Reader Mailbag: LED Bulbs

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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. Retirement savings in interest checking?
2. Pain management and financial discipline
3. Credit card purchasing program?
4. Family or financial security?
5. Cubs
6. GTD tasks
7. Vinyl siding concerns
8. Getting away frugally
9. Roth IRA versus down payment
10. Life insurance sales pitch concerns

Over the weekend, I got a chance to see several of the newest LED bulbs in action. I was impressed.

For those unaware, LED bulbs are light bulbs made out of an improvement on the same technology as, say, the little light on your television remote. I’ve tried them in the past and been reasonably happy with them. They are incredibly energy efficient and last practically forever (on the order of 20,000 to 100,000 hours), but up until now, they’ve all seemed to put off a bit of a bluish tint in the light.

This past weekend, I witnessed several LED bulbs that were pretty comparable to incandescents, using about 15% of the power. They also have about 50 times the lifespan of an incandescent. The only problem? The price tag per bulb is around $60.

I really look forward to trying out one or two in my home, just to see if they really last that long and really work as suitable incandescent replacements. (While CFLs are cheaper in terms of total cost of ownership than incandescents, I’ve never been 100% happy with the lighting.)

Q1: Retirement savings in interest checking?
My husband & I are in our mid fifties and do not have the standard IRA type retirement savings accounts. However, we have a fair amount of savings in high interest checking accounts. I realize that saving for retirement the way we have done is extremely unsual. So the question is, is it too late to start an IRA and deposit a good chunk of money that we’ve saved at this point in our lives? Is it better to keep the money where it is although the interst rate is only around 2.5%?

- Lauren

The reason most people use IRAs is for the tax benefits. For example, Traditional IRAs usually feature a tax deduction for the contributions now (but withdrawals at retirement are taxed as income). Roth IRAs, on the other hand, don’t give you a deduction now, but you don’t have to pay any taxes in retirement, not even on the gains.

The problem with IRAs is that, in order to collect on those benefits, you do have to follow some rules that limit at what age you can withdraw the money.

It might not be a bad idea to start putting some of your money into a Roth IRA, simply to enjoy the fact that you won’t have to pay taxes on the returns. However, you will have to go through a “seasoning period” of five years before you can make those withdrawals (you’ll also have to be 59 1/2, but you should be there in five years).

Unfortunately, it really won’t save you that much, particularly if you use conservative investments comparable to what you’re using now. If you use cash as your primary investment vehicle (as you’re doing now), you’ll likely barely save $1,000 in taxes over the entire use of a Roth IRA, because you’ll be limited by the annual contribution limit and by the fact that you’re only saving on the taxes on the interest on that contribution, which will be pretty small. Plus, that savings will be spread over a lot of years starting only when you’re retired.

In other words, in your current situation, I wouldn’t worry too much about it. It’ll help a little, but it won’t be a game changer.

Q2: Pain management and financial discipline
I have a chronic condition that causes me to have a pretty strong constant baseline of pain. I have learned to not rely on meds to manage the pain. Instead, I live with it most of the time at home and only use a painkiller when I go out of the house, which is about once a week or so.

Anyway, the painkillers take away a lot of the pain, and they also leave me feeling fairly euphoric. So when I go out of the house and do normal things like grocery shopping, I’m feeling great and a bit… almost out of it.

That’s when the problems set in. I usually end up buying a bunch of stuff I don’t really need when I’m riding that euphoria. The next day, when the pain has fully returned, I look around and think, “Why did I buy all of this stuff?”

Any suggestions for how to keep financial discipline here?
- Charlie

First of all, you’re doing really well in figuring out a workable solution to your chronic pain. That’s fantastic.

My suggestion to you would be to shop only with a friend. See if there’s someone who would go to the grocery store with you and help you stick to the grocery list. Then, prepare your grocery list before you take your pain medication.

My mother and my grandmother shopped together for years like this, both for the carpooling convenience and to help keep each other’s spending in check. It helped them both, I think.

Q3: Credit card purchasing program?
I have a credit card with a major credit company and they frequently send me offers via email and regular mail to monitor my purchases, then refund me if the price drops by at least $25 within 30 days of purchase. It’s listed as a complimentary service, but I would have to register for it by creating an account outside of my already-existing online account with them. What’s the catch? What do they get out of it? Is it worth signing up for? My best guess is that I’d be giving them permission to track my purchases for advertising reasons, but I can’t find anything concrete in the FAQ or Description of Services. Where can I find what they do with my data?

