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. My pension evaporated…
2. Capital gains and rental property
3. Travel or not?
4. Short term investing options
5. Which car should we dump?
6. Lazy portfolios?
7. Cheap alternatives for bible study?
8. Cheapest way to binge watch?
9. Camper and vacation rental idea
10. Merino wool socks
11. Gifting estate away now?
12. Sonicare toothbrush thoughts
During the month of May in Iowa, the weather turns beautiful. All I want to do is go outside. I want to go hiking and wander in the woods looking for mushrooms and find asparagus patches and go looking for geocaches and on and on and on. It’s about all I can do to make myself stay indoors.
Later in the summer, it will be hot and I won’t mind being indoors during a good part of the day. During the winter, the cold weather keeps me indoors.
During the spring and fall – and especially the spring – I almost can’t stand it.
I’m almost glad that I live in Iowa, where the summers are really hot and the winters are really cold. If I lived in a coastal city where it was between 70 and 80 degrees Fahrenheit every single day, I don’t think I could hold down a steady job unless I was a park ranger or something.
Q1: My pension evaporated…
I’m 73, widowed, and have been retired for 8 years. I find myself living solely on Social Security……not by choice, but Pan American World Airways and my retirement plans vanished when PanAm died.
My question for you is: I’d like very much to put some of my meager savings into some sort of vehicle to help me as I age. Since I’m in relatively good health, the statistics say I could live well into my 90s. Scary thought! I doubt Social Security will keep up and I won’t be able to keep up either (financially).
I’ve been reading all your ideas of course, but no one has actually fit my situation. I can squeak out $50-$100 per month to savings at 0.02% – big deal. From your newsletters, I’m thinking of an ETF to put the money in and just hope it grows over time.
I’d like your comment or feedback on which direction to go. Note, I cannot afford a financial planner.
– Ellen
If I were you, I would do two practical things. First, since you’re actually able to live on less than Social Security right now, I would definitely start banking the extra money that you can bank. Second, while your health is still relatively good, I would probably seek out some kind of part-term work that you find fulfilling. Maybe you can be a secretary or a treasurer for a nonprofit that you believe in or maybe you can be a greeter or a checker at a department store. Just find something you can handle easily to earn some extra income that you can bank for later.
So, what then do you do with that extra money? Unless you have some sort of arrangement that allows you to buy and sell ETFs without incurring fees, I’d probably avoid that option, because unless you’re making sizable buys, you’re likely losing more to the fees than you’ll ever make in returns, even in a perfect market.
If I were in your shoes, what I would do is something that seems completely counterintuitive for someone in their 70s, but I think is the best choice in your situation. I would get a very light part time job and contribute all of your income from that job to a Roth IRA. There are no age restrictions on a Roth IRA, just that the contributions have to be earned income. There is no age requirement or mandatory withdrawal requirement on a Roth IRA.
I’d do that until you feel you can’t work (or don’t want to work) any more, and then simply retire and take money from the Roth as needed. The only catch is that for you to be able to withdraw your earnings – not your contributions, but the earnings on your investments within the Roth IRA – you have to have made your first contribution more than five years prior. So, if you’re going to do this, you should get on it.
If you’re not going to follow that route, your options are limited. If I were you, I’d save in a savings account until you can meet minimum thresholds for investing directly into a fund through an investment firm in order to bypass brokerage fees. For example, wait until you have $1,000 in the bank and invest directly into Vanguard and buy into their STAR fund, or wait until you have $3,000 in the bank and buy directly into something fairly low risk like their Total Bond Index Fund.
That’s what I would do in your shoes, anyway. I’d either get a job and contribute the full check to a Roth IRA because of the lack of age restrictions, or I’d not get a job and put money into savings until I could start meeting the minimum requirements to invest directly with an investment house and avoid the costs of a brokerage middleman.
Q2: Capital gains and rental property
My wife and I bought a house in the summer of 2007. We thought we would be in that house for a while but unfortunately had to move several years after. At the time we couldn’t sell the house because of the market. So we kept it and rented it out. Ten years later the market is stronger than it has ever been. People want to live in the neighborhood our house sits, but the supply is low. Great for us, right? We project making over $100k after fees. We haven’t lived in the house for the past two years, so I know we are responsible for capital gains. What I don’t know is if it is still possible to avoid capital gains through investment of another house. Can you explain the rules about capital gains with a rental property and give any suggestions on what we might do with our earned money? Depending on how my job goes in the next month or so we will either make a one year plan to move to a new city, or make a longterm plan where we buy a larger house locally. I was wondering if this would make a difference in your suggestion.
