Reader Mailbag: Marriage and Freedom

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. Last-minute retirement savings
2. Personal finance suggestions are unrealistic
3. Assessing state of a car
4. Emergency fund for debt?
5. Never want to retire
6. Breaking routines
7. Savings account or HSA
8. Claim parent as dependent
9. Bad personal finance during bubble?
10. ChargeSmart

A single friend of mine who has been thinking of marriage lately asked me whether I felt my marriage to Sarah was a net positive and whether there were drawbacks to marriage. Here’s what I wrote to him, which I’m sharing here because it might be of use to some of you.

“Everyone who is married will give you different answers about what’s good and what’s bad about marriage because, when you get down to it, marriage is about compromising some elements of your single life in order to gain the benefits of married life. For some, the things you lose might be more important than what you gain, which will lead to misery; for others, the things you gain trump what you lose.

For me, the biggest compromise has been social freedom. Before I was married, I would spend almost every evening out with ‘the boys’ doing something. After marriage, I had to slowly curtail many of those evenings in order to build a successful marriage with Sarah and, a bit later, to be a responsible parent. I miss those evenings sometimes, but I feel that the strong relationship I have with Sarah, which involves having a close friend around most of the time, a person who has my back in every instance, is well worth it.

I can’t tell you what you’ll be compromising in marriage. It’s often hard to tell before you’re married. My strong advice to you if you choose marriage is to constantly look for the positives that your wife brings into your life, keep them front and center in your mind, and show appreciation for those things. If you put in the effort to build a strong marriage and handle the compromises you make, the rewards will be tremendous.”

Q1: Last-minute retirement savings
I am nearing 60 and have only worked at schools except for 5 years under social security which doesn’t give me enough units. School employees retirement system is not looking good for me at 62 and it changes over in 2017. I am at 21 years service. My 62nd birthday, 25 years of service and 2017 will all occur at a relatively same time frame. Do I work until 65 because my insurance through SERS will take up all but $30 of my retirement or do I have other options? I only have SERS retirement and no other retirement funds set up except for CD’s and liquid bank accounts giving me around $80,000 in cash. It is too late to start an IRA so I work with my savings thinking of this as additional funds for retirement. Any suggestions?

– Sandy

I’m not clear as to why you don’t have enough Social Security credits after working for twenty one years. This would indicate to me that your employer has not been paying your Social Security taxes, which they should be doing. If you were an independent contractor, you should have been paying for this when you filed your income taxes.

Regardless of that issue, it’s not too late to start an IRA, for starters. If you work even another seven years, you can build quite a bit of money in an IRA.

My honest suggestion, however, is that you work until you are 67. You want to keep working until you have all the credits you need in the Social Security system and also are receiving maximum benefits from Social Security. You need to figure out why you’re not getting Social Security credits and get that straightened out, because Social Security should be a key part of your retirement plan.

Q2: Personal finance suggestions are unrealistic
Most of the personal finance advice that I see and hear is completely unrealistic. How is a person who can barely make ends meet supposed to sock 10% of their pay into a 401(k) and put $100 a week into a Roth IRA? I can barely pay the bills!

– David

There are a lot of different financial situations out there. I don’t know enough about yours to comment specifically, but you do seem to feel very strongly that your current financial situation is stretched already without retirement savings.

Is it? Do you really need all of the things that are included in those bills? Are you putting stuff on the credit card that you don’t really need? Could you find ways to perhaps earn a little more?

Saving for things like retirement is vital, but it’s a step that comes after figuring out your current situation and seeing what you need to be doing to start spending much less than you earn. Focus on your day to day spending first and see if you can open up more breathing room.

Q3: Assessing state of a car
How do you assess whether or not your car needs replacing or whether it can keep going for you?

– David

Ideally, you have a repair shop in your town that you’ve established a good relationship with. When an issue happens with your car – as it inevitably will – ask the repairperson to assess your car and whether or not there are issues that may be on the horizon.

If the mechanic mentions more than one or two issues that need to be dealt with, then I would sell the car and move on. If the mechanic gives it a thumbs-up, I’d keep driving it.

A key part of this is to keep up with the maintenance on your car. Stick to the maintenance schedule in the automobile manual.

Q4: Emergency funds for debt?
My goal this year, like every other year is to pay down/off my debt. I have $8,222 in credit card debt, $7,412 in school loans, and $2,000 in an emergency savings on-line account. My question to you is do I use the $2,000 from my emergency savings account to pay down my debt (credit card/school loans)?

– Sheryl

It depends on how much you have in your emergency savings account.

If this would deplete that account, I would suggest that you shouldn’t do it. You need a small emergency fund.

If this would leave you with at least $1,000, I’d do it. I would pay down my highest interest debt with the remainder. This is, of course, assuming that at least one of your debts is high interest – basically anything with an interest rate over about 9%.

Q5: Never want to retire
I literally never want to retire, so why should I save for retirement?

– Dan

There are lots of reasons.

For starters, your feelings on the subject of retirement might change in twenty years. You might decide that there are things you want to do that don’t really work in the framework of an ordinary job.

