Reader Mailbag: Vitamin B and Iron

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. Older parents with money problems
2. Mother-in-law crisis
3. Reverse mortgage question
4. Is a graduate degree worthwhile?
5. Getting started with debt recovery
6. Late life choices
7. Purchasing an upright freezer
8. Itemizing sales tax deductions
9. Dream fund and retirement fund
10. Joint bank account with mother

Several people asked me recently whether I take vitamin supplements to help out with the lack of meat and meat products in my diet at the moment. The only ones I take are two suggested by my dietitian: a vitamin B supplement (to help get some B-12) and an iron supplement. I don’t take a multivitamin.

I feel fine with just those two, several months into the change. I think they more or less replace stuff I’m not getting otherwise.

Q1: Older parents with money problems
My parents are on a fixed income with many debts to pay off. They have basically nothing in savings. They have 2 mortgages on the house (which they can’t sell without going into a lot of debt), a car payment, and old credit card bills they are still paying off. They are able to pay these bills every month, but they barely have anything left after that (just enough for groceries and utilities). I know they are trying to cut back on spending, so I really think the next area they need to work on is finding employment.

My dad is currently retired w/ a pension and social security payments coming in. His work experience has been focused in one specific field that is not really hiring anymore. My mom has hardly any work experience. Neither of them is college educated. They are both older (60’s) and pretty overweight, so really physical jobs are not an option. They said that they looked for jobs much earlier in the year and have since given up. They seem to think that they will never find anything, but I don’t know if I believe that.

The local community college waives tuition for seniors. I think this could possibly be an option if they find something relevant to take classes in. I don’t think either of my parents knows how to put together a resume and cover letter or how to answer interview questions to make themselves stand out. I think I could help them market themselves to employers if they’d be willing to look for jobs again. I admit that they would probably be up against many other people for any open positions, but if they don’t try they definitely won’t get anything.

What do you think? Am I missing something that I could do or that they could be doing to improve their situation?
– Dana

Obviously, there are several things they can be doing to improve their situation. As you mentioned, they could be attempting to educate themselves. They could also be willing to “settle” and work other positions that they might not otherwise consider, like as a cashier at a grocery store.

The problem is the old maxim that you can lead a horse to water, but you can’t make them drink. You might have a great idea for your parents to improve their situation, but if they don’t want to do it, you can’t force them to do so. They have to make the decision for themselves.

There are a lot of entry-level jobs available out there. You just have to be willing to swallow your pride and do the best you can with such a job.

Q2: Mother-in-law crisis
I’m 23 and my husband is 25. My father-in-law, “Tom,” passed away in March of 2010. He had no life insurance, no savings (I mean none), and a mortgage payment of about $2200 a month, and two leased cars. This left my mother-in-law, “Katie,” in dire financial straits as she has not worked outside the home since she became pregnant with my husband. I also have a brother-in-law, “Richard,” who is attending a state university about an hour away from home. We live 500 miles away.

Katie, my husband, and I decided giving up the house to foreclosure was the best bet since Katie’s income potential in the current job market with no work experience and no education makes the mortgage in no way affordable. Katie gave back one of the leased cars (not in her name), and continues to make payments on the other (in her name). We paid for expenses relating to the cremation and wake for Tom, and have made the firm decision to not help Katie out financially in any other aspect. We are working very hard to save for a house, have a solid emergency fund, and savings funds for trips, and future moving costs as my husband’s future career path requires us to move in the next 18 months.

In the almost year since Tom has died, Katie has found part-time work at Wal-Mart, and moved in with her sister. She is still struggling financially, and is missing payments on her car (her only way of getting to work) and borrowing money from her sisters for gas money. She also appears to have lost a significant amount of weight. When we see her, I spot ways in which she is spending that are causing her to make her financial struggles even more an up hill battle. She smokes heavily, takes her dog to the vet and pays for expensive medication for him, buys him expensive chew toys, and makes him meals from people food rather than the cheaper kibble. She makes meals for her sisters which I know are costly, but she’s made mention of going hungry by herself.

