) contribution and eliminate my brokerage contributions?" Perna, this one's going to you.

Perna: Yes. I would say [good for] John B. for saving diligently into the 401(k). It's good to get started early, so late 20s I would say, is starting fairly early.

Southwick: Yeah, that's good.

Brokamp: That's pretty good.

Perna: And saving 19% will mean taking into account the employer match. That's pretty hefty. That's a good chunk to be putting toward the retirement plan. When thinking about saving into a 401(k) in the taxable account, I like the idea of having a taxable account due to the flexibility that you have.

That flexibility is huge when you're thinking about down payments for a house. When you're thinking about wedding costs if you're not married yet, or wedding rings, or automobile purchases. All of those things. Cost funds -- you need to be using money. When it's tied up in retirement accounts, you can't access those funds as easily.

So, those taxable accounts, I think, are great. To me, the flexibility is fantastic and I would say 19% is a good amount to be putting toward retirement. Additional flexibility is fantastic. I think there's not a problem, there, and I would disagree with your friend. Maybe defriend him on Facebook.

Southwick: Oh, ho, ho.

Perna: Maybe not that far. But I think you're doing a great job, John B.

Southwick: So the next time a friend recently mentions that, then he can say, "No! I enjoy the flexibility that my taxable accounts give me because I plan on getting married and doing all these wonderful things with my life."

Perna: That's right. Stay out of my business.

Southwick: What do you know about me? You don't know me, friend!

Gates: The next time he talks to people, he won't have anyone to go to because he will have alienated all of his friends.

Southwick: Who were just trying to help. Oh, man. The next question comes to us from Fernando: "Should I take a $10,000 401(k) loan" not withdrawal "and use it to pay part of my student debt? The way I see it is my student debt has an interest rate of 6.84% and the average market return is about 6-8%, but it is not guaranteed." Gates, what do you say?

Gates: I say go for it. I think there's a lot of controversy out there about 401(k) loans from your typical financial advisory groups, and they usually bring up worst-case scenario types of things. Should you lose the job, you have to pay it back within a certain period of time. A pretty short period of time. The interest is usually amortized over five years.

But those things usually don't occur and so there's a huge benefit, as you stated, to getting a guaranteed rate of "6.84%" against your loan and you're going to pay yourself back in interest.

The one caveat that I would just make you aware of is that the interest that you pay yourself is double taxed, because you're making the payments with after-tax dollars, and then you're going to get taxed on it again when it comes out in retirement. But that's a pretty small amount. You would hope to keep the interest fairly small as you pay it back quickly.

Brokamp: Right. One of the appealing things about a 401(k) loan is the rate can be rather low. Often, it is one point above prime. Nowadays the prime rate is 3.5% so you're looking at about 4.5% for most of those loans. That is certainly one reason why you might consider doing this. But it is important to know that if you plan on leaving this job in a year because you got your MBA, then you're going to be expected to pay back that loan, or it will be considered a distribution. You'll have taxes and penalties.

Gates: I would also recommend checking out a website called earnest.com. It's a new robo-y, advisor type thing. It's set up for folks who are in a pretty good job. They do a lot more due diligence on the recipient of the loan, but there are some great interest rates out there for folks who have a solid job and you might be able to consolidate your student loan debt as opposed to taking out a 401(k). Again, the 401(k) seems like a fine idea in your case, but just another avenue to explore if you'd like.

Southwick: The next question comes from Bill. He writes: "My father-in-law, who's now 81, provided for his family for years and didn't save enough for retirement. He has less than $10,000 in savings. He does get Social Security. His wife was never employed, so she doesn't collect Social Security. One of his daughters convinced him to do a reverse mortgage with some more home equity available when needed.

"Generally speaking, what are the options for him to make his cash last as long as possible, and are there any solid ways he can help himself or we can help him? He's a prideful man and doesn't like the idea of us helping, so we're a bit stuck. So far we're doing small things to alleviate expenses, like paying for his cellphone plan." All right, Joe...

Brokamp: That's a tough situation.

Southwick: ... this is like the worst nightmare, right?

Perna: Yes.

Southwick: You're not going back to work. You are running out of money.

