What’s inside? Here are the questions answered in today’s reader mailbag, boiled down to summaries of five or fewer words. Click on the number to jump straight down to the question.
1. Parents in difficult financial shape
2. Vanguard Personal Advisor Services thoughts
3. A major decision on siding
4. Looking for health insurance
5. Canceling a credit card unexpectedly
6. Safety of online banks
7. Roth IRA or 457?
8. Old VHS “home movies”
9. Pay down mortgage before retirement?
10. Dental expenses
11. Cashing out life insurance
12. Thoughtful reading during recovery
I have been writing posts for The Simple Dollar almost every single day for more than a decade now. It’s been a chronicle of what I’ve learned about successful financial living in the modern world, but those lessons often stretch out into other aspects of life as well.
The truth is that there are a lot of days when the words simply don’t come out, no matter how hard I try. I sit down… and I simply can’t write anything that anyone would want to read.
The trick to all of this is actually pretty simple. On days when I’m writing well, I write a lot. I write as much as I can possibly get away with. Often, on a good writing day, I’ll write ten thousand words or more. To put that in perspective, if I did that every day, I would write a book in less than a week.
On days when I’m not writing well, I edit. I brainstorm. I read books and articles. I read and answer emails and messages. Sometimes, I just go do something else entirely, something that might help me write a post.
Most of the time, I strive to have at least ten posts completed and “in the bank” just in case I cannot write well on a particular day. That way, I can pull up something that’s fairly timeless that I have saved for later use and simply post that instead. (That’s also how I handle vacations.)
It took a long time to find a good path through these things. Once upon a time, days where I couldn’t write triggered panic time and also triggered some intense effort to force out a short, mediocre article. These days, I’ve figured out better ways to do things.
On with the questions.
Q1: Parents in difficult financial shape
My siblings and I all learned how to live frugal lives and how to be savers without the help of my very spendy parents. Actually, I suppose it was watching them make tons of financial mistakes that made us 3 very responsible with money. We are all on track to retire early.
Now, my parents are [in their sixties]. They own 2 homes, (10 hours driving distance between them) with 100k+ mortgages on both of them. They own 2 new cars and 1 is not paid off. They have ~80k in retirement savings. They spend lots of money on wine and my father has smoked for 50+ years. Their favorite activities are shopping and watching tv.
My dad runs his company alone now and is part-time retired. My mom [works full time] and she is desperate to retire. She absolutely hates her job and complains constantly about money and being able to retire. She gets health insurance for them both through work.
Yes, they have had some financial setbacks like losing a company in the housing crisis and a couple of really ridiculous lawsuits that cost them loads of dough in lawyer fees. They partially paid for my sister and my own college educations which we realize now was very generous.
However, they sit at home watching tv and do nothing to ameliorate their situation. They complain about being tired.
We the siblings don’t know what to do. We have tried to talk to them about money. We have given them financial books and suggested that they read them. I wrote them out a financial plan suggesting that they sell both houses and a car and buy a little place in a walk-able community with cash.
We have also asked them to exercise so that they will lead healthier lives. They have their health now but how long can that last with a life like theirs?
Now we don’t know what to do. We assume that they will end up living in one of our basements in a few years because they have no plan. We really don’t want that to happen.
We refuse to give them money as they will spend it on rubbish- that has always been the trend.
– Anna
This story of your parents is a really great example of the old saying, “You can lead a horse to water but you can’t make him drink.” Your parents have to make the choice to do something for themselves and there’s nothing you can do to make them do it.
The question you should be really asking yourself is what you feel your role is in their life going forward. If you do not want them living in your basement in a few years, you have to make that clear, period. They are making choices right now that lead them directly to your basement, and if you don’t want them to be there, you have to say or do something.
What can you do? You can simply tell them that you’re not going to give them any housing in the future unless they change some of their behaviors, that you won’t help them unless they take some steps to help themselves. You can start financially preparing for this outcome right now – in fact, I’d definitely plan on that.
However, don’t expect that anything you do is going to change their behavior. They have to come to that conclusion on their own and there’s almost nothing you can do that will force them to change in the way you want them to.