A huge part of me wants to sit her down (or call her since we see her rarely) and tell her to get her act together. She needs to stop spending on unnecessary things and take care of herself. However, I am told by my husband, any advice offered will be met with resistance, defensiveness, and discarded as nonsense. Every time we speak with Katie, my husband is consumed with worry. What can we do? Do we have to give up trying to guide her, and decide to let her fail on her own?
– Kelly

This story leaves me with a lot of questions. Is she actually still reeling from losing her husband? Does she have any income streams besides Wal-Mart, like any Social Security? How is her sister handling having Katie living with her, and is that a longer-term thing? Does she have her own benefits?

One thing I would strongly urge is that if you’re goign to “tell her to get her act together,” do it face to face. Doing it over the phone is begging for the “resistance, defensiveness, and discarded as nonsense” that you’re wanting to avoid because it’s very easily to not take someone seriously when they tell you to “get your act together” over the phone from 500 miles way without being involved in your day to day life.

Before you do such a thing, you need to spend some time understanding where she is right now in terms of her life. Spend some time taking a genuine interest in where she is right now and what she’s going through rather than telling her what to do. That process alone might do more good than you would ever know.

Q3: Reverse mortgage question
I am writing in regard to my husband’s parents, both 83 years old, living in a patio home that they owe $15,000.00 on. In this depressed market, could probably sell it for around $120,000.00, although might have some difficulty due to other homes in the area having been turned into rental properties in recent years. My in-laws are making ends meet, can pay their bills, but are not saving anything, I think they have around $10,000.00 in savings and he has a small life insurance policy, and I don’t think there is any other debt other than their house payment, which is $400.00 per month.

They are talking about obtaining a reverse mortgage, I guess to loosen up some more cash each month….they seem to think this will give them an additional $300.00 per month, plus end the house payment they are now making.

I do not know all details about these reverse mortgages, but it seems that what I have read is that they are great for the banks but not so great for the homeowners. I have heard that they are complex, have high fees, and should only be used as a last resort. I have also heard that when the homeowners die, that the heirs owe the money back to the bank, and that with the high fees and interest rate, the amount owed back is often much larger than the original amount borrowed.

Can you lend any insight to this issue? To me it seems like they will be putting their only true asset on the line, when they actually don’t have to have the money to get by each month. I have major reservations about this strategy, but as an in-law, feel hesitant to offer financial advice when it hasn’t been requested.
– Martha

A reverse mortgage is an arrangement between the property owners – your parents – and the institution that they take out the home mortgage from. When your parents pass on, the institution has only a legal claim to assets within their estate. They cannot come after the heirs. Now, this does mean that any inheritance you might have coming would be eaten by the reverse mortgage first.

The disadvantage of a reverse mortgage is that it’s usually loaded with fees, often adding up to 5% or more of the value of the home. This is usually rolled into the reverse mortgage. So, if you have a house assessed at $120,000, the reverse mortgage might only be worth $110,000 in total value. Often, this is paid out in the form of an annuity and sometimes paired with a small lump sum payment. What your parents are mentioning is that the money from the reverse mortgage would probably be in a lump sum – $15,000 – plus an annuity worth around $95,000 or so. That annuity pays them until the day they die. Given their age, $300 a month is not entirely unreasonable for a lifetime annuity payment.

When they die, the holder of the reverse mortgage will come at the estate for $120,000. At that point, the house will be sold and all assets will be liquidated to pay the holder of that mortgage (and anyone else your parents owe money to). Often, this completely drains an estate.

Reverse mortgages are good deals only in the sense that they can make the last few years of an elderly person’s life much more comfortable, but it often pillages the estate they leave behind, extracting far more value from that estate than the elderly folks ever got.

Q4: Is a graduate degree worthwhile?
After my daughter was born, I was fortunate to spend time as an at-home mom. Eventually, it became financially necessary for me to return to work full-time. I spent almost a year searching for a job. When I was finally offered a position, it was in a totally new field for me, and it was contingent upon my completing a graduate degree in the field (HR). I am three courses into my graduate program. The overall program costs $35,000. I will likely make between $45,000-$55,000 post-graduation, but will require additional certifications (I have read that the training courses for these certifications are between $3,000 and $5,000).

My husband and I also carry debt from his student loans ($38,000 for his undergraduate degree; he did not finish his program); a car payment of $9,000; credit card $9,500; and we owe roughly $108,500 on our home. Our combined income is $94,600. We also have daycare expenses, and our monthly take home of roughly $5700 is often quickly eaten away our monthly payments and by unexpected situations, such as two rooms of our home flooding in May.