Perna: And so the cash position -- you really don't want to be putting those funds at risk in the market. You really want to be keeping that in cash or maybe CDs. Maybe short-term bonds. But because you're going to be requiring those funds to be paying for your living expenses, to put them at risk and potentially see some volatility in the market is just not a great idea. So, I would not be saying to put that money to work. I would say to keep it in cash for the time being.

One thing I do want to point out is you mentioned that your mother-in-law didn't work and so she's not eligible to collect Social Security. And while that is the case, she does have the ability to pick up a spousal Social Security benefit on her husband. She's eligible to receive up to half of his benefit at full retirement age, so if he's making $30,000 in Social Security income, she could be eligible to get $15,000. If that's not something that you guys have looked into, you certainly want to do that with the family. That's an additional source of income that will be really attractive to the family.

Brokamp: And a reverse mortgage probably makes sense for them, right?

Perna: Yes, I think so. You might know a little bit more about the reverse mortgage, so you might want to speak to people on that.

Brokamp: It's a way of using your home equity. If you're 62 or older, you take out the loan. It can be a monthly check. It can be a lump sum. It can be a line of credit. And you don't have to pay it back as long as you live in the house. So, if he plans to live there forever, it's a good idea. He won't have to pay it back...

Southwick: Or his wife?

Brokamp: Or his wife. And if the loan ever grows to be worth [more] than the value of the house, you can't come after the estate. The bank can only get the value of the house once it's time to pay off the loan. I look at it as a big, fat emergency fund for retirees. But in this situation, it sounds like he is in an emergency, and a reverse mortgage is probably a smart thing to do.

Perna: It's an underutilized thing. People don't realize that they can tap that equity. It's definitely a backdrop or a backstop on someone's retirement income. If they haven't saved diligently enough, it is a great play. It's a great source of income.

Southwick: Are there any shysters out there in the reverse mortgage industry that you need to look out for?

Brokamp: You definitely have to be careful with them. They have high up-front costs. Those have come down significantly. The best sources for information about reverse mortgages is HUD (Housing and Urban Development) and AARP has good resources, too, but you definitely want to make sure you're getting a good deal from it.

The only other thing I would say is many cities, states, and counties have resources for low-income elderly, so you would definitely want to see what's available. There can be breaks on property taxes and maybe other services that can be provided.

Gates: And for all you listeners out there, that's a warning to make sure that when you're doing your planning, pay attention to your family, because they're money-grubbing people.

Southwick: Oh, no! It's a lesson like when you're in an airplane and it starts going down, you need to put your air mask on yourself first, and then help those around you, because it sounds like his father-in-law was very generous and probably didn't worry about himself as much as he maybe should have.

Brokamp: Right.

Southwick: The next question comes from Rex, who is a CFP, by the way.

Brokamp: He must be smart.

Southwick: He must be smart.

Brokamp: And we have three CFPs here in the room.

Gates: Do we need to wrestle?

Southwick: I feel like he probably already has an idea what the answer is and he's just waiting to see if you guys are going to get it right.

Brokamp: He's testing us.

Southwick: He's testing you. Rex writes: "When applying rules of thumb to your retirement accounts what, if any, adjustments should you make for Roth holdings? If Southwick," for example, "has $500,000 in a traditional IRA and Brokamp has $500,000 in a Roth, Brokamp has more money because he doesn't have to pay taxes on his withdrawals. With taxes running at 25%, Brokamp has $125,000 more available to him. I think that is a difference that should warrant an adjustment."

Brokamp: Do you agree, Sean?

Southwick: Do you agree, Sean? Rex would like to know.

Gates: I know. You've set me up, Rex, because there's not an awesome answer to this question.

Southwick: Or maybe you just don't have an awesome answer.

Gates: That's all right. I'm not awesome and so I'm leaving this show. There are rules of thumb. There aren't a lot of rules of thumb that are talked about very widely. One of the primary rules of thumb -- and this is just industry-specific -- is you try to diversify your tax buckets more broadly, so the rule is one-third, one-third, one-third. So try to have one-third of your assets in pre-tax or tax-qualified buckets; a third in completely after-tax or taxable, as Perna talked about earlier, and then one-third in Roth, which is completely tax-free.