Q2: Vanguard Personal Advisor Services thoughts
I’m happy to report my husband and I have more than $50,000 in Vanguard accounts. We still feel somewhat lost. I’m curious what your opinion/experience is with the Vanguard Personal Advisor Services.
– Kim
It’s a very good service for people who want to interact with a real person to discuss their accounts. Compared to other services of similar quality, the fees that are charged are quite low.
The reason it doesn’t get universal praise, in my opinion, is that the minimum account balance for this service is $50,000. That’s a lot of money. It’s not a service that’s helpful at all to people just starting off.
There’s also the issue of “robe-advisors.” Some companies offer “advising” services that are run completely by computer algorithm that charge less than what Vanguard charges. You basically run through a long questionnaire and the robe-advisor calibrates itself to match your answers. This can be good, but it also assumes that the robo-advisor is programmed well and that the questions don’t miss anything important, something that simple human intuition could find.
I personally don’t use an investment advisor at all and make my own investment choices. It can be a little scary at times, but it’s also free and it forces me to really understand how I’m investing and why. I would strongly encourage you to use an investment advisor as “training wheels,” meaning that you’re utilizing them to understand the logic behind investment decisions until you can do it on your own.
Q3: A major decision on siding
Trent, we have been saving up for new siding for our house as its near the end of its life. We had a hailstorm recently that damaged one side of the house so our insurance will replace it. We are unfortunately not going to have enough saved to cover residing the whole house after what insurance will give us. We want to do a higher quality, low maintenance siding instead of replacing with a similar siding. I see these options: 1) only replace the one side with a similar product, continue saving and replace all the siding in a couple years with the higher quality siding (including replacing the new siding the insurance paid for), 2) replace all siding now with cheap vinyl siding which we can likely afford with our savings, 3) replace all siding now with higher quality siding and take a loan for the $10k or so we’re short and work like mad to pay it off in a year or less, 4) replace all siding now and raid our vacation and new vehicle savings to pay for it with cash. Any thoughts on what the best option is? It seems silly not to take advantage of the money insurance will give us (about $5k after deductible) to reside the house as we were planning, but I’m not in love with any of my options for getting the house resided now.
– Lane
If the siding is in bad shape and is in a situation where it’s easily damaged, you’re probably making the best choice to repair it all with high quality siding right now. It’ll improve the value of your home substantially. It’ll also be less expensive to do it all at once than to do it in bits. So, I’d eliminate #1 and #2 right off the bat.
The question comes down to how you’ll pay for that siding. In my eyes, it depends heavily on your vehicle and your vacation plans. Are you actually very close to replacing that car? Or is it a few years down the road? Could you maybe wait an extra year to replace that car? What about the vacation? Were you saving for a very expensive one? Could you choose a more modest vacation this year or next and just postpone the expensive plans?
If those things are true, then my vote is to pay for the siding out of your savings and then rebuild your savings for those other goals over the next year or so. This will keep you from going into any kind of debt while also keeping your house safe and increasing the value.
In general, the best solution is to do things in a high quality way when they’re on the verge of being critically necessary and paying for those things in cash when possible, because doing things in a quality fashion means that they’ll last and you won’t have to worry about it again.
Q4: Looking for health insurance
My husband and I are contemplating about early-retirement, but finding an independent affordable health insurance seems to be the biggest challenge for early retirement. My husband is in his early 50s, and I am in my 40s. Do you have any suggestions where to look for affordable healthcare insurance?
– Stacy
This is a very difficult question to answer because it is incredibly difficult to predict what health care will look like in America even five or ten years from now. The political dealings going on in Washington guarantee only that you can’t rely on anything going forward. It seems as though all outcomes are on the table, from an almost unrestricted private health care market to a nationalized health care system and everything in between, depending on how the political winds shift over the next several years.
Because of that, many providers are unsurprisingly being very careful about what policies they offer. They can’t assume that they’ll be competing under the same rules even a few months from now, so they don’t want to get locked into an uncompetitive policy.
