Reader Mailbag: Working Ahead

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. Renting or buying musical instruments
2. Inflation and mortgage length
3. Why so much to retire?
4. Disabled daughter worries
5. Parents moving in
6. Paranoid
7. Saving for child’s college
8. Free toothbrushes?
9. Amazon Prime problems
10. Relying on Social Security

Recently, a couple of readers have asked me whether I ever take vacations, since I post two articles each and every day.

The reality is that I usually have several posts written in advance and I simply tell the software that manages the site to show the posts publicly at their appointed time.

Ideally, I like to have enough backup posts so that I could go at least a week without writing in an emergency, but that’s not always possible, especially after travel.

Most days – and this includes Saturdays but not Sundays – I try to draft three articles. This leaves me with one extra per day that I can save up for the future, which enables me to go on vacations, have sick days, have uninterrupted weekends, and so forth.

Q1: Renting or buying musical instruments
I have been playing the cello as part of a community orchestra for several years now, really enjoy it, practice regularly, and don’t plan to quit playing. I’ve been renting my cello from a reputable shop at about $175/quarter. However, only the first 3 payments ($525) count towards the purchase of any cello from their shop. I’ve already made 6 rental payments, so at this point, I’m just handing them money. I would love to own my cello! While I couldn’t purchase a cello outright right now (probably $2500-3000), I wonder if it makes more sense to purchase the cello using that down payment ($525) and some cash ($500 or so) and work to pay off the credit card (I have a card with miles and a low APR). I could easily afford about $100/month additional payments. I’m just not sure if it makes sense to save up for the entire cost of cello while still making payments, as that’s essentially “wasted” money. What do you recommend?

– Denise

The first step I’d take is to make sure that the store doesn’t have a direct payment plan of some kind. I’d be really surprised if the only way they sold instruments of this caliber is with a single up-front payment.

If there’s no route with the store, I’d do as you suggest and use a mixture of cash and a credit card to buy the instrument.

If it’s a given that you’re going to keep the instrument over the long term, this is less expensive than simply making $175 quarterly payments to the music store with no return.

Q2: Inflation and mortgage length
My wife and I are trying to decide between a 15 year and a 30 year mortgage. She believes the 15 year is the best choice, but I think we should get a 30 year and pay it off slowly. The reason is inflation. Our dollars will be worth a lot less at the end of the mortgage, so why pay it off quickly now with more expensive dollars?

– David

You bring up a good point, but there’s still a problem with it. Even if you account for inflation, you’re still better off paying your debt off early.

For starters, inflation is generally lower than the interest rate on a loan. Right now, you’d be hard pressed to say that inflation is much above 2% (this site pegs it at around 1.5%), while interest rates on 30 year mortgages are at least 4%. Thus, even if you adjust for inflation, the interest rate on the loan is still around 2%. (Yes, inflation will change over time, but if it does, you can refinance that mortgage if you so choose.)

At the same time, 15 year mortgages generally have a lower interest rate than 30 year mortgages. If you get a 3.25% 15 year mortgage, then the inflation adjusted rate is around 1.25% – far better than the 30 year loan.

I’d go for the 15 year even in the face of inflation.

Q3: Why so much to retire?
I make $40,000 a year. My brother says that I need a million to retire. Why so much? I don’t get it.

– Jane

While a million is probably pretty high, you do need quite a bit to retire on.

Generally, you want to only spend 4% of what you have saved for retirement each year. If you spend a larger percentage than that, you run the risk of drawing it down too early, leaving you with nothing for the final years of your life. (That’s because it’s assumed your investments will return 4% over the course of a year, so you’ll mostly just live off of investment returns without having the balance go down.)

So, if you’re spending $40,000 a year, the only way to spend that much and stay under the 4% “limit” is to have a million in the bank.

Now, you’ve got some factors working in your favor. For one, there’s Social Security. For another, there are other income streams. For another, if you have some of your money saved in a Roth IRA, your tax bill will be lower in retirement. So, you shouldn’t quite need a million dollars.

Q4: Disabled daughter worries
My daughter who will be 18 soon will lose her SSI unless I can show them proof she needs to be on it permanently, which is not a problem. I have the proof. But a friend told me she could be on permanent “disability”, SSDI, even though she has no work credits and that I could also have her getting her benefits through her birth father since he made more money than I. I don’t trust S.S. to tell me the truth about anything, but I get your emails daily and you seem to have an extensive knowledge about things or different means of finding out facts. I’m usually very good at things like this, but I’m against a brick wall. I’ve got to get this done before she’s 18, because I don’t know if she will ever have the ability to work a job outside the home or live on her own. I’m working on trying to find something that me and her can do at home to make a simple living, so that she could support herself, in case anything happened to us, her parents. I just need to basically know if she can legally qualify for SSDI instead of SSI even though she has never worked. Any help or directions to sites with the legal info would be greatly appreciated.

– Kendra

From what I understand of your situation, you should start here. That site provides details for your daughter’s eligibility for SSDI along with a phone number to call.

I’m not sure what you mean about S.S. not telling you the truth. At some point, you do have to apply with them to receive benefits.

If you think that they’re not providing the benefits to you that they should, you can seek legal help on behalf of your daughter. However, I don’t see anything here that would indicate that the government is trying to keep you or your daughter from benefits.