To your point on the $500,000 versus $500,000, you would make an adjustment, but I would caution folks, because having $500,000 is not assumed in both cases, because it's going to take longer to get $500,000 in Roth accounts because you pay the tax up front, so you don't have as much available to fund the accounts -- whereas if you do pre-tax, you get that tax savings and it compounds over time.

Brokamp: I will say that I'm a big fan of retirement calculators, and there are a lot of them out there that try to make it very easy (and make it too easy). And whenever I see a calculator that does not differentiate between whether an account is traditional or a Roth, I immediately think it's invalid, because Rex is right. It should be accounted for somewhere, and that's one way to do it in a good retirement calculator.

Gates: And it just gets really complicated, because you can't even account for the flexibility, as Joe was talking about earlier, as well, that a Roth account affords you. So as you approach retirement, if you're able to retire early, you might be able to accelerate income from that Roth and that just further adds to the benefit that it provides. So I would say there definitely are adjustments that you need to make and we just need to come up with better rules of thumb together as CFPs.

Southwick: The next question comes from Kevin and Karen. "We listened to today's podcast where you answered a listener email regarding insurance. One item you didn't mention is long-term care insurance. What are the pros and cons, things to consider, and [what are the] different types with different coverages?" First off, what is long-term care insurance?

Perna: Long-term care insurance provides coverage in the case of a long-term care event, which means that you lose two of the six daily living activities.

Southwick: This is getting very complicated.

Brokamp: It's very technical.

Southwick: Two of the six daily...? What are my six daily living activities?

Perna: Yeah, and I'm going to need some help, here, too.

Gates: You have your own set, Southwick.

Southwick: I do. I think I probably do.

Gates: Indian food is one of them.

Perna: Being able to eat yourself. Being able to wash yourself. I'm flaking on the others.

Brokamp: Toileting. Basically the activities of daily living. Things you need to do to function as a human being. If you can't do them, then other people have to do them, and that's an important part of the policy if you get long-term care insurance. What exactly qualifies as a long-term care need, and when will the policy kick in?

Southwick: But basically you've been injured, or you're just getting older, or you're sick...

Brokamp: Right.

Southwick: ... and this insurance kicks in to cover the cost to keep on living.

Gates: If you think dementia that usually takes care of a lot of inability to do those activities. It's more the neurological diseases a lot of the time, but that's on the rise.

Southwick: But it's not like health insurance. It doesn't cover doctor stuff.

Gates: Right.

Southwick: It covers a woman who comes in and feeds me every day, or something like that.

Brokamp: Right. Does some shopping or things like that.

Southwick: Ooh, shopping! That is one of my daily things. Shopping!

Perna: That's a great question and it's on a lot of people's minds. A lot of the retirees that we speak to certainly have this question and the argument tends to be do I self-insure or do I buy long-term care insurance?

One question is does everyone need long-term care insurance? I would say no. Firs,t you need to see if it's affordable for you in your situation, so have you done sufficient retirement planning? Do you know that you have enough assets to cover the expenses that you'll have in retirement? If that's the case, and you could potentially afford the long-term care insurance, then you can go down that path and see the different types out there. Take a look to see what might be the most affordable option for you.

The issue around long-term care insurance tends to be the inflation associated with those expenses. They've risen at about 6% over the past 20 years. That's a lot of inflation on those expenses, particularly when you look at other inflation like energy prices, house prices, whatnot.

Southwick: So [with] healthcare costs?

Perna: Long-term care expenses, specifically. Having some insurance to cover that inflation that is going to happen. And with that trend, if it continues, you need to have something in place that's going to try to at least keep up with that inflation. So if you can afford it, buying long-term care that does have inflation protection is very important.

There are several different types of long-term care insurance; specifically of the traditional type, which is going to be similar to homeowner's insurance, where you pay for it. If you never have to use it, it just goes away, and if you pass away without using it, it doesn't get used at all.

Another type is the form associated with life insurance, so it's called an accelerated death benefit rider. If you do not use the benefit for long-term care expenses, it's going to be left over as a death benefit, like a traditional life insurance policy. The last one is an upfront, lump sum option that you can pay something like $100,000 for a certain defined benefit amount over a three-year or six-year time frame.