You might also want to transition to a different kind of job, one that doesn’t pay as well. Retirement savings can supplement your income so you can continue to live the lifestyle you want.

Q6: Breaking routines
I start off with a week or so of turning my money around and I feel really good about it but then within a few days I’ll just dive right back into the old habits. It’s like I can’t escape doing a lot of these things.

– Ozzie

We’re creatures of habit, Ozzie. Once we develop a routine and repeat it enough that it becomes normal for us, it’s suddenly really hard to break that routine.

What you should focus on is breaking specific bits of that routine that you know are costing you money. Don’t worry about changing everything at once. Pick out one specific thing that you frequently do and focus entirely on changing that or eliminating that. Focus on just that for a month or even two months until whatever you’ve replaced it with feels completely normal.

Then, move on to the next thing, then the next thing. Soon, your entire life routine is different than it used to be. I had to do this myself and I know it’s not easy.

Q7: Savings account or HSA
My husband and I have good health insurance, but it’s a high deductible plan. We have to pay $3,200 before insurance pays anything, and another $3,200 co-insurance before they cover anything in full. Our infant daughter has special needs, and we expect to ring up that $6,400 in medical expenses for 2014 by next month. She receives secondary insurance through the state, so we won’t actually have to pay that money out of pocket this year but we are looking ahead to next year when (probably) she will no longer be considered disabled and receive that benefit. We are trying to figure out whether it’s to our best advantage to stash money in the HSA or a regular savings account. I understand there are tax benefits to using the HSA but we haven’t figured out how that works yet – we aren’t able to do a pre-tax payroll deduction; we have to deposit the money ourselves and then do something to claim it at tax time. There is a $12 annual fee on the HSA, and account crediting rates that go up to 0.7% (with a $50,000 balance!). There are also mutual fund investment options with an additional $18 annual fee. Our savings account is a dinosaur from when things were better – no fee, no minimum balance, and a 1.1% interest rate. So far we have been keeping our savings in the savings account and transferring money to the HSA as we need it for expenses that aren’t covered by the secondary insurance (like dental costs or medical stuff for me and my husband). This year we plan to set aside money each month so we can begin 2015 with the full deductible and co-insurance on hand. But I can’t quite figure out how to compare these two options to get the best bang for our buck – can you help? I stay at home with our daughter, my husband makes around $60,000 per year, and we expect to have high medical expenses and this insurance for at least the next few years.

– Mindy

The tax deduction you get for a HRA is spelled out in this IRS document. Assuming that your child’s medical expenses qualify – and I can’t imagine they don’t – then the HSA is probably a better bet for you than a savings account.

The HSA you describe sounds like it has typical HSA fees (from my experience). I wouldn’t put the money in a mutual fund because the money likely won’t be in there long enough to make it worthwhile (generally, mutual funds are only really worth it over a long period, like ten years or so).

In your shoes, I’d definitely take advantage of a HSA.

Q8: Claim parent as dependent
My mother, whose only income is Social Security, lives with us. Can I claim her as a dependent? How would that work on taxes?

– Violet

As long as your mother doesn’t earn more than $3,900 in taxable income, you can. Social Security income doesn’t count.

You also would need to be able to demonstrate that you provide at least half of her living expenses (in other words, she depends on you). If you provide shelter and food, you’re probably good.

This will absolutely save you some money if it works for your situation!

Q9: Bad personal finance during bubble?
At a recent library sale, I picked up a number of personal finance books that were published in the mid-2000s. All of them basically rely on being able to flip homes and get a 10-12% return on your money (and more if you’re putting in sweat equity). Because of that, they make some crazy projections about retirement that don’t match anything I’ve ever seen. Should books during the housing bubble be disregarded?

– Jim

Any books that tout a specific investment as the solution to all of your problems should be disregarded. Whether that investment is houses, gold, silver, Bitcoin, copper… anyone who tells you to bet the farm on one thing because it will make you rich is selling snake oil.

During that particular period (the mid 2000s), there were a lot of people trying to flip houses. It became something of a cultural moment, with television shows and magazines devoted solely to flipping. Because of that, it became something of an automatic inclusion in personal finance advice at the time.

Good personal finance advice sticks to principles. It doesn’t jump on the back of a specific investment and it doesn’t proclaim investment returns that are above and beyond the long-term returns of the stock market.

Q10: ChargeSmart
I’m curious to know what your thoughts are on the ChargeSmart service that has been around since 2008. It seems to be a fairly effective way to be able to maximize a rewards credit card if you’re unable to pay certain loans or bills with said card. There are processing fees attached to each transaction but they seem to be fairly reasonable to be able to maximize the accumulation rate of rewards points.

– David

The only use for it that I can see is to do some gamesmanship with rewards points.

However, the transaction fee and the insurance fee that ChargeSmart charges you adds up to enough to make most rewards cards worth it. Wikipedia notes that the fees add up to 2.5% of your transaction, so you better have a great rewards card to break even here.

For me, it’s not worth the hassle. It might be useful to some, but I can’t imagine you’d make much in terms of rewards.

Got any questions? The best way to ask is to email me – trent at thesimpledollar dot com. Iíll 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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