– Edward
If you have lived in the home two of the past five years (and can prove this), then the sale is eligible for the capital gains exclusion. You are allowed to have such an exclusion every two years (imagine someone hopping from home to home).
On the other hand, if you don’t qualify there, you can sell the property and then roll that money into a new investment property within 180 days and avoid the capital gains tax. This is called a 1031 exchange and is subject to a lot of rules.
If neither of those are true, you’re probably facing capital gains on the sale. Remember, though, that you’re only paying taxes on the increase in value. If the house was bought for $150,000 and you sell it for $200,000, you only owe capital gains tax on the $50,000 gained, and at a 15% rate, that’s $7,500. It’s a hit, to be sure, but it’s not devastating.
Q3: Travel or not?
We do not have any debt (not even mortgage) . We have an emergency fund and our savings are going at a steady rate. (almost the same situation as yours)
My sister-in-law and family are coming to visit us. They would like to visit a few places in this country (they are coming from a different country). We estimate the expenses to be a total of 800 dollars.
Now the question – If it were you, do you spend that much money?
– Nina
If your sister-in-law’s visit is a rare one, meaning that she won’t be visiting again for a long time and some travel in your area is probably a once-in-a-lifetime event for her (or close to it), I’d spend the $800 and travel with her. I’d start saving for it immediately, though, so that it has minimal impact on your life. It becomes “fun money,” in other words.
If your sister-in-law’s visit is a regular thing and you expect that she and her family will visit often and gradually see all of the sights in the area over several visits, I’d probably just encourage her to use your home as a “home base” for their travels and maybe visit nearby things on day trips with her and save the expense.
I’m making the assumption that your financial situation is something like ours – that you spend less than you earn each year, have no debt, and have at least some money in the bank thanks to your efforts over the years. I’m also assuming that the “gap” between what you make and what you earn in a given year is more than $800 and you can probably squeeze a little to save up most of that $800 over a few months.
Q4: Short-term investing options
Wanted to know your feedback/suggestion regarding which is a better account for short-term investment i.e. somewhere for 1-2 years. It could be a possibility that this can extend to 3-4 years.
I am a non resident USA alien worker. I was thinking about investing in a taxable account with either Betterment or Wealthfront. I am stuck between comparing them and can’t make a decision on which to pick. I want to start with $2000-$3000 and then invest maybe $100 each month. Going with this amount it seems that Wealthfront would be good to start because there is no fees on account balance below $10,000. But I won’t mind investing with Betterment if their investment methodology is better than Wealthfront and I could get more gains. Can you please help in narrowing down to which is a better investment w.r.t. taxable account: Betterment or Wealthfront?
– Thomas
For investment over that short of a term, I would not invest in the stock market or even the bond market. I would probably keep it in cash. You run the risk of running face-first into a short-term dip in the stock market or bond market which will result in a loss for you.
This isn’t about market timing at all. It’s about the fact that the stock market goes up about 75% of the time and down about 25% of the time, but you can’t really predict when that “down” period is going to be. Over very long periods, you can be pretty confident that it will be “up” more than “down” and thus earn a nice long-term return for you, but over the short term, you might barrel right into a “down” period of a year or two and wind up with half of your money gone. That’s just not a good solution.
Given your time frame, I would shop around for the highest interest savings account you can find and park that money there. You might want to buy a short-term CD – one or two years – to bolster that rate a little. I would not put it into any kind of turbulent market – over that short time frame you’re basically just gambling with that money.
Q5: Which car should we dump?
Hi, my husband and I live in a small town that doesn’t have any public transportation or even a cab service. We have two cars, one is paid off, a 2009 awd Toyota Matrix with about 120k miles, and a 2014 Toyota Corolla that doesn’t have awd, has a less powerful motor compared to the Matrix, about 24k miles on it, and 11 payments left (at 0% interest, so at least there isn’t a cost to that loan).