Q5: Parents moving in
My husband’s parents were extremely generous with us when we were first married. However, they lost most of their money in a bad investment scheme and in the 2008 stock market. Since we have a very large house, we decided to invite them to move in with us and they have accepted. They haven’t made the move yet (in March).

What we’re struggling with now is how to split expenses. We’ve talked about it twice and no one has really made any suggestions. I think it’s mostly about not wanting to offend, but we could really use a framework here.
– Danielle

This isn’t going to be an easy thing to work through, but here are my suggestions.

First, you wouldn’t be inviting them to move in with you if they were able to financially maintain their current housing. Whatever is going on in their life, their income isn’t enough to cover their monthly bills. My guess is that they expect that your offer is to cover their living expenses for the most part. If I were in their shoes, given what you describe, this is what I would expect.

If I were you, I’d cover all of the utilities, but that shouldn’t add to your expenses in any significant way. I would allow them to chip in as they can with the food bills, because that’s the main expense I would expect from this arrangement. You might want to suggest a split of the food and household bills (unless there are exceptional expenses), but then just foot the rest of it.

Q6: Paranoid
I used to spend money when I was younger but as I have become older I am just getting paranoid about not having enough money. I keep all of the lights off almost all of the time and I keep the temperature at 55 and cover up with blankets. Sometimes, I feel like I’m being weird but then I picture losing my house or something and I get scared to spend any money at all. What should I do?

– Ellen

My honest suggestion would be to discuss this with your doctor. This sounds like a step beyond what I would consider frugal because you’re describing a persistent worry that pushes into almost every aspect of your life.

The best solution for most people in situations like this – at least as a first step – is to just find someone to talk to. I find that whenever I get tightly wound about some aspect of my life, the best thing I can do is talk about it with someone.

If you don’t feel comfortable talking to your doctor, perhaps you can have some conversations with a loved one or a trusted friend. Talking about it openly and willingly digging into your thoughts and feelings here is going to be a key toward getting yourself toward a healthy relationship with money.

Q7: Saving for child’s college
I have a 6 month old that I would like to set up a college fund for, most likely the Schwab 529 plan but my question is what happens if he decides not to go to college when he reaches the age of being able to cash in on it. Would he be able to use the funds for anything else? Is it dispersed in a lump sum? Or doled out like student loans?

After spending years trying to complete my education on nights and weekends, I do place a high value on education but I’ve also come to realize that it can be acquired in many ways outside of traditional universities. I don’t have a lot of money and I’m a 42yr old mom trying to save for my own retirement so I’m torn between opening a 529 or a Roth IRA.
– Tammy

If I were you, I’d save for my retirement first. In fact, I’d make sure that I was saving plenty to secure my retirement before saving a dime for my son’s education.

That might seem cold, but it’s not. If your child has to take out a loan for his or her education, that loan will be gone before they reach middle age – a bump in the road. On the other hand, imagine your situation if you don’t have adequate retirement savings.

Saving for college is great if you can afford it, but if you’re choosing between saving for your child’s education or saving for your own retirement, you’ve got to go with your own retirement.

Q8: Free toothbrushes?
I just noticed my boyfriend had ten or so toothbrushes still in the packaging in his closet. I asked him why and he said that when he goes to the dentist he just asks for an extra toothbrush and half the time the dentist gives him three or four of them. Is this wrong? It seems like he’s really pushing the bounds of what’s “frugal.”

– Tessa

It feels kind of “cheap” to me, but then again, the dentist (or dental hygenist) could have simply said, “Nope, one per customer.”

Given that, I’m okay with it. It does seem in line with a “it never hurts to ask” philosophy.

The more I think about it, though, the more I feel that the large number of toothbrushes is the weird part. If he has ten in the closet, it’s a little… strange to ask for extras at the dentist. I have no problem with asking for things like this, but when you already have a bunch sitting around unused, it seems greedy.

Q9: Amazon Prime problems
I think Amazon Prime is a ripoff. I signed up for it and so far my first two packages have each taken 3-4 business days to arrive. How can they promise 2 day and not deliver?

– Dana

For starters, it’s UPS that’s letting you down here. UPS is the company promising two day shipping to Amazon and they’re not coming through with it.

Having said that, Amazon’s customer service is stellar. If you order something and it doesn’t arrive in two business days, just contact their customer service department on their website – it’s easy.

I’ve done this twice due to late shipping and both times they gave me a free extra month of Prime. Seems like a good deal to me!

Q10: Relying on Social Security
I’m concerned with the recommendation that people rely on Social Security for ANY portion of their retirement. Odds it will not be available for folks in there 30’s-40’s let alone someone younger. In my opinion it would be much better advise to treat it like it was not there and on the off chance it is it would be a bonus. With the current ignorance of our government, national debt and unachievable future costs of medicare I see portions of this article as poor advice.

– Linda

I largely agree with you regarding the future of Social Security. For myself, I don’t include it at all when planning for retirement, as I plan on seeing those Social Security checks as a bonus if they show up.

However, if you’re close to retirement age (above 50) and your retirement relies on Social Security, my belief is that some form of retirement assistance will be there for you and that you shouldn’t panic.

Basically, I think everyone under 50 or so should assume Social Security won’t be there for them when they retire, like it or not.

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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