Reader Mailbag: Fingertips

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. Social Security now or later?
2. White lies at Christmas
3. Real estate investing and mortgages
4. Stocking stuffers
5. Running for office
6. Sharing meal prep responsibilities
7. Retirement savings or debt repayment?
8. Forgotten splurges
9. Math on abandoning land lines
10. Housing cost calcuator

I write for a living. I spend several hours a day mostly typing away at my keyboard.

The other day, I sliced open one of my fingertips badly. There was significant bleeding and the wound is still seeping a bit even now, as I type this. It’s heavily bandaged, but the bandage is bulky enough that it causes me to bump an extra key with my finger every ten or fifteen letters that I type.

Two days ago, I couldn’t type at all. My finger hurt and typing caused the wound to continue to bleed at a fairly alarming rate.

Fingertips seem minor, but when you rely on them, it’s amazing how much they can impact your day-to-day life.

Q1: Social Security now or later?
I am a retired teacher, 63 years old in good health, who receives $1715 after taxes and medical insurance deductions each month. We have approximately $60K in investments from a modest inheritance. Our youngest child graduates from college this spring. My Social Security benefits are approximately $1777 at 62, $2200 at 66 and $3000 at 70. I am about to begin a full-time job at my church that pays $12 per hour. I estimate an annual pay of about $24,000 before taxes. Until June, our income from teaching was about $70,000 per year. Bottom line is that by accepting this new job, we will be receiving about 1/3 of my former income.

My question is multi-faceted. First, would you recommend filing for Social Security now? Should we try to hold on and wait by drastically changing our life style? Should we slowly draw down our investments until it becomes necessary to take Social Security?

My wife will be eligible for about $220 per month in benefits next year when she turns 62 years old. I am aware that there is a penalty for earning more than approximately $15,000 per year when collecting Social Security. I believe that I will be able to continue working for a few more years. Even to age 70.

Do you advocate taking Social Security early, or should we hold off for the higher amount?
– Roger

I would avoid taking Social Security as long as you’re continuing to work and earn a steady income.

According to my back of the envelope math, you’re still going to be making about $4,000 a month before taxes, which equates to a $50,000 a year job (more or less). Your actual reduction in take-home pay compared to the $70,000 job isn’t going to be as much as you think – it’s roughly a 20% drop in take-home (according to that envelope math again).

It may be that your lifestyle can’t handle that 20% reduction in take home pay, but if it can, your best move is to wait a while for the Social Security, especially if you’re both in good health.

Q2: White lies at Christmas
One of the big rules in our house is complete honesty. If someone asks you a question, you answer it honestly or you face pretty strong consequences. Usually, the consequences for dishonesty are worse than for whatever you did wrong.

This brings us to Christmas. Everyone is keeping little secrets from everyone because of the holiday season.

We’re struggling with how to relax the honesty rules so everyone can keep presents secret. How can some small white lies be okay here?
– Janet

Use the Fifth Amendment. Simply state that you can’t say anything because, if you did, it would ruin a surprise.

If someone asks a question that’s going to reveal a Christmas gift, make it acceptable to answer that they can’t say because it would reveal a Christmas gift. That keeps things honest without revealing any gifts.

I don’t think gift giving occasions is a reason to tell white lies. You should be able to simply say, “I can’t tell you yet!”

Q3: Real estate investing and mortgages
I recently purchased 6 homes starting in November 2008 to present and am thinking about one more. After that is done I will be 30 years of age. They are worth 1.6M now. That being the case, should I refinance all of them around 4.25% down to 3.25% as a 15year mortage so I can retire at 50 or should I not refinance and pay as if I had refinanced, or should I not pay any of them down and reinvest. My goal is to retire at 50.

– Shane

It sounds like you’re diving seriously into real estate investing.

I can’t really make a recommendation here without a fuller picture of your financial state. What is your debt to income ratio, for one? Are these rental properties or just ones you want to sit on and wait for them to grow in value? Is the housing market actually going up in your area, or is it flat (or even dropping a bit)?

Knowing as little as I know about your situation, I would think that refinancing would be a good move provided it doesn’t move your monthly payments up into any sort of danger zone. If it causes your mortgage payments to reach 30% of your monthly income, I’d be very cautious about refinancing, especially if the real estate market isn’t booming in your area.

Q4: Stocking stuffers
What kind of stocking stuffers do your children find inside their stocking on Christmas morning?

– Jane

They find lots of things in their stockings.

Clementines (miniature oranges). Small LEGO kits. A few candies of various kinds. A banana. Swedish fish. A child’s card game, like Old Maid.

I think Santa finds these things at sales throughout the year and hides them in his workshop until Christmas Eve.

Q5: Running for office
Have you ever thought about running for local or state office? I think you would make an excellent candidate for the Libertarian Party.

– Cary

I’m not sure I would be a Libertarian candidate, though I appreciate the thumbs-up. When I read the party platform of all of the parties, I find significant things I disagree with in each one.

For example, I genuinely believe that the budget needs to be balanced and that we might have to do hard things to get there. You might think that would make me a Republican, but if you look at the last thirty years, the only time a balanced budget has been passed was under Bill Clinton, and the worst spenders of the last few decades were Ronald Reagan, George W. Bush, and Obama. I don’t really feel that either party genuinely wants to fight for a balanced budget (some people talk the talk, but it’s just a political game for them, it seems).

