Reader Mailbag: Reusing Things

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. Cash out of pension?
2. Store credit card as coupon?
3. Stomaching stock market fluctuation
4. Emergency supply question
5. Food while unemployed
6. 4% for retirement?
7. Spousal Social Security question
8. Family vacation on the cheap
9. Volunteer work
10. Home buying question

I like to keep old newspapers in the garage. Wadded-up newspapers make for great packing material and I send out a few packages per month.

I also hang onto old shoeboxes. Our children often use them for art projects and they also work well for closet organization.

Saving stuff like that makes our garage look a little bit junky, but we’re not wasting our money on packing peanuts or boxes for closet storage.

Q1: Cash out of pension?
My first job out of grad school in 1985 was with ARCO Oil and Gas. I didn’t stay with them long (6 years) but I had a pension with them. This pension moved to British Petroleum when they bought Arco years later.

Fast forward to today. I received notice in the mail from BP that they were giving me an offer to cash out my pension now. It’s for about 1/2 of what I would be entitled to in 11 years if I were to retire at 65. This offer alarms me. It smacks of BP trying to rid itself of the liability. I wonder if they’re going to sell off their US operations and I fear losing the pension totally.

Thoughts on what to do?
- Daniel

You’re right in that BP wants to move your pension off of the books. They don’t want that liability going forward.

The question is whether or not you should take the buyout. Taking that buyout means less cash, but it also means less risk. Like it or not, virtually every corporate pension has risk. If that company goes out of business or decides the risk of eating up their pension savings is worth it, they will cannibalize their pensions. Companies have done so in the past.

Unless taking the money would be completely disastrous for your future, I would take that money and bank every cent of it.

Q2: Store credit card as coupon?
I was purchasing a new washer and dryer at Sears and they asked me to sign up for their store credit card to get 15% off of the purchase. I decided to do it and I paid off the whole thing immediately. I basically used it as a coupon. Should I close it now?

- Amy

Unless the card offers you further benefits, I would close it unless it is your only card, in which case I would open up a Visa or Mastercard that’s tied to your preferred retailer and then close the Sears card.

Having a single credit card that you keep at a zero balance is useful for maintaining good credit. If it’s tied to your preferred retailer and you use the card just at that retailer and keep it paid off, it will not only keep your credit healthy, it will also earn you some reward worth somewhere between 1% and 5% of your purchases. I consider that worthwhile.

I see no real reason to keep any other cards open. It’s just a portal for identity theft and doesn’t really help your credit in any significant way.

Q3: Stomaching a stock market fluctuation
I have about $20,000 in my 401(k). Every day when I listen to the news and hear that the stock market went up and down 1%, I get a sick feeling in my gut because that means $200. That’s a lot of money to lose in one day due to something out of your control. How do you deal with this when you save up even more?

- Sharon

Either you start ignoring it and you get used to it.

The thing to remember with stock investments in retirement is that you’re really only worried about the returns over the course of decades, not days. All of the ups and downs, over a long period of time, average out to about +7% per year, but it’s really hard to see that each day.

I usually ignore the up and down fluctuations because, like you’ve noticed, if you translate that daily fluctuation into what it means for your accounts, it’s painful. If you have $100K in retirement, then a 1% fluctuation means $1,000. That’s a lot more than many paychecks. I really just ignore it.

Q4: Emergency supply question
I just finished reading your “Building an Emergency Supply Kit” article and have a question. You mention that you have a few tubs of supplies. I live in a very expensive city and have a small condo with no storage (no attic, no basement, no garage); I have no room for numerous tubs. Do you suggest just having these items on hand around the house? I have most of those items, just not in one place.

- Amelia

I would keep a few core things in one place, like flashlights and a first aid kit, so that you can grab all of that at once.

Once you have that core stuff, you should be able to use it to locate the other stuff that you might need that might be spread around your apartment.

Just make sure that you actually have that stuff and haven’t used it up.

Q5: Food while unemployed
I was laid off from my job in January. I am receiving unemployment benefits but money is really really tight. I am estimating that we are down to about $30 a week to feed our family of four. Any ideas on how to make this stretch?

- Sam

My first suggestion is to utilize a local food pantry. It’s basically intended for people in your situation. Don’t feel ashamed or bothered by this – just view it as a “food loan” that you can repay when you get back on your feet.

Aside from that, focus on cheap staples. Beans are cheap. Rice is cheap. Eggs and whole chickens are relatively cheap. Whatever fresh produce that is on sale in a given week is also cheap.

Experiment with all of these things and see what you can make using them as the backbones of your meals along with what you get from the food pantry.

Q6: 4% for retirement?
I’ve seen you mention many times that you should figure on using 4% of your retirement each year when retired. Where do you get that number?