So you can structure all these policies. They can get complicated. Working with someone who knows that space very well is important, and knowing how the payouts on those policies work is very important. It does get complicated. I think it is an important policy to consider, but after you've wrapped up your retirement planning is where I would look to see it fit into your plan.

Southwick: Weren't we going to offer this benefit at The Motley Fool, but then no one took it?

Brokamp: Yes. It's a tough insurance because, first of all it is not cheap. If you are in your 50s and looking at a policy, it's going to run you about $3,000 a year. And they'll say the price is fixed, but then change it later...

Southwick: That's not what fixed means!

Brokamp: I know, because the insurance company can appeal to the state and say, "Listen. We underpriced this policy. We need to raise it on everyone." It's happening to my mom right now. So what happens is then people are like, "I can't afford that," and they stop paying. Now they don't have the insurance.

The truth is the vast majority of long-term care (which is basically some way to help older folks who need it) is provided by friends and family. Only about 10% of it is provided fully by professionals. So the first question is really "who can take care of me." And some families want to make it their priority that we take care of our older relatives.

But if not, then what you rely on are assets. It's about $80,000 a year to be in a nursing home, these days. And then the backstop after that is Medicaid, which actually provides most long-term care for Americans. Whether you're comfortable or not is another question, because then the government is deciding the type of care you receive.

That's basically what happens with all of this, but if you have the resources for the insurance, as Perna said, it's a good idea, but it's not cheap.

Gates: And just to clarify. Bro said Medicaid, not Medicare.

Brokamp: Right. That's very important. Basic Medicare that most people have once they're 65 and older does very little for long-term care. Virtually none.

Perna: Another interesting thing about the benefit on long-term care policies is you have two different types of payouts or benefits. You have a reimbursement policy and an indemnity clause within the policy. You mentioned that friends and family tend to do a lot of the caretaking of relatives that have that type of event. An indemnity clause on the long-term care insurance actually would pay out just the amount.

So, if you are guaranteed $6,000 a month from the policy, that amount would come out to you. You could use it to pay your friends and family for that care that they're providing. You don't need to have receipts from the expenses that you incur. So, those indemnity clauses are something that if you are looking for long-term care, it's a type of policy that you'd want to be on your policy. You always have to pay a premium for it, though.

Gates: I always make a plug for financial planning in general, and this area really crystallizes why that's so important, because as Bro said, his mom's policy is changing. Planning is a reoccurring thing and when she goes to make the decision on whether or not she should make alterations to that policy, having Bro there to help her make that decision will result in the best outcome for her, instead of just defaulting to whatever option the insurance gives you.

Perna: And as I mentioned, with the inflation on these policies... I know that we keep going into this...

Southwick: That's OK. Let's keep talking about inflation on insurance policies. This is good. Your turn.

Perna: ... it's funny that [crosstalk 00:19:46] because inflation on these policies is what actually, a lot of times, causes the premium increase. It's because they've been inflating these things and compounding these at sometimes 5% a year. I've come across some of our members' policies that they've had in place for about 15 years or so. They've had 5% compound inflation on the benefits and now they're insured for $15,000-20,000 worth of monthly benefit for their long-term care.

They can opt out of continued inflation on the policy and their premium would not increase. Sometimes that is an option, so if you do get a letter saying that your premium is increasing, if there are options around it, look at those options and understand what they're trying to charge you more for.

Southwick: This is super complicated.

Brokamp: It sounds like we need a whole episode on long-term care.

Gates: And one on inflation.

Southwick: Need or wants?

Brokamp: Need!

Southwick: Now I don't think there is anything more about inflation on insurance premiums, because I think we're done. John writes: "As I type this, I am listening to how people screw up their retirement. My biggest concern is healthcare. Are there any good tools for preparing for this eventuality? We currently put a good percentage into our 401(k)s and we max out our HSA. Should one count on Medicare to offset the majority of their healthcare costs late in life? Is there a good health insurance product out there for the retired elderly?" Let's keep talking about insurance premiums. Let's go. Let's do it.

Gates: You have to be careful about inflation on Medicare. No, that's not right at all. This is actually a fantastic question, and I think a lot of financial bigwigs and planners out there don't know that much about the Medicare space and health insurance for retirees, or know very little. That includes me, so I'm going to stop talking now.