We have looked into reducing our car payment, but could only lower it by $50/month by trading it in for a used vehicle. We are also in the process of trying to sell our home to return to renting.

I have been told that I cannot expect a raise once I complete my graduate degree. I currently make just under $40,000. Should I continue forward with my graduate degree, or should I look for other work again? I have been in my position for nine months.

What do you make of our overall financial picture?
– Cee

What are you getting out of that degree besides a piece of paper? Are you actually learning marketable skills? Are you making a lot of interpersonal connections that will help you later on? Are you building the foundation for a doctorate that might earn you even more money?

If you’re saying “no” to all of these things, then your degree program might not be worth it in your case. It would only be a piece of paper helping you to continue to hold the job you have now. Unless you plan on staying at that job for a very long time, this doesn’t add up.

On the other hand, if you said “yes” to many of those things, then you’re probably in a very good position right now. Squeeze every drop of value out of graduate school that you can, then see where that leaves you in the broader marketplace.

Q5: Getting started with debt recovery
What was the first big thing you did to kick start getting out of debt that gave you the motivation to keep going? I need to get out of debt and break the paycheck to paycheck cycle, but I lack the motivation to keep going.

– Ray

The first thing I did, honestly, is to clean out my media cabinet and my closet and go on a selling spree.

In about three weeks, I sold off most of my DVD collection, almost all of my CD collection, about two thirds of my video game collection, a vintage baseball card collection, a large collection of other trading cards, and also held a yard sale of sorts to get rid of other items that I wouldn’t really need (like excess clothing and other odds and ends).

I took every dime from that and threw it at my worst debts, eliminating two credit card debts in that process. It felt good. It felt so good, in fact, that it made me want to keep going. The Simple Dollar is the result of that, more or less.

Q6: Late life choices
My husband and I have had a wonderful life enjoying travel and helping our children with gifts and loans that we often forgave at some time in the repayment process Now we’ve reached our mid seventies with very little retirement savings. In 2008 we took our money out of the stock market because we panicked. Not bright, I know. So now all of our liquid assets, $80,000, are sitting in a money market account. We aren’t destitute. We are actually in a position to save money now. We have a net retirement income, including Social Security of $88.000 annually.

We have no debt. We live in a small house in a small town, so our expenses aren’t large. We have no long-term care insurance, but we do have medical insurance that is paid by our former employer. I’m well aware that we have prepared for our later years very poorly. I’m really embarrassed to go to a financial advisor because I know most of them in town and I don’t want them to know little we’ve saved. I know we need to invest most of our savings, but where? And how? I suppose there’s no such thing as a long-term investment at our age.
– Barb

You have $88,000 as an annual income in retirement? I’d say you’re in a very good shape for retirement, not a poor one. What scenarios are you envisioning that would require more annual income than $88,000 per year, where you have no dependents, a home that is paid for, and medical insurance that’s paid for?

I agree with you that long-term care insurance might not be a bad idea. It will likely be pretty expensive at your age, however. You may want to study what aspects of long term care are actually covered by your current health insurance policy.

I would not feel bad about the position you’re in. Yes, you have only $80,000 in liquid assets. However, you also have an income stream of $88,000 per year and a home that’s paid for. You are in far better shape than almost every other retiree in the United States.

Q7: Purchasing an upright freezer
My freezer, an old enormous Kenmore chest freezer that I purchased in 1984 has finally died. The cost of replacing the motor and perhaps upgrading the seal is not financially prudent. I have decided that I’d like to get an upright freezer as chest freezers are a little more difficult to navigate and I am not as agile as I was 25 years ago and am hoping with good care that I will get another 25 years out of this one. Any suggestions?

– Abigail

My honest suggestion is to go down to your local library and check out a copy of a recent Consumer Reports buying guide that covers freezers – I believe the 2011 edition does. Once you have that, examine some of their top selections, then purchase one of those. You may want to shop around a bit and make sure that you have someone to install it for you.

I would place it in the exact same position as your old one, as the environment there is clearly conducive to long-term freezer use (stable temperatures, lack of dust, etc.).

I can’t guarantee that any freezer will last twenty five years again, but a well-chosen freezer in a good area should last for many years to come.