My husband drives the awd Matrix during the winter as he drives a distance to and from work and we live in New England. I don’t work and only drive to and from doctors appointments, the grocery store, and local errands. I don’t remember having to drive more than 10 miles from home (other than to bring the cars to get serviced every 5k miles – our preferred mechanic is about 20 miles away) in the last year.
Both cars get pretty good gas mileage, the Corolla is a little better because of the smaller engine. The Matrix is the better car overall though, even with it starting to burn a little oil now and then. We keep up with service on both cars.
We are thinking it may be well worth it to go down to one car, as I’ve heard there are now a few Uber drivers in this area, and the places I go on my own are all so close and infrequent, about 2x per week (husband needs his car during the work day for work related driving, so me taking him to work isn’t an option).
We are trying to decide which car we would get rid of. The fact that the Corolla has such low milage makes that the car that will last the longest, but the awd and more powerful engine is a definite plus for the Matrix with New England winters and terrain.
We never meant to have 2 cars, as I use to borrow my mom’s car when I needed to go out (she lived around the corner). However she died suddenly in 2014 (shortly after she bought the Corolla), and Toyota let me take over her car/loan with the same terms (0%).
What’s your take on it?
– Mary
Given that I don’t know the exact climate of where you live, all I can say is this: how does the Corolla get around in bad weather? Would it cause your husband to put his life at significant risk on bad weather days compared to the Matrix if you only had one car?
To me, your entire story boils down to that singular question. If your husband is endangering his life by using the Corolla in the winter in any substantial way, then the extra cost of the Matrix is worth it. If they’re basically comparable on bad winter weather days, then the Corolla is the winner.
It sounds like, from your other notes, that the Matrix does make a real difference in the winter. If it does, then that’s the one I would go with. You do not want your husband to be commuting in a less-safe car just to save a bit of money.
Q6: Lazy portfolios?
Been reading about lazy portfolios. Can you explain what they are? Drawbacks? Why wouldn’t everyone do this?
– Jerry
A lazy portfolio is simply a collection of investments that serves two purposes. One, they add together to minimize the overall risk of the investments. Two, they require very little active management or attention once you start investing. The ideal lazy portfolio is one you only need to look at every few months or even every year and only make little shifts in your contributions over time to keep it balanced like you want.
This is a great approach for people who want more control over their funds than, say, a Target Retirement Fund might offer, but they also don’t want to have to check things every day. They want to be able to set something up and largely have it run on autopilot, but they want to be carefully involved in that initial setup.
I think it’s a nice balance for someone who appreciates the advantages of passive investing (meaning you buy something with low fees and just hold it until you actually need to cash it in) along with a desire to control things and set them up to your specific desires.
Many companies have offerings that emulate lazy investing; that’s almost exactly what a Target Retirement Fund is, after all. It just emulates what lazy investing does – it’s made up of a handful of funds and automatically rebalances itself mostly through additional contributions.
Q7: Cheap alternatives for bible study?
I have been in a bible study group for several years but the group is basically ending due to two of the families moving soon and no one else is interested. I want to continue some kind of bible study on my own but it looks like to do it you need expensive software. Do you have any suggestions for inexpensive bible study?
– Max
I have several close friends who are pastors and they offered a bunch of suggestions.
One common suggestion was to pick a bible translation that you really like (you’ve probably figured this out at your bible study group), buy a top-rated study bible of that translation, and use that as the backbone. Again, you probably already have this from your bible study group. For other translations and comparisons, look at BibleStudyTools.com, which offers bare bones readings of a bunch of translations of the bible, which is great for comparative readings. That site also offers several commentaries.
Whenever I do a deep study of anything, I almost always use a pen and a notebook to take notes and reflections on what I’m reading. I copy down key passages in my own handwriting, write my own thoughts, write down questions that come to mind, and so on. The purpose of this is to explore what I’m learning about, and this absolutely applies to this kind of study. This was recommended by several pastors, too, who all said that all you really need is a cheap notebook and some freebie pens to do this.
If you use this approach, your only expense is some pens and notebooks over time and perhaps a single study bible to use as your backbone.