Overall, I don’t think I would get much out of it (I mostly use the card for services and consumables like food and gas which are excluded from the deal) but I’m curious to know what the underlying purpose of it is. They also frequently make another offer– double bonus points– but again only if I sign up for it. Why not just give me the extra bonus points? How does the company benefit from me separately signing up for bonus services?
- Julia

Since I don’t know the exact specifics of the program, I can only speculate. My guess is that it’s a combination of things. One of them likely involves data mining and understanding your purchases.

Another one might simply involve a referral relationship with the businesses involved. For example, the lower price might be coming from a completely different business. Let’s say you buy an item at store A for $100. Store B is in this referral program with your credit card company, and they’re willing to sell the item for $75. The credit card company makes the connection. Store B pays a bit of a commission to the company for that referral. They both make money.

I would suspect that both practices are at work.

Q4: Family or financial security?
I grew up in a family with five siblings, and I would love to be a part of raising something similar one day. So I’ll want kids in the future, and probably more than one or two. I love living on a budget, am happy to making my own detergent, don’t need fancy vacations, enjoy making my own coffee instead of deferring to Starbucks, and so on. But I want financial security and freedom. I want such security and freedom to these ends: 1. To have enough money to make visit to family around the US multiple times a year and internationally about once every other year; 2. To have enough money so that the working parent(s) are in a position to take a lower-paying job if makes him/her happier or positively contributes to the overall well-being of the family; 3. To have enough money so that we can become a one-income household if it seems better for our family while maintaining (1) and (2). I want to make this happen, and I don’t know how.

I am not married and am 23, so I think I can make marked progress towards these goals if I act soon by earning and saving substantially more. As I said, I’m in grad school now. Luckily, I’m being paid for it (~$20,000/yr plus full tuition). Unluckily, my post-PhD salary will probably be ~$38,000. I am currently happy at this university, making many good friends and learning massive amounts, both in my field (philosophy) and in things-I-should-have-learned-before-I-went-to-college (time management, e.g.), but I’m not committed to academia. I enjoy it and think it’s important, but I am open to finding a job elsewhere and expect that to be only way I can reach the goals I articulated above. I’m rather smart, though professionally inexperienced and behind the curve in terms of skills like time-management and detail-orientation. I think I could learn almost anything given a few months of training (though I am not comfortable borrowing more money.)

What should I do? I do not know what skills I should focus on developing in my free time or what careers to begin pursuing. I do not know what my salary goal should be or what actionable steps there are between me and meeting that goal. The 3 goals I mentioned above are very important to me, and I would give up academia to meet them, but I do not know specifically what the next step is. Alternatively, do I need to reevaluate my goals or consider more creative ways to meet them?
- Cindy

If that’s the revenue cap of your field and you’re unhappy with that, you’re going to have to find a different career path. The longer you spend in this field, the harder it’s going to be to turn that train around because you’ll have more years invested.

I can’t tell you specifically what to do if you want to start over. My suggestion would be to start studying alternative career paths now and find one that you would reasonably enjoy doing that pays well, then move towards that path. Find someone in that field and pick their brains a bit.

I will say that no matter what you do, working hard on things like time management and being detail oriented will help you. Those are skills that help in almost every career path, so if you have opportunities to hone those skills, even now, do it.

Q5: Cubs
How about them Cubs?

- James

I’ve actually received four or five emails like this in the last week. I’ve been pretty open about being a Cubs fan for a long time, so I shouldn’t be surprised to hear about their 4-12 start.

They’re rebuilding, clearly. I expect that most of their roster (besides a few young guys like Starlin Castro) won’t be around in two or three years. I expect veterans to be traded for draft picks and prospects.

This team feels nothing like the teams that the current management team built in Boston in the early 2000s. I expected it to be dismantled. I just didn’t realize it would be this quick.

Q6: GTD tasks
I’m setting up a Getting Things Done system following your advice. Here’s my question: To what extent does your spouse participate in or share your GTD system, as related to household and family tasks? Can she add things to your inbox? Does she have an inbox of her own where you put things such as her mail? Does she participate in your “larger project planning” sessions, for example, when you decided to plant a family garden or make your own Christmas gifts? In general, I’m wondering how to manage family projects and tasks that need input or participation from both spouses within the GTD system.

- Ronald

We keep separate task systems for the most part. Our professional lives overlap very little, and our hobbies and such only overlap to a certain extent.

We also maintain some specific domains over household tasks that each one of us is responsible for. Unless we need the other person to handle something specific, it’s never really brought up.

Most of our shared tasks are handled via calendars and via a whiteboard in our entryway where we write down things that we want each other to do or that mutually need to be handled.