So, the key thing is that you have an HSA. That is the best account that exists.

Brokamp: It stands for health savings account, by the way.

Gates: Health savings account. And the reason that it's the best account that exists is because it's tax-free on both ends. You get a tax deduction as you contribute to the HSA, and then when you go to withdraw from the HSA, it's tax-free if you use it for medical expenses. And medical expenses can include your Medicare premiums.

However, once you reach Medicare age, you can no longer contribute to an HSA, and so there's sort of a finality to that account, different than some other accounts, and that is your best resource. Otherwise, you would want to look to Medigap policies.

We won't go into the enormous amount of detail that exists on Medigap. I will just say the hilarity of it is that there are Medigap policies that include the letters A through G, I think, and they each list out various, different benefits, so it's a huge ball of wax in terms of the detail that gets in there.

Brokamp: And it depends on where you live, and not all policies are available in your area, so it definitely makes sense to go to sites like Medicare.gov to see what's actually available to you. But it is important because when you work, if you have a good job, you're used to your employer paying for the premiums for your insurance.

And then when you retire, you're on your own and you have to do it yourself. You have to look at policies, and choose them, and see what fits your budget, and you have to match them up with your particular ailments. It's actually quite complicated, and it's something to be thinking about many years before you retire.

Gates: And to answer your question more poignantly about whether Medicare is enough, it's not. We often model about $4,000, roughly, per year, for everybody of additional expenses, even assuming that you have Medicare, and part of the reason for that is Medicare doesn't cover dental, at all, and dental for older folks can get quite expensive because your teeth start falling out because you're old.

Southwick: Sorry. Spoiler, John.

Gates: One final thing I would mention is that the HSA account, combined with Obamacare, is a super-powerful combo, because HSAs are only allowed on high-deductible plans, typically. There are a lot of high-deductible plans available through Obamacare, so if you are an early retiree, there's a massive opportunity to combine those two things and really have a nice healthcare plan in place.

Southwick: I think that nailed it.

Brokamp: That was good.

Southwick: The next question comes from Patrick. "I am currently 46 years old with a net worth of approximately $4 million. In addition, I have two term life insurance policies. Over the years, both my insurance rep and my financial advisor have tried to convince me to consider purchasing or converting to whole or universal life policies. I have yet to hear a convincing argument to justify buying very expensive permanent life insurance policies, overtaking the annual premiums and investing them myself." Can you walk me through the difference between whole and universal? What's going on in Patrick's life right now?

Perna: The most basic breakdown is going to be term versus permanent. Term is as long as you pay the premiums, there's a specified term that's going to cover. The most common is going to be something like a 20-year term policy. You pay the premium every year for 20 years. Once that's done, the insurance goes away unless you try to renew that.

Permanent insurance, as long as you pay the premiums, the policy is going to stay in force until you pass away. Term insurance policies are going to be much less expensive than something like a whole life policy, which is a type of permanent insurance. That's going to be the most expensive type of policy.

The one thing I'm going to say is it's not a surprise that they're trying to push him to do permanent insurance because here's a tip: They get paid on the first year premium of those policies. So when you convert that policy -- if it's $10,000 for that new permanent insurance policy, they're going to get paid close to $10,000 in commission. So one thing to be aware of is they do have some incentive -- I would say misaligned incentives in this case -- for trying to sell you on that permanent insurance policy and trying to convert that term.

That being said, there are some times that I think permanent insurance makes sense for someone's financial plan. One thing in particular has to do with estate planning. So with Patrick's example, if he lives in New Jersey, which has a pretty terrible estate tax (it's a bad state to die in, unfortunately) but with $4 million in an estate, you'd be subject to about $350,000 in estate taxes that your family would have to pay New Jersey at your current net worth.

That's a lot of money that goes to just pay taxes. So if you have a life insurance policy set aside for your family to just cover those costs in a tax-free manner, it might be a better way to transfer those funds rather than paying Gov. Chris Christie, at least at this time.

Gates: And New Jersey is not just a bad state to die in, by the way. It's also a terrible state to live in.

Southwick: That's not true.

Brokamp: Bing!

Southwick: Bing? Come on. Listen to our show where I ream South Dakota every five seconds.