I would definitely keep my ear to the ground and keep looking for a bible study group. I do not know what faith communities you’re involved with, but it may be worth your while to spread your wings just a little and see what various churches in the area offer. Having a group of people to talk about things that you’re studying is incredibly powerful, especially when everyone is engaged.
Q8: Cheapest way to binge watch?
What is the cheapest way to binge watch classic shows of the last decade without piracy? Don’t like stealing content but don’t like paying out the nose either. Looking to binge watch shows like The Wire, Breaking Bad, Mad Men, etc. Basically didn’t watch much TV over the last 20 years because I believed it to be trash but I am giving some of the better shows a shot.
– Daniel
If I were you, the first thing I would do is make a list of the series I wanted to catch and then go through and figure out what services make those series available. So, for example, Netflix offers Breaking Bad and Mad Men, while The Wire features on Amazon Prime. I don’t know what your full list looks like, but you can probably find most of the series you’re looking for across those two services (and perhaps Hulu and HBO Now, depending on what specifically you’re looking for).
Then, just subscribe to one service and binge-watch all of the series on that service in a bundle. Subscribe to Netflix, for example, and binge watch Breaking Bad, Mad Men, House of Cards, Sranger Things, Freaks and Geeks, The Walking Dead, Halt and Catch Fire, and so on. When you’ve burnt through the best of Netflix, then turn that subscription off and go to Amazon Prime. On there, catch The Wire, The Sopranos, Six Feet Under, The Man in the High Castle, Mr. Robot, and so on.
That way, you’re pretty much constantly paying less than $10 a month for streaming.
Q9: Camper and vacation rental idea
I am single post-divorce and live in a 2200 sq. ft. house that’s paid for. I am considering the possibility of living in a camper most of the time and renting the house out as a vacation rental house. What are the cost/benefits of doing this as you see it? It’s something I’m tossing around as a way to make money. I actually like staying in my camper and could do laundry at home in between vacation renters.
– Derek
Given that you’re single and like living in your camper (and, I assume, you have few enough possessions that you can store them reasonably well in the camper and your vehicle), I don’t see this as a real problem, especially if you’re not going to be fighting winter weather in January that you can’t deal with in the camper.
Obviously, this isn’t necessarily a long-term solution for your life. You can pretty easily end this situation if you so choose by simply de-listing your home from vacation rental sites. You could even do that in the winter if you’d rather move back there for the winter months. If the equation of your life changes, just step back from renting out the house and move back in there.
I don’t see a thing wrong with this. Just make sure there’s no problem renting out your home in this way in your neighborhood!
Q10: Merino wool socks
When I buy cotton socks they seem to wear out in like a month. I want to buy some longer lasting ones but everywhere I go they keep talking about merino wool. But merino wool stuff is $$$$$$$! Is it actually worthwhile? I think it’s better to just bulk buy cotton unless those things last forever!!
– Roger
Merino wool is just a less itchy kind of wool thanks to the smaller fibers. One of the biggest disadvantages of wool is that it’s itchy and that it’s often used in thicker clothing for warmth, and Merino wool solves those problems, mostly just leaving you with the advantages. It wicks away moisture really well.
The big problem I have with wool in general is that, even though Merino wool does breathe better than other kinds of wool, it’s simply not the best choice for hot environments where you’re going to be sweating a lot. I would not wear a Merino wool t-shirt on a hot day where I was doing anything more than lounging around.
Now, what about socks? I think they’re really good as socks except on the very hottest days where you’re actually going to wind up with wet feet from sweat inside your shoes. On those days… you know what? I’m going to suggest not going outside on those days. If it’s hot enough to make going outside on a hike miserable, you’re going to be miserable regardless of your socks.
Basically, Merino wool socks are soft and comfortable like wool can be, without the itchiness that wool is known for. It wicks away moisture well. It does still get warm, but it breathes better than normal wool. I still think cotton is a cooler fabric, but wool wicks away moisture a bit better. Well-made wool fabric lasts for a long time, too.
So, is Merino wool worth it? I think Merino wool socks are somewhat better than cotton socks, but I personally don’t find them to be worth the additional price. They fall into the “cool gift” category for me – I’ll happily receive them and wear them, but I won’t dump out cash for them.
Q11: Gifting estate away now?