Q7: Vinyl siding concerns
We have lived in our home for 17 years. We still owe $ 214,400 plus another $18,500 in a home equity loan. We are paying extra on the home equity and that loan will be paid off in 10 years. We are also paying extra on our mortgage payment and that loan will be paid off in 15 years. We had our house appraised about a year ago and due to the economy it is only worth about $250,000. We are not in a position to move right now and just plan on staying here until it is paid off and we are ready for retirement.

Our home is 30 years old. In the time we have lived here we have replaced the roof, windows, furnace, air conditioner, renovated the kitchen and other renovations, including landscaping etc. The home is a two story mostly brick with the exception of the upper sides and back of the house, which is wood as well as the parts under the gutters around the garage door and the soffit which gives us a covered front porch.

We have painted the wood over the years several times, but now it is in great need of replacing. We are considering vinyl siding which will run around $11,000. We have the cash to do the siding, but I am wondering if we should make such a large investment in a older home that’s value is not the same as it once was. Should we consider just replacing the wood or perhaps there are other options to consider that would be less costly.
- Margaret

There are a lot of factors to consider here. How does the cost of wood for that area compare to the cost of vinyl siding there? Is it a close cost, or is the wood significantly cheaper?

If you plan on living there for a long time, you’re going to want to go with whatever is going to give you the lowest cost of ownership over the time you live there. If I were you, I’d get estimates of both types of siding along with estimates on their lifespan. Consider other types of siding as well – I know a person who loves their aluminum siding, for example.

What you’re really going to want to do is try to figure out the cost per year that you intend to live in the home. If you’re going to live there twenty years, let’s say, will it last that long? Will it still look good at the end of the twenty years or will you have to replace it to make the house sellable? Ask those questions when you’re shopping around, then go for the best bargain you can find.

Q8: Getting away frugally
How do you and Sarah get away from it all? My husband and I retain sanity with four little ones at home by occasionally going away on weekend trips and leaving the kids with grandparents.

- Janice

We take short trips, too, on occasion, but we actually tend to enjoy weekends or other short periods where the children are with grandparents and we’re at home.

During those times, we tend to get a lot of things that were “backed up” out of the way. We also tend to spend a lot of time together without the children.

You don’t really need a place to get away. You just need each other.

Q9: Roth IRA versus down payment
My wife and I are respectively 24 and 26. We are nearing our first anniversary of marriage. We are debt free and have just wrapped up our emergency fund with about 4 months of expenses readily available if needed. Currently, we contribute 8% of my salary to company 401k that comes with a 4% match. We live relatively cheaply and have close to $1500 per month of expendable income. We would like to start looking at buying a house while the interest rates are so low. We would like to save at least $15k for a down payment on a house, which would take 10 months if we maintain our expendable income. We are not in a huge hurry to buy a house, but we don’t want to miss out on these interest rates either. We would like to start contributing to our Roth IRA’s too, but that would delay the savings for our down payment. Would we be hurting ourselves if we delayed Roth IRA contributions while we save for a down payment, or should I try to find a healthy mix of Roth IRA contributions and Down Payment savings? What would you recommend as a healthy mix if you think the latter is best?

- Andre

I think that your current retirement savings are pretty solid, particularly given your age. Starting early with that level of savings means not having to worry about it much later on.

Given the rest of your situation, I’d start saving hard for that down payment right away. A down payment of 20% on a home will really help you to get a good interest rate.

If you find yourself at the end of the year and feel like you’re not quite ready to move yet, you can certainly take a chunk of that savings and contribute it to a Roth, which is certainly a good move.

Q10: Life insurance sales pitch concerns
I recently sat down with my life insurance agent. He was trying to explain to me the benefits of whole life insurance. He has tried this in the past and I usually end up confused. I am a little more investment saavy than I have been in previous meetings with him and I was wondering if you could verify/advise on what he said.

He said that the whole life insurance policies that I have, have a cash value that grow in a money market account untaxed. whenever I want the cash I can either borrow it at 8% from the poilcy or cancel the policy. he said that over the last 10 years the average return is ~8%. right now they are giving 5.85%.

He says that this is better than a ROTH IRA because I dont have to wait until i am 59 to get the money. He also said I should not pay down my mortgage (250,000 at 3.99%) if i am having trouble paying the premiums. he agreed that I should be contributing to my 403B to maximize whatever match i could get but after that I should apply to my premiums.

I currently have it set up so that dividends that I get offset the premiums. I am unclear how much this hurts the growth of the value of the funds.