Brokamp: That's true. But generally I would say Patrick's instincts are correct. That it's better to get with term and save the money or invest the money rather than buy whole life. Part of the issue with whole life is you get insurance and an investment component where you're building up the cash value, but it doesn't often build up very well. As an investment, it's often not very good.

Southwick: Can I ever buy life insurance without someone getting a kickback? Or is that just how it's set up? If you're going to buy insurance, someone's trying to sell you something where they get the most kickback out of it.

Brokamp: For the most part, that's true. Even if you go online to a website and get the policy through the website, you'll find that behind the website is actually an insurance agency and someone is getting a commission. It's just that term commissions are much lower than whole life policies, or universal, or variable life.

Gates: Significantly lower, so I think that's the key. If you see a $200,000 term policy, the agent might get $150 to $250, so just in terms of comparison to the permanent insurance, that's where the misaligned incentives can come in. But I think there's always a commission associated with it, because in order to sell insurance, you have to get licensed, and there's a whole system involved that costs money.

Southwick: And I don't want to make it sound like selling insurance is like a charity or to make it sound like I expect an insurance salesman to do it out of the goodness of his or her own heart; but if they are always incentivized and if A is better for B for them, then naturally they're going to be recommending A and it is always the case that they're going to have that struggle.

Gates: Yes, I think so.

Brokamp: I think so.

Perna: I just ran across a client the other day where I actually had a phone call with the insurance rep that sold them the policy. Basically, he converted $1 million of term into $1 million of whole life, which is a $36,000-a-year premium. It's an exorbitant amount, but [for] the insurance salesman it was do we convert $500,000 or $250,000. That didn't cross his mind. It was like this is an easy, convenient, seamless sale for me to do, but how did it fit into the guy's plan. To me, that was not a part of his logic when making that decision or recommendation.

Southwick: So, be extra careful. Way to go, Patrick, for being skeptical. The next question comes from Ellie. "My dad was generous enough to set up an IRA for me when I was a teenager. He's awesome." He sounds like it. "I haven't paid much attention to it, but now I'm looking more closely at my overall financial picture. The IRA is in a 12-month CD at a variable rate of 0.75%. I wasn't aware that this kind of IRA was even a thing, and now I'm worried that I'm not getting the best return. How is a CD IRA different than an investing IRA, and which makes more sense long term?"

Gates: It's a good question, and it's kind of funny because I think a lot of people's intro to investment products comes from banks, and so this is a natural segue for a bank to say, "Hey, we deal in CDs and safer investments. Why don't you create an account with us for your IRA?"

They're not really different vehicles, to any extent. The IRA and the individual retirement account is the individual retirement account. It's just a shell account where you can put funds. Whether you choose to invest those in the stock market, or in an annuity, or in a CD is up to you as the individual, and in this case, you happened to inherit a CD.

Depending on your age -- it seems like you're pretty young, still -- this is probably not optimal. I would suggest that a CD is not the place for your IRA to be because your IRA is money that you want to utilize in the future, and so you would hopefully want that to grow and stocks are probably your best place for that. The CD more belongs for your taxable assets or your safety net -- your cash reserves.

Perna: Gone are the days that you can get a 5% CD or that this makes sense. In this low interest rate environment, this 0.75% is not going to cut it.

Brokamp: Yes.

Southwick: Well, that is the last question for today. Thank you guys for joining us.

Brokamp: We made it.

Perna: Thank you so much for having us.

Southwick: This was wonderful. And you guys kept the inappropriateness to a minimal level, which I appreciate.

Gates: Where's my hand?

Brokamp: Oh, there it is.

Southwick: There we go. We got more postcards! You guys don't know this, but I have been asking our listeners to send in postcards from all over the world...

Perna: That's awesome.

Southwick: I know. It is awesome. So we got one from [Jay Neu]. He went to Cooperstown, and so he sends greetings from the All-Star Village (a bunch of kids playing Little League), which is pretty cool. He says, "Baseball Answers."

Perna: It should be Williamsport if we're talking about kids playing baseball.

Southwick: Well, it's a picture of kids playing baseball. Why Williamsport?

Perna: That's where the Little League World Series is. Pennsylvania I'm trying to represent.