I am 72 years old. Married for 43 years, wife passed away of cancer last year. I don’t need much to live on these days and could survive on SS check. I have a lot of money in investments and retirement funds and am giving it to children/grandchildren in the will. Considering starting to give it now up to the gift tax exemption. Is that smart?
– Steve
If you’re sure that’s what you want to do with your money, cash gifts starting now are a great way to do it. It avoids a lot of heartache and headache when your estate is resolved (because it’ll be much smaller) and you’ll actually get to see some of the life benefits of your gifts.
I will say this. Do not set this up to be an expected thing. One of the worst things you can do with the money is create a dependency or expectation of that money from your children and grandchildren. You should use the money to directly pay for college or to directly make an extra payment on a mortgage or to directly pay for a vacation rather than just handing them cash that they may be dependent on.
Buy everyone a great vacation one year. Buy a college graduate a nice used car that pushes right up against the gift allowance. Make a few giant early payments on the mortgages of some of your children and grandchildren. I would really avoid handing them a $1,000 check each month, though, because that can create a lifestyle dependence. Make it clear that these are gifts that you’re giving to help them out with life. Keep them as equal as you can among people you want to give to equally so that you’re not creating relationship issues.
If you do that, then I think this is a wise move for all involved.
Q12: Sonicare toothbrush thoughts
A few years ago, my husband (after what I suspect was a less-than-stellar six-month dental checkup) came home with two Phillips Sonicare electric toothbrushes, one for him and one for me.
They’ve been used exclusively now for over five years, and we’ve spent a fortune replacing the brush heads every three months (conservatively $25 for a package of 2). Mine is truly worn out in three months, his not so much. Some have been bought in multi-packs at Sam’s Club, but I don’t shop there regularly because we are empty nesters.
If we’ve spent approximately $500 (probably more) for these replacement heads, are toothbrushes of this type a good idea? I know there’s less expensive brands but I don’t know if they are any good. I don’t always agree with Consumer Reports’ take on products.
I’ve always taken care of my teeth. Neither the dentist or hygienist have expressed surprise or praise at what a difference this type of toothbrush has made for me. My husband, on the other hand, will never have good checkups because this product needs to be used in order to see a benefit.
– Dee
You can buy generic replacement heads for Sonicare toothbrushes online for far cheaper than buying the name brand ones, even at Sam’s Club prices. I have personally used these heads – they work like a champ and cost about $0.40 per head if you buy a bunch at once. Make sure that it’s the right head for the model, of course.
This, of course, begs the question as to whether a Sonicare toothbrush is a worthwhile purchase. My impression is that a Sonicare makes it easier to do a good job of brushing your teeth. It does a lot of the appropriate “moving around into nooks and crannies” for you, which is something that many people fail to do when brushing with a normal brush, and the timer feature (on almost all models) ensures that you’re brushing for appropriate amounts of time. Those features mean that if you use one daily, you can be pretty sloppy with technique and still do a great job of keeping your teeth clean. You can absolutely do just as good with a normal toothbrush, but you’re much more likely to miss spots without the vibration and oscillation and you’re likely to not brush for long enough without the timer guiding you.
Compared to just using freebie toothbrushes from the dentist (which is what a lot of people do), a Sonicare is a notable extra cost. However, if you mostly buy your own, a Sonicare that has an internal rechargeable battery along with generic replacement heads is similar in cost over the long run to buying good quality toothbrushes at the store. The really cheap brushes at the store don’t last very long, while the more expensive ones that do last longer cost a few bucks; you can get generic heads for $0.40 online for the Sonicare which seem to last for months like a good toothbrush does.
My take is this: if you’re using the free brush from your dentist, getting a checkup every six months, and getting good results with that, then a Sonicare isn’t worth it. If you’re getting bad results but don’t brush every day, start brushing every day. If you’re buying your own brushes and/or aren’t getting good results even with a daily brushing habit, then a Sonicare might be worthwhile because it can help ensure good technique and timing, but you’ll want to do the math on your own. All I have to say is that daily brushing saves money in the long run compared to dental costs in my experience, that a Sonicare makes up for shoddy technique to an extent provided that you use it every day, and that generic heads can be found online that keep the price reasonable.
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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