I have things I agree with Republicans on. I have things I disagree with the Republicans on. I can say the same thing about Democrats, Greens, and Libertarians. I don’t really know where I fit. I certainly don’t think that all Republicans and all Democrats are bad people, and I’m disgusted by the notion that “liberal” or “conservative” is a bad word – whenever I see them used that way, I start ignoring whoever’s talking.

I think my efforts would be best used at a local level, and that’s where I’m starting to become involved. I’m looking at a few positions that are not party-based in the local area.

Q6: Sharing meal prep responsibilities
My husband and I decided to start making most of our meals at home in an effort to save money. We decided to take turns doing it. At first, my husband did well and made spaghetti and other things, but he seems to have given up and just orders takeout on his nights to make dinner. This isn’t really saving us any money at all. I’m still making meals, but it’s frustrating to see him take the easy road and spend our money when I’m putting in more effort and spending less of it. What should I do?

– Jenny

You need to find out why your husband doesn’t enjoy making meals. There’s got to be a reason for it.

He may not want to tell you what that reason is. It might be that he just doesn’t like the process. It might also be that he just feels unskilled at it and is bothered if you’re much better at it than he is.

You might want to consider some swapping of other household tasks. He could be responsible for the dishes and garbage, for example, if you handle all the meal prep.

Find a solution that works for both of you. It’s worth figuring this out.

Q7: Retirement savings or debt repayment?
So here’s my situation…I just turned 24 and have been in the work force for all of 22 months. I am fortunate enough to not have any student loans to pay, but I am living in Boston (read expensive rent) and my spending habits are terrible (one of the reasons I’m starting to read blogs like your’s…I need to get my financial life together). All this translates into me making decent money but still living paycheck to paycheck. Recently, a huge opportunity to straighten out my finances came knocking on my door. I was asked to to temporarily relocate to work with one of our customers for a year and my expenses will be paid for…no paying for gas, rent, food, etc. With all these expenses out, I am obviously getting more money than before. I was about to increase my contribution to my 401K when my girlfriend reminded me that I have $0 in emergency funds/accessible savings. All this leading to my question to you…During this year of no expenses, should I maximize my 401K contribution (which brings up a whole other issue of roth vs traditional) or open up a savings account and start accumulating money I can access for unforeseen emergencies?

– Leon

I completely agree with your girlfriend that it’s not a good move to be completely without any sort of emergency fund. If you lost your job or got suddenly tossed from your apartment, you’d be in a real pickle.

I would build an emergency fund that would cover at least two months of living expenses in Boston. Once you have that covered, then consider bumping up the 401(k) savings.

Remember, also, that a fat emergency fund can really help if you decide to take your life in a different direction. It can make it much easier to move, make a career shift, and so on.

Q8: Forgotten splurges
I know what my biggest financial challenge is, but I don’t know how to solve it. Here’s hoping you’ll help.

When I go shopping, I’ll see something fairly small like a book or something and decide that it’s okay to splurge on it. I’ll buy it and feel fine about it, but I’ll forget about the splurge before very long. Then, the next day or even later that day, I’ll be somewhere and decide to splurge again because I’d forgotten about that last splurge already. I don’t splurge on big things, just little stuff, but it adds up big time.

What can I do to stop this cycle?
– Monica

I’d suggest an allowance, preferably a cash one.

Each week, withdraw a certain amount of cash that you’ve decided is acceptable to spend on splurges throughout the coming week. Then, use that money for splurges – but only that money. If you don’t have enough cash in your kitty, you don’t get to splurge.

Each week, replenish that cash. When you get into the routine of doing this, you’ll often find that your “splurge” money has some leftovers at the end of the week, which is actually a good thing. It means you’re being more selective with your splurges and you’ll find that when you’re more selective, the splurges become much more enjoyable.

Q9: Math on abandoning land line
I am married and the father of 2 young children. We live in a large condo complex with neighbors who are not home much and less than friendly. My wife and I both have cell phones. My wife is inconsistent in keeping her cell phone charged. I am not home that much due to work, etc. Presently we get land line phone service as part of a bundled package from our broadband internet provider ($55 per month combined with all taxes). What do you think of the safety and potential cost savings from getting rid of the land line and getting by with the cell phones only?

– Jeff

If you made the move, your wife would have to adopt new cell phone habits. There’s just no other way around it.

As for emergencies, your best route would be to keep a charged cell phone somewhere in the house, one that’s older and has been disconnected. You can still dial 911 on these old phones. Teach your kids how to use the emergency phone so that they can do it in a pinch (depending on how young they are).

Cell phones are doing a much better job of appropriately handling 911 calls than they did several years ago.

You might want to also consider getting a phone number associated with a Skype account, which can really help with calls from home. I have one and it cuts back significantly on our mobile minutes while only costing a few bucks a month.

Jeff has another question.

Q10: Housing cost calculator
I have seen a number of housing affordability calculators on the web. However, none seem to take into account regional differences in expense (e.g., New York City costs more to live in than rural Florida) or childcare expenses. Are there any calculators out there that do that?

– Jeff

This is perhaps the best calculator I’ve found for what you’re describing. It lets you see how much salary you’d need in your destination area to match the standard of living you have in your current area.

While it doesn’t break things down into specific areas like child care or housing issues, it does provide a pretty strong overall thumbnail that you can use for such decisions.

By the way, I highly recommend the Des Moines area here in Iowa. It’s one of the best “bang for the buck” areas in the United States in terms of things like value of education for the dollar.

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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