Southwick: Oh, you're from Pennsylvania?

Perna: I am.

Gates: Send a postcard.

Perna: The next time I'm there I will. Bethlehem Steel. Some steel stacks. That will be well sent.

Southwick: Yes, send me a steel postcard. That will be great. But it's some kids playing baseball, and it says, "Cooperstown All Star Village."

Brokamp: Cooperstown, by the way, is a beautiful, little town.

Southwick: Is it?

Brokamp: I love it. I absolutely love it.

Southwick: We also got one all the way from Melbourne, Australia.

Brokamp: Wow!

Southwick: And this is coming from Matt, who actually is from New Jersey, but he is living in Melbourne and is on a scientist exchange program for the U.S. government. He said he looked into our antipode -- which is, I guess, the farthest distance away from us -- and he says it's in the Indian Ocean and it looks like Perth is the farthest city that can write us a postcard.

Brokamp: All right, everyone from Perth.

Southwick: Send it on in.

Gates: All you lost souls. All you lost souls in the Indian Ocean.

Southwick: See if you can figure that out. And then we also have one from DJ who sent one from Missoula, Montana, which is a town near and dear to my heart, because my family goes way, way back. I've got roots. I've got serious roots in Missoula. It looks like he spends his time driving around Yakima, Walla Walla (a city so nice they named it twice), Spokane, Kalispell, and Missoula. So, if this postcard of Missoula, Montana, was pulled out a little farther, I could point to my dad's house and be like, "That's where my dad is right now."

Brokamp: Oh.

Gates: That is so sweet.

Southwick: So, thank you, everyone, who sent in a postcard. You guys are awesome. Honestly, I squeal at the front desk.

Brokamp: She loves it.

Southwick: I love it! Love it! Also, one more fun announcement. If you have an Amazon Echo -- do any of you guys have an Amazon Echo?

Brokamp: I don't.

Gates: I don't yet.

Perna: Nope.

Southwick: Apparently people really like them. The Amazon Echo is like a little speaker. You talk to it. And you're like, "Hey, Alexa." I don't know why you say Alexa, but you do. You say, "Hey, Alexa, turn on the lights. Or play me this. Or do that. Or whatever." It's a brave new world.

Anyway, the point is that if any of our listeners own an Amazon Echo, they can now include Motley Fool in their flash briefings, and they can also say stuff like, "Alexa, play Motley Fool Answers." And it will be so!

Gates: Wow!

Southwick: People will feel like a god in their own house!

Perna: My dad tried to use that. My brother-in-law brought his Amazon Echo and we got it for Christmas. My dad was just in love with singing songs that he could just pull out of his head. Play this. Play that. That's the only thing he'll ever use it for, but he'll pay the money just to get it.

Southwick: Yes!

Brokamp: That's kind of cool.

Perna: It is.

Southwick: It is kind of cool. Now you can tell your dad, "Dad, yell at it to play this episode of the podcast," and he'll be like, "Oh, my God. That's my son."

Perna: Right.

Southwick: But he'll say that in a [calmer] way than how I said it.

Brokamp: Probably a deeper voice.

Perna: Oh, my God. It's my son! My son! So proud.

Southwick: Oh, that's awful. I'm sure your dad does not sound like that.

Perna: He's a great man.

Southwick: I'm sure he is. I'm sure he is. I'm certainly not making fun of him. So, that's the show. Again, thank you, guys, for joining us. Of course, we will have another Mailbag episode at some point in the future. You can send us your letters by writing to answers@fool.com. You can also call us at (866) MRS-FOOL and leave a voice mail. And Twitter. Facebook. We're everywhere.

Brokamp: Everywhere.

Southwick: The show is edited perfectly by Rick Engdahl. For Robert Robert, and Sean Sean and Joe Joethis time, stay Foolish, everybody.

Sean Gates and Joe Perna work for Motley Fool Wealth Management, LLC (MFWM), an affiliate of The Motley Fool, LLC, and an investment adviser registered with the U.S. Securities and Exchange Commission. The views expressed herein are those of Mr. Gates or Mr. Perna and do not necessarily reflect the views of MFWM or any of its affiliates. These comments may not be relied upon as recommendations, financial or investment advice or an indication of trading intent.

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