My best suggestion for you right now is to wait. See what happens with the current health care debate in Washington. See what ends up actually coming out of Congress, because it’s very unclear what they will actually produce. Instead, if I were you, I’d save for a worst case scenario. Assume you’re going to be paying for most things out of pocket until you reach Medicare age, and even then, assume Medicare will provide only some coverage.
In other words, save big for now and be patient. Start shopping around when retirement is actually imminent and you’ve actually saved some additional money for health care coverage.
Q5: Canceling a credit card unexpectedly
I had always read that it was good to have some credit card/s, even if you don’t use them to help with your credit score….a measure of available credit to how much is utilized. I have a credit score of around 830, so I guess this won’t hurt me too bad, but I got a letter from Chase Visa telling me that due to inactivity that they were going to close my account in 60 days from the date of the letter. It went on to say that regardless of whether I started using it again or not, they were going to close the account (which I heard and have read is worse for your credit score than just holding the card and not using it). Can they do this? It does say to call them with any questions, but that seems odd to me.
– Veronica
They absolutely can do this. Card issuers can close a card for any reason. If they don’t believe that you are a profitable customer for them, they’ll likely close your account.
In general, customers who rarely use their card and then pay the card off in full each month are usually not profitable customers for card issuers. If they can’t make at least some income from you, they’re not going to want to keep maintaining the card.
Your best approach is to just use the card for some limited amount of purchasing. Use it solely for your grocery store trips, but use it consistently, and pay it off fully each month. If you do that, then the credit card issuer is at least making money from the point of sale (when you use a credit card, the credit card company charges the store you shop at some amount for the transaction, meaning that the company makes a little money), so they’ll keep you on.
Q6: Safety of online banks
Are they safe & insured? [O]nline banks [seem] to have way better interest then the brick and mortar do. Like Memory bank pays 1.50%, Everbank pays 1.45%. I never heard of these. I will shortly have appx $100.000 to “invest” or put into savings.
– Kelly
Online banks generally do beat brick and mortar banks for savings account rates. They do this by, well, not having the expenses of a brick and mortar bank. They don’t need to maintain a building or maintain employees on site. They just need a website with good security and maybe a customer service person or two to maintain a phone line. Of course, for customers, that can be a drawback – if you have an account issue, it can be essentially impossible to interact with someone face to face with an online bank.
Many of the better known online banks are just divisions of large banks. For example, Everbank is owned by the large financial services company TIAA and MemoryBank is a division of Republic Bank and Trust. Thus, most of them are pretty safe.
Should you use one? I think online banks are great for savings accounts, especially for specific goals like saving for a car. However, I would be hesitant to have one be my primary bank for core services like checking and emergency fund savings, because of the relative difficulty of customer service in a tough situation.
Q7: Roth IRA or 457?
I am a public employee and my employer offers a 457 deferred compensation plan. They contribute 1.5% to the plan and employees can contribute an additional amount if they wish. I also have a Roth IRA that I contribute to regularly. I’m wondering how I should divvy up my contributions. Half to the 457 and half to the Roth? Or put all my contributions towards one or the other? I don’t know which would be more advantageous. I’m 38, so I have a ways to go yet until retirement.
– Mary
My approach is to usually split your savings between pre-tax and post-tax savings options. In other words, I’d add your employer’s contribution to what you intend to save yourself, divide that number in half, and then contribute that much to the Roth IRA and contribute the rest to your 457.
The reason for that is it’s really hard to predict what future government tax policy will be like. Will taxes go up? Will they go down? It’s also hard to predict what will happen with your salary between now and retirement age. Will it go way up? Will it hold steady? Will it go down?
Through all of that uncertainty, putting some money into both pre-tax and post-tax options is a wise move.
Q8: Old VHS “home movies”
My husband coached a high school girl’s basketball team 30 years ago. To this day, we have a small trunk full of VHS tapes of all these games. We no longer have a VHS player and haven’t for years. Even when we did, he never watched them. I’ve suggested contacting one of the former players and asking if she’d like them. Am I being unrealistic? Or do you have any other ideas?