In general I trust this person, but I understand that he is a salesperson. I also understand that this sounds a bit too good to be true. am i missing something? is he correct in his prioritization of savings? if all of this is indeed true, then assuming i can make the payments, should i be reinvesting the dividends and pay into this as much as i can?
- Monica

He’s probably correct with regards to the current state of your whole life insurance policy. I can’t say that for certain without the documentation, of course, but it seems on par with a long-established whole life policy.

Generally, whole life policies are a poor deal at first, but grow into a reasonably comparable deal over the long haul when comparing them to term life insurance paired with an investment account.

You’re likely past that hump, particularly considering that your returns on your cash value are higher than your annual premiums. There are a lot of variations on whole life insurance, so those observations may or may not hold on your specific flavor of policy.

If you’re really concerned about the policy, I would suggest finding a fee-based financial advisor – not one who earns commissions from selling you products – and having them review your situation as a whole.

Got any questions? Email them to me or leave them in the comments and 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 hundreds of questions per week, so I may not necessarily be able to answer yours.

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30 thoughts on “Reader Mailbag: LED Bulbs

  1. Q8 — I disagree with Trent on “getting away” and I think part of our difference of opinion is that he’s a man and I’m a woman. In my experience, men can be at home and completely ignore “things they should be doing” if they want to. Women, OTOH, tend to feel the pressure of “things they should be doing” even if it’s “time to relax and have fun.”

    Therefore, if I really need a break, I, too, like to get away — for a few hours or a few days or whatever time period is available and appropriate.

    Yes, absolutely, these are generalizations. But since you asked about getting away I sense they may hold true for you.

    Do you have friends in a nearby town who can put you up for a night or two — and perhaps you can reciprocate for them?

    Check the flyers at local tourist attractions and rest stops for nearby hotel deals.

    See if you can schedule a get-away for weekdays when lodging may be less expensive. OTOH, lodging in hotels in cities that cater to business travelers may have weekend specials you can use.

    Take the time you need to keep your marriage strong and yourself strong. Living in a home with happily married parents is good for your kiddos, too!

  2. Q5–be careful with what you wish for. Theo’s not that great, and he left a mess in Boston.

  3. Q10 — I wish every American could read Andrew Tobias’s INVISIBLE BANKERS, sadly, now, out of print. It gives a great, lay person’s overview of what insurance is (and what it is not), what sorts of insurance you need (and don’t need) and how to avoid rip-offs.

    Here’re the two cardinal rules:

    – INSURANCE IS NOT AN INVESTMENT.

    – LIFE INSURANCE IS NOT A NECESSITY FOR EVERYONE.

    You can “borrow” money for 8%?? Whoopee. You need to run from this guy now — fast and far.

    The only good life insurance is term insurance — the lowest amount and the cheapest, no-frills policy from a highly-rated company — IF you need life insurance AT ALL.

    You don’t state what your life circumstances are, but in my never-humble opinion, the only people who NEED life insurance are adults with dependents who have no substantial assets. Life insurance should cover care of your dependents if something happens to you. By the time your children are adults, it is to be hoped your assets will have grown to the point that your surviving spouse will be able to keep your home and live comfortably should you die.

    I’m particularly concerned by your use of the term “my life-insurance agent”. Who needs a personal life-insurance agent? Life insurance isn’t something to tweak frequently, nor is it something you should approach with brand loyalty. Remember that above all, as you state, this person is a salesman — his concern is entirely with his income, not yours.

    And people who sell life-insurance on children are scum. But that’s fodder for another discussion.

  4. I don’t have time to read the entire post right now, but i want to comment about the LED light bulbs.

    The technology may not yet be there. LEDs DO last much, much longer (justifying the much higher expense, i guess). I have paid a lot of money for some of these, and their lifespan has at times been less than that of an incandescent bulb. The LEDs are still good, but the components of the bulb may be cheap junk that burns out much sooner than the LED. I jumped on board with this early on and paid as much as $35 (in the early days) for a bulb that was suppose to last 7 years or more. Didn’t last even one.

    I think the technology is getting better, but we still are not having the lifespan that is advertised.

  5. Why does my stuff end up in moderation? In my experience it NEVER gets posted. I have never made a rude comment to anyone else, and i stopped trying to add links.

  6. I don’t have time to read the entire post right now, but i want to comment about the LED light bulbs.

    The technology may not yet be there. LEDs DO last much, much longer (justifying the much higher expense, i guess). I have paid a lot of money for some of these, and their lifespan has at times been less than that of an incandescent bulb. The LEDs are still good, but the components of the bulb may be cheap junk that burns out much sooner than the LED. I jumped on board with this early on and paid as much as $35 (in the early days) for a bulb that was suppose to last 7 years or more. Didn’t last even one.