- Sam

If you use 4% of your retirement balance each year, then your retirement savings should last forever (or at least through the remainder of your life) while providing you enough to live on each year.

You certainly can withdraw more than that each year, but if you do so, you run the risk of emptying out the account before you pass away, which makes your final years quite miserable.

There is no magical formula that can tell you exactly how much you need to withdraw each year because you don’t know when you’ll retire or when you’ll pass away.

Q7: Spousal Social Security question
I am a 66 year old female, and I began receiving Social Security (SS) after I was age 62.

I have been divorced for many, many years – and was married to my ex-husband for over 10 years. One of the policies with SS is “if you are divorced, and your spouse (of at least a ten-year marriage) is going to receive Social Security in an amount at least 1-1/2 times of what you will be receiving, you can qualify to receive off of his Social Security”. That would automatically mean that I received more money in each monthly SS check.

I have worked in the Clerical profession and have never made over $25,000 per year. My ex-husband has been in sales and has also owned an Allstate Insurance Branch for about 15 years – and it would be a phenomenal amount for his monthly Social Security benefits.

He is 69 years old, and I don’t know if he has started receiving his SS yet; but, if I learn can find out what he will be earning, and I think he will tell me if I ask (our relationship is on a friendly basis because we have a son and 2 grandchildren, and we see other several times a year at their birthday parties).

If I find out he is receiving, or going to receive 1-1/2 times what I receive each month, what approach do I make with the Social Security office to have them correct my monthly amount?
- Stella

All you need to do is call them up. You’ll need your ex-husband’s Social Security number as well as your own.

I tried to find specific information on how the policy you describe actually works, but I couldn’t find anything more specific than what you described.

Full retirement benefits start at age 70, so if he hasn’t started yet, you’ll actually get more starting next year than you would have if he had already started.

Q8: Family vacation on the cheap
What are some fun cheap ideas for a summer vacation with three younger children?

- Angie

Camping. Find a campground with a lot of fun things to do both on-site and nearby and you’ll have a very fun and very cheap family vacation.

You can make all of your food at the campsite, the cost of the site will be pretty low, and if there are plenty of things nearby, you’ll have more things to do than you think.

We try to fit in a camping trip each summer just because it’s such a cheap way to do something fun with our family.

Q9: Volunteer work
Just wanted to drop a line and suggest that if your readers want something to do on the weekends that doesn’t cost anything and makes you feel good, try volunteering. Go read books at a retirement home or work on Habitat for Humanity houses or help out with a food pantry. These places can always use people and the only cost to you might be a little bit of gas and at the end you feel really good about yourself and the world because you made things just a little bit better.

- Sara

I completely agree.

I serve on two different community boards, helping charities get their papers in order. It can be boring work at times, but when I actually step back and think of the ways that my efforts have helped, it makes me feel really good. Plus, I’ve met a lot of people and built a few really good relationships.

Volunteer work is a great way to use some of your spare time. Almost every town has a variety of volunteer opportunities available and it gives you a chance to help others and try new things without emptying your wallet.

Q10: Home buying question
You might get these questions a lot, but I’m looking for an outside opinion on this. My wife and I are looking to buy our first home. We are in a small town (12,000 population) so the house we are looking at is about 3,000 sq ft for just under $100,000. We’ve calculated some worst case scenarios with credit scores, APR %, etc. and we can afford the monthly payments no problem.

Two part question. First, I’ve started looking up first time home buyer programs in Kansas. Everything seems so complicated. Do you have any resources or sites that are good for this type of information? Second, and probably the most important part. We plan on moving out of this town in about 2-3 years when my wife goes off to med school. The big reason we are thinking of buying and keeping the house is because there is a college right here in town. I attended, and there are always kids clawing and searching for houses to rent. This house has 5 bedrooms and we could charge a good amount for rent.

Before you shake your head with disappointment, I have done my homework. I’ve read almost every article I can find on your site and a few others about home buying. I can do a lot of repairs myself. We’ve looked into home owners insurance, PMI, closing costs, etc. From what I can tell, we can afford it. I’m just not sure if there is some small detail I have overlooked or haven’t seen yet.
- Mark

For first time homebuyer assistance in Kansas, I’d start here. For further questions, I’d contact the person listed on the page.

As for buying the home, you might be able to afford it right now, but your situation when you move may be different. You will have to find a second place to live in another area and if you have a huge amount of debt on this home, it may be difficult to find another loan for another home, meaning you may wind up renting while owning a rental property. Plus, you won’t be able to take advantage of first time homebuyer options with your next home.

In other words, you can probably afford this house now, but you may find yourself “house poor” in a few years when you’re ready to move, making it very difficult to move on without selling that house. Don’t fall into the trap of assuming that your future is going to be golden.

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