– Annie
If you have no interest in watching the tapes again, I would offer them to former players. Contact as many as you can and offer the tapes to them. If they’re not interested, I would discard the tapes.
If you think that there is any chance that they would ever be watched again, I would, as soon as possible, make a digital copy of those tapes. VHS does not last forever and there’s a good chance that those tapes have already experienced some degradation in quality which will only get worse going forward. There are a number of ways to do this at home, but you may find it easier to simply hire a service to handle it for you.
In the end, the reality is that no one likely wants these tapes at all. See if anyone wants them and, if not, let the last thirty years that they sat around collecting dust be your guide and discard them.
Q9: Pay down mortgage before retirement?
My husband is [in his late fifties] and I am [in my late forties] and we live in a high COL state. We have $220K in savings and I currently contribute about $10K to a Roth IRA and a 403B at work. If everything goes accordingly, I will also collect a state pension at the age of 62. My husband will begin collecting his pension in about two years and he plans to take social security benefits at 62 at a reduce rate. His pension will be smaller than his current salary but I will work an additional 12 years after he retires. Here is my question:
Given the amount of liquid savings, will it be smart for us to begin making extra principal payments to our mortgage or should we continue to save as much as possible. We already put our two sons through college with no student loans and we carry no consumer debts. Our mortgage is our only debt and we owe $265K.
What’s your take on our situation?
– Carrie
First of all, do you intend to live in your current home when you retire? Is this a home of the size that you wish to maintain in your retirement years, or will you be downsizing?
If you’re going to downsize, the sale of your home will wipe out the mortgage you currently have, so this becomes much easier – you should save for retirement first in this case.
If you’re not going to downsize, you need to take a look at what your monthly cash flow will look like in retirement if you continue to have a mortgage payment. How much will you need to spend each month? Each year? Will you have sufficient income to cover all of those expenses?
If you can easily handle your normal mortgage payment and all other expenses in retirement, then I’d simply save more for retirement. If it’s going to be difficult to handle that mortgage payment, you should be planning to eliminate that mortgage by the time you retire.
The thing to always remember is this: over the very long term, it’s likely that your retirement savings will do a little bit better than early mortgage payments (assuming you have a prime mortgage around 5% interest). However, that’s over the long term – over time periods of less than a decade, that’s far from a guarantee. If you’re trying to pull off retirement with your house as is in the next ten to fifteen years, you want to go with the safest route, and that likely involves paying off that mortgage before you retire, even if it means a little less in retirement savings.
Q10: Dental expenses
Do you have any experience or know those who do for this scenario?
35 year old person on disability/medicare has been told s/h needs dental implants to:
a – remove several teeth (both upper and lower) need to be removed urgently
b – bone loss in both arches due to poor dental health
c – no commercial (private) health insurance but has medicare due to medical disability (unrelated to this issue)
d – many dental phobias which have contributed to poor dental health
e – recommendation from 3 providers that implants not dentures are best to handle this issue.
Cost of the dental procedures is approximately $30K, none of which is covered by medicare. Due to previous medical issues, credit score which was in 800’s has been hit hard – down to the 500’s so unattractive rates to borrow the money if s/he can even find a lender who would accept the deal.
Any thoughts on overturning the ‘not medical necessary’ rule medicare has assigned to dental implants (as cosmetic) or on how to obtain funding/loans for this case.
– Jerry
Even with your description, it is not clear to me whether this is a health issue or a cosmetic issue. If it is genuinely a health issue, I would continue to work with Medicare to obtain coverage for the procedure.
However, Medicare is pretty clear in not covering procedures done primarily for cosmetic reasons. There generally has to be a health reason for the procedure to be covered. If you can’t show that there is a health reason – no matter how strong the cosmetic reason – Medicare probably won’t cover it.
In that case, you’re in a tough position. Your best approach is to talk to dentists directly about financing and see what options are available. The person in question here is not alone in these kinds of situations.
Q11: Cashing out life insurance
I’m a 29 year old who has been working at the same company for almost 4 years now. I’ve had pretty significant credit card debt during this time frame. At worst, it was about $19k, and at best (now) it’s in the $17k range. I’m fortunate to have a car that is paid off and student loans that are paid off due to a life insurance payout from my mom.
