Reader Mailbag: Fresh Salad Greens

What’s inside? Here are the questions answered in today’s reader mailbag, boiled down to five word summaries. Click on the number to jump straight down to the question.
1. IRA worry
2. Replacing a toilet
3. Foreclosure or not?
4. Pension or 401(k)
5. Retirement plan for older folks
6. Sell first or move first?
7. Free financial counseling?
8. Trying to understand treasury bills
9. Best use of money post-college
10. Tithing concerns

For the last several nights, our evening meal has been accompanied by a salad prepared entirely from greens cut from our garden within fifteen minutes of serving the salad.

The leaves are crisp and flavorful. You scarcely even want to put anything else on the salad because the flavor and texture of the salad greens come through in every bite.

Gardening is wonderful.

Q1: IRA worry
I have my IRA with [a major investment house]. This plan contains all of my monies and accounts from previous employees that I combined into one single account, to reduce the paperwork and overhead. I don’t currently contribute to this fund as I contribute to an alternate employee plan instead.

The plan is invested in five mutual funds.

I recently reviewed my first quarter statement and noticed some charges. I don’t know if these charges represent fair value or if I am paying too much. Can you help?

The account balance as of 01/01/2013 was approximately $72,000. I made no contributions (I contribute to an employee plan instead). The account balance as of 03/31/2013 was approximately $76,000. This represents an increase of just under $4,000.

In the statement, however, includes Transaction Details with five separate examples of “Mortality & Expense and Administrative Cost Charges”, where I seemingly sold units of each of the five funds for a dollar amount of approximately $55 each.

This concerns me. If I am paying that much per quater, am I paying $1,000 a year in fees? Is that high? Is that a fair price?
– Stephen

You’ll want to call their customer service line and figure this out because there are a lot of possibilities here.

My gut reaction is that these are annual charges that are tossed on your account once per year, probably early in the year. I don’t know this, of course.

If these are quarterly charges, you should really seek out a new investment firm to do business with. I’ve used Vanguard for a long time and they’ve never hung me with anything like that.

Q2: Replacing a toilet
Our toilet in the downstairs bathroom has started to leak around the base and there are also some problems with flushing it. My husband and I turned off the water and have decided to replace it. Is this a task we can handle on our own without a repairman?

– Marjorie

Almost anyone can replace a toilet if they take it slow and have the right tools. This video does a great job of explaining the full process.

There’s really nothing complicated at all about the whole process. You just turn off the water, unscrew the water feed, make sure every drop of water is removed, remove the nuts at the base, lift off the toilet, remove the wax and wax ring below the toilet, put the new wax ring on, put the new toilet on top, put the nuts back on, reattach the water feed, and that’s it.

If you just move through it all slowly, it’s very easy.

Q3: Foreclosure or not?
Can you please offer a direction on this issue? I took out a very high interest rate mortgage before the economy tanked, thinking that I could refinance in three years after paying off bills. Well after the economy tanked I now owe much more on my home than it is worth (about 30,000). I have a 9% interest rate with a second of 6%. The mortgage is not Fannie or Freddie Mae. The mortgage company does not have to deal with me in any way and you can’t get past bill collectors. I can afford the mortgage now but I can’t make any headway since every penny goes into interest. In 3 years I retire and will definitely lose the house.

My question is do I go ahead and let it go into foreclosure or continue to put all my money into a house that I know I will lose? The house is probably going down in value because I can’t afford ordinary upkeep or any renovations.
– Enid

If you can’t afford this house and you know that you’re going to lose it one way or another, then I’d move on now. Make sure you’ve secured housing elsewhere, then just hand the keys to the bank.

There are a lot of steps you can take if you want to try to fight for this home, but it sounds like you are already significantly behind on your payments to begin with as you’re interacting with bill collectors. It also sounds as if you are pretty certain you don’t have a path to owning this home.

If that’s the case, your best route probably is to exit the situation as quickly as possible so you can deal with the bad credit now rather than later.

Q4: Pension or 401(k)
My new job seems to offer a choice to new employees. You can either get into the company’s pension plan or they will provide some matching into a 401(k). Both require some contribution from me. Which is better?

– Danny

Unless there was something exceptional about the pension program, I would virtually always choose the 401(k).

401(k) plans are pretty much always entirely independent of the future of the company. Assuming the 401(k) is run by a major investment house, it’s likely to be pretty secure and is probably insured by the SIDC.

Pension plans have an unfortunate history of sometimes being tapped by companies when they’re in trouble. A 401(k) protects you from this kind of nasty surprise.

Q5: Retirement plan for older folks
My parents are both going to be 60 in the next year and I’m trying to write out a plan for them on what they should withdrawal when, and from what account. I was hoping you could give me some advice on what I’m trying to plan.

Both my parents are eligible for social security, with payouts as follows. Father: 959 @ 62, 1271 @ 66, 1678 @ 70. Mother: 1497 @ 62, 2044 @ 66, 2768 @ 70. My father has $122K in PERS. My mother has $409K in her work retirement account (average 6% return), $11.6K in a roth IRA, and about 20K in a savings account.

I was curious if I should have them live off of their savings/roth/retirement account/pers until they are both 70, and then claim social security?