Q8: Itemizing sales tax deductions
I just finished up 2010 taxes and realized that, had I kept track of all my receipts throughout the year, I would have gotten an additional $700 back just by itemizing my sales tax paid! I am still getting some money back thanks to the standard sales tax deduction but it really irritates me that I am missing out on all that “free” money. I live in Seattle, WA where the sales tax is 9.5% so it really adds up fast!

My question is regarding the organization of my receipts so that I can be better prepared to itemize my sales tax paid for my 2011 taxes. Just thinking about the amount of receipts I accumulate in a month is pretty overwhelming, not to mention keeping them organized. My idea is to have a box or something like that where all my receipts can go. Once a week I would take out the receipts, enter them in a spreadsheet, then make a copy or scan of them (since they tend to fade over time), and file them away. I know I would really have to stay on top of this or it would become an ugly mess quickly.

Can you recommend a better system than the one I am thinking of using above?
– Jen

I think that’s a perfect system. I wouldn’t change a thing about it.

My only concern is that unless you’re a big spender, it may not be an effective use of your time. If you’re already frugal, you’re not going to be sinking a great deal into sales taxes, as most foods and basic needs are exempt from sales tax.

Let’s say, hypothetically, you invest two hours a week saving receipts, scanning them, and entering the numbers into your spreadsheet. At the end of the year, you save $700 from this effort, over 104 hours. That’s about $6.90 per hour of effort throughout the year (sans taxes, of course).

You’re obviously a bright person – and a hard working one, too – to dream up such a system and implement it. I’m willing to bet you could find something that would earn you more with your time if you put your mind and effort to it.

Q9: Dream fund and retirement fund
I daydream about being financially independent just about 24 hours a day. I’ve seen you mention your “dream fund” in a few of your posts. I’m curious about at what point you would consider splitting investment money into both a retirement fund (401k and/or Roth IRA, for me, both) and a dream fund? Do you fully fund your retirement account to the $16.5k max, and then put your extra cash into the dream fund?

A little about me: I’m 25, I make 40,000 a year and live well below my means. I contribute 16% post-tax income into a company-sponsored Roth 401k (just getting used to doing this, eventually I would like to max out a Roth IRA and put the remainder in the Roth 401k) and 6% into a company sponsored 401k program to meet the company match.

I have zero debt, no car (I use public transportation), and no plans for huge purchases in the near future. My retirement funds are just getting started, with only $2,500 in them now. I also have $2,000 in an emergency fund which will be upped to about $6,000 by the end of 2011 if I stick to my budget. I am pretty proud of the trajectory I’m on savings-wise.

I know I shouldn’t be too eager to retire before 59 1/2, but I’m wondering if I should be putting some percentage of my investing capital into a non retirement fund, IE dream fund of comprised of several index funds. My dream would be to work part time and have more time and energy to focus on raising a family. When do you consider to be a good time to branch off to the dream fund, and what percentage do you allocate to it?
– Alex

I fund my retirement to the point that I’m putting away 15% of my annual income, then I contribute to my dream fund.

So, let’s say in 2010 our family brought in $70,000. Our family’s total retirement savings would thus be $10,500, divided however we choose across our retirement accounts. Beyond that, savings would go towards other things – paying off our mortgage early, saving for our “dream” (a home in the country), and so on.

Basing things as a percentage of annual income makes sure that your retirement savings is really in line with the income and lifestyle you currently have. Save too much and you’re cramping your life now. Save too little and you’re cramping your life later.

Q10: Joint bank account with mother
My question is can having a joint bank account with my elderly mother make me responsible for any of her debt when she passes. We have the joint account because she wanted me to have access to her money when she does pass so I can pay whatever bills she has and not wait for her estate to be settled. My concern is if she would have any outstanding debt i.e. credit card, etc. would I be responsible for that debt because my name is on the joint account. Would it be better if I was her financial POA and not on the account? (I’m already her executor.)

– Elaine

The laws are different in different areas, but my understanding is that when she passed on, the amount in her accounts at the time of her passing is considered part of her estate. If there are more debts out there than money in her account (or other parties who may have an interest, like people named in the will), the courts may also examine transactions up to five years in the past to determine what should be in the estate.

If this gives you great cause for concern, I would contact a lawyer in the area where your mother is living – preferably your family lawyer – and get some advice on how to best handle this situation.

If I were you, I’d want to be an executor on her will, at the very least.

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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