I’ve been considering cashing out my 401k to help sort out my debt. An article you wrote in 2014 really spoke to me and made me strongly consider going the cash out route.
I just got off the phone with T. Rowe Price and was told that because of my plan, I cannot pay the penalty and cash out before 59 1/2, period. I have a little over $14k in my retirement account. I understand that I’d be paying about a $4k penalty to access that money.
Why am I so gung ho about cashing out my retirement? Remember that previous bit about my mom’s life insurance? She died at 55. Most of her relatives didn’t make it to 60. It’s very likely that I inherited the same cancer genes. I also saw my parents lose most of their retirement savings due to the economic crash of 2008. Simply put, I’m afraid to see what’s going to happen to our economy in the upcoming years and would rather access my money sooner than later to avoid my parents’ fate.
I’m eager for your advice. Is there another way to cash out my 401k? Would this only be possible if I left my company?
My credit is currently pretty great. I’ve been avoiding interest by shuffling the debt around by balance transfers. I’ve really buckled down on my savings lately, but even with using tools like Mint, paying down my debt looks like an arduous task.
Please let me know what you would suggest. I know that conventional wisdom states that cashing out a 401k is a bad move, but when I’m speaking realistically, I may never see that money due to my cancerous family history. I agree with what you stated in that article- paying down my debt now would be the best peace of mind move I could make.
– Dana
Many 401(k) plans only allow hardship withdrawals or else restrict you to only being able to borrow money against a 401(k) before retirement age. If your plan doesn’t allow you to make a withdrawal, there’s essentially no way around it beyond actually retiring early.
The first thing I would do if I were you is get a genetic screening and find out whether you actually do have the genes that significantly increase your chances of those types of cancers. You have the capacity to gain that knowledge, and having that knowledge will make a lifetime of difference in terms of your planning. Operating without knowing this key information is like going on a flight without a flight plan – a very bad idea.
As for the debt itself, I would look into tools like 0% balance transfers. Try to keep as much of the credit card debt on 0% balance transfers as possible while you pay it off, and do everything possible to avoid adding more to it. This means having an emergency fund of some kind to keep small emergencies from derailing you.
Q12: Thoughtful reading during recovery
39 years old. Recently in a car accident that has me temporarily in a wheelchair and facing 2-3 years rehab work to walk normally again. Had to quit my job but received a very large settlement and full coverage of costs of rehab and medical care so finances are taken care of for a long while but probably not enough to retire. I was on a positive financial path before all of this but I want to come out of this in a couple of years ready for the next chapter in my life. I have some long days of doing very little and want to do some reading to encourage thinking about life plans. Do you have some recommended books? Not so much financial but “rethinking life” and “planning life” books?
– Dennis
There are a lot of good books that address this area. The big question really is how much hand-holding do you want?
Some books offer some very directed approaches to rethinking life, guiding you carefully through an organized plan and a series of exercises to help you tease out these answers. Designing Your Life by Bill Burnett and Dave Evans is a very good example of this kind of book. I think of these as being more practical.
On the other hand, you have the more philosophical books. These books don’t guide you to an answer, but instead fill you with a lot of food for thought that will usually allow you to naturally find the answers you seek. Here, I think of books like Marcus Aurelius’ Meditations or The Art of Happiness by Epicurus. I personally have been finding a great deal of value in these types of books over the last few years.
Given the time you have, I’d try both styles. Pick up the books listed above at your local library and give them a read. See where they lead you and which one clicks with you the most, then move on based on recommendations for similar books that you might find at Amazon. Good luck!
Got any questions? The best way to ask is to follow me on Facebook and ask questions directly there. 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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I even wrote a book about it, called The Joy of Big Knickers (Or Learning to Love the Rest of Your Life), in which I get the best advice from experts and celebrities and face my own fears about getting older. I put in a whole chapter on money, because research shows being poor is second only to feeling lonely and invisible in the top things we fear about ageing.