That way they would be living on $56,341/year until 70 from retirement accounts, and then $53,352/year for the rest of their lives from social security. Am I considering this properly? I want to make sure I write the correct plan for them!

I do realize I’m not including state/federal taxes (Ohio), which I probably should set aside 30-40% of the above just going to taxes (although I’m not sure how to figure this out, and google hasn’t helped me).
– Ellen

That’s probably the correct plan for them, as it keeps them with a pretty steady income stream throughout most of their lives.

However, I would encourage you to set up the plan so that they’re not actually spending that full amount each year, particularly before age 70. You want to make absolutely sure they don’t “run out” before their Social Security kicks in at age 70.

I would design the plan so that their income is below $50,000 until age 70. That way, when they do hit 70, it becomes something of a raise and they still have further backup in their retirement accounts.

Q6: Sell first or move first?
My husband and I want to move to a rural area outside the city. We’ve already started shopping a bit for houses mostly to get a bead on what we want.

My question is whether we should try to sell our home and then move or whether we should move then try to sell. We have enough money in savings for a down payment for this new home.
– Naomi

If you can afford the mortgage payments on two homes at once for a little while, waiting until after you move to sell your house is probably the best option.

The big reason is that an empty house looks a lot bigger when people are walking through. It also looks a lot cleaner and visitors are less distracted by your home decor choices.

Sarah and I want to be moved out of our current home before it ever hits the market.

Q7: Free financial counseling?
My boyfriends student loan debt and small fixed income is ruining our relationship. He lies awake at night sweating because he is so stressed out about it. His health is declining. It is horrible to watch, but he isn’t doing anything about it. He is not organized enough to take control and make up a spreadsheet, and I don’t have the financial knowledge to do it for him. Is there a free financial counselor or other service we could use to help him set up a plan so he can see a light at the end of this tunnel?

– Mary

There are quite a few reputable credit counseling services. I would stick to this list from the Department of Justice.

Different credit counselors have somewhat different approaches, so it’s hard to guarantee what you’ll get, but most of them will set you up with some sort of plan that can help you move toward paying off your debt. Some will try to negotiate with your creditors.

Many of these services will charge you a fee of some form, but that is often wrapped into the plan that they set up for you.

Q8: Trying to understand treasury bills
I recently came into a nice pile of money and I want to invest it securely for several months. My father-in-law has always talked about buying treasuries so I looked online and found that you can invest in treasury bills for short terms. I don’t understand what it means, though. What does it mean when it has a 0.08 discount and a 0.08 coupon equivalent?

– Darren

Let’s say you’re buying a $10,000 treasury bill with a 0.08 discount. That 0.08 means that over the course of a full year, that investment would earn a 0.08% return, which isn’t much at all. They’re about as low as you can go, really.

If you invest $10,000 in this, you’re earning $10,000 times 0.0008 (the actual return) over the course of a year, which is $8. Per month, that’s a $0.67 return. You’d earn $0.67 a month if you put $10,000 in this investment. Not good.

You would be far better off putting any amount under $250,000 – and I’m assuming this amount is less than that – in any FDIC-insured savings account at this point. You should only consider treasury bills if their rates are beating FDIC-insured savings accounts.

Q9: Best use of money post-college
My husband and I will by next month have paid off one of our student loans, freeing up about $130 in our budget. My husband has a pension through work (he is required to invest 7% I think) and I have a SIMPLE IRA (I invest 3% with a 3% employer match). My husband would like to use the extra cash to invest in our respective Roth IRA accounts – we have not been able to make contributions that last 6 months due to having a baby. Should we put $65/month in each of our IRA’s or should we put the entire $130 into his or mine? We also have other student loan debt [$7700] that has very low interest rates [under 2%]. And we just had a baby and are contemplating opening at 529 college savings account. Where is the best spot for our money, paying off the low interest student loans, saving for our retirement or saving for college?

– Pearl

I would split the money between the two Roth IRAs. The reason for that is to protect each of you individually in the event that you’re separated or divorced. While that might not seem likely, the reality is that many marriages end in divorce.

If you do stay together, then it makes little difference where you put the money. All the separation does is protect you against that outside chance of divorce.

I would put saving for college as the lowest priority. I’d probably put saving for retirement as the highest priority due to the very low interest rate on the student loan, provided that it’s a fixed rate and not a variable one. If it’s a variable rate loan, I’d switch my focus back to it should interest rates ever rise.

Q10: Tithing concerns
I am dating a woman who is an active member of a different church than my own. We both tithe 10% of our income to our church. How should we plan for this when we’re married?

– Adam

I’m going to assume that you’re attending different churches after you get married. Otherwise, this really wouldn’t be a question.

If that’s the case, I would tithe 10% of your income to your church, and your wife should tithe 10% of her income to her church.

Still, if you are independently holding religious views that are different enough from each other that you can’t attend the same church, I would be very careful about marriage. The issue of a significant portion of your family income going to a religious organization you don’t believe in is going to grate on both of you over time. There’s also the spiritual compatibility concerns. Be very sure about this before you make a commitment.

Got any questions? The best way to ask is to email me – trent at thesimpledollar dot com. I’ll attempt to answer them in a future mailbag (which, by way of full disclosure, may also get re-posted on other websites that pick up my blog). However, I do receive many, many questions per week, so I may not necessarily be able to answer yours.

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