    I think the technology is getting better, but we still are not having the lifespan that is advertised.

    (I discovered the moderation problem – i can’t link to my blog without being caught in moderation.)

  7. Some people consider vinyl siding cheap and tacky looking and would not buy a house with vinyl siding. It also can get dirty looking easily.

  8. Half of our home has LEDs and our power bill has never been lower (and it was already low!). It is unbelievable how much money it saves. They aren’t cheap, so we purchase them when on sale. :)

  9. OK, let’s see if this works:

    Q9: It’s very interesting that Trent thinks it’s “pretty solid” to save just 12% of ONE partner’s salary, when just yesterday he was going on about how no amount of retirement savings is ever enough.

    Andre, don’t worry about being priced out of the housing market forever. Prices and interest rates cannot sustainably rise to the point where nobody can afford them.

    Coupon coupon coupon coupon coupon.

  10. Q1
    @Lauren

    Have you done calculations to see if investing 100% in case is a good idea for you? While cash doesn’t drop in nominal value- it rarely earns more than inflation and thus may lose real value over time. If you don’t take any investment risk, you may not be able to retire unless you have a huge amount of savings or some other pension plan.

    Is it worth moving money into an IRA? Since you are over 50 you can move up to $12,000 year into the Roth IRA. We don’t know what rates will be in 10 or 20 years but let’s say you got 3% interest over the next 10 years adding 12,000 each year then you would have 141,693.55 Earning and withdrawing 3% interest on that money every year after that means you get $4250 tax free each year. How much that is worth depends on your tax bracket, but even at a rate of 15% that would be $637/year.

    You could also effectively move up to $22,500 from your saving account to a 401K or Roth 401K over the course of the year by contributing a large % of your salary and living off savings.

    If you have a Roth 401K plan available at work you could contribute up to $22,500/year providing even more tax free income.

    Even if you don’t have a Roth 401K available you could contribute up to $22,500/year into a traditional 401K. The traditional 401K contributions would reduce your current taxable income, but any money taken out will eventually be taxed as income. The advantage is that while the money is in the account the growth isn’t taxed. During retirement you could leave the money in the 401K to earn tax free interest until you have spent all of the money that isn’t tax sheltered. You could also take out just enough money from the 401K each year to stay in the lowest tax bracket minimizing taxes over all of the years you withdraw from the 401K. A rough estimate would be that you might save around $1K of tax savings each year by using a 401K assuming you have enough savings to move $22,500 each year for another 10 years.

    Together these tax strategies should save on the order of $100/month… it isn’t a gigantic number but it certainly could improve the quality of your retirement. I would say it is worth some work now to realize these savings.

    If I were in your situation I would spend some money on some retirement planning advise – I would look for a fee only financial planner ideally one that is also a CPA and have them run some calculations based on your current taxes as the maximum tax savings may come by contributing less than the full $22,500/year. I would also ask them evaluate your current retirement planning to see if your savings are reasonable, you may find that you are in grave danger of running out of money in retirement. The sooner you find out the more options you will have.

    -Rick Francis

  11. I would add to the advice to Cindy (the philosophy student) to choose a specialty and dissertation topic that are in relative demand; the job market in academia is very tight! My ex wound up going to law school after he couldn’t find any work in philosophy after 2 1-year appointments at Virginia Tech. It broke his heart to give up philosophy, but he just couldn’t make a living at it. Good luck, Cindy!

  12. I hate plastic (vinyl) siding. I would never purchase a house with it. The problem I have with it is that there is a good chance a house has plastic siding that is covering up a real problem.

  13. Julia, about any program a credit card offers you is an attempt to get you to buy more stuff via their card and thus pay them more interest. Simple as that.

  14. Cindy, are your other goals more important than your current career path? If so pick a different higher paying career.

  15. Q10: If you buy whole life insurance, you are wasting money for your whole life. That gem comes from an insurance agent too – an honest one.

  16. With the siding I would look at diffrent types of siding there are paints for brick that can be very inexpensive like STO or Thorocoat. You could use aluminum siding which will last longer then vinyl. There are various things you could use for the house if your trying to save money. Also stucko is very cheap and easy to apply these things will save you lots of money being you have a brick house plus a brick house is very appealing to buyers in case you need to sell it.

  17. FYI, in baseball you cannot trade draft picks in any form. (You can get them as compensation for certain free agents who do not re-sign with your team.)

  18. #!9 – And he can make a living coming out of law school? Have you seen the debt to income ratios of most law students? I’m graduating next year and the job market for law students is darn bleak, while tuition just keeps rising. He’d be better off with pretty much any other job and without the law school debt.

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