Color of Money Live (Jan. 21)

Jan 21, 2016

Join Washington Post nationally syndicated personal finance columnist Michelle Singletary for an online discussion.

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So I'm cold but I'm here. 

Ready for your questions.

I'm a longtime lurker on these chats and have really appreciated the financial wisdom. My husband received a large bonus this year and we took about 1/2 of it to pay off all our credit card debt. I was expecting to feel a lot lighter once that payment went through and I saw those zero balances. But instead I feel a little down. Like it was just a little anticlimactic and I'm not sure why. Maybe it's fear that we'll make bad choices in the future or the pressure of the student loans. I know we did the right thing but I'm not sure how to shake this post debt funk.

Well, I welcome lurkers :)

I actually get you. And I do think it's that you still have debt. Or perhaps you might have liked to use the money on something fun.

But fight the feeling. You did a good thing. And you'll feel even better when you get all that debt off your back.

I promise.

If we have no other debt and are saving for retirement, do you think we should focus on paying off our mortgage early (3.5% interest rate), or should we invest that money in mutual funds or another vehicle?

Do both.

It's what my husband and I are doing. We are aggressively paying off our mortgage AND maxing out on saving for retirement. 

I know one thing. We will not drag a mortgage into our retirement. Not. Not. Not. 

My husband and his brother inherited an IRA. My husband moved his from the bank it was at and took an RMD this year (father in law died in 2014). My brother in law left his at the bank, and was told he was not required to take an RMD (my father in law was 79 when he died). Is there any case in which the RMD would not be required for an inherited IRA? Thanks.

 From Charles Schwab: "Generally, you must take distributions during your lifetime or within five years after the original account holder passed away."

 Here's a chart from the IRS about RMD or Required Minimum Distributions for IRA beneficiaries. https://www.irs.gov/Retirement-Plans/Required-Minimum-Distributions-for-IRA-Beneficiaries

How do I recover from foreclosure?

One day at a time.

Seriously.

And remember a foreclosure does not define you financially. 

It happens and it happened even to people who managed their money well but had a job loss, etc.

You recover by rebuilding slowly.

Make sure as you move forward you live, as best you can, within your means. So that might mean not worrying so much about getting another home right away. Just get a place to live that you can afford and expenses you can handle. That might mean living with someone or someone living with you.

Work with any creditors to come up with a plan to pay off any debts, including any that might remain from the foreclosure.

Most importantly, don't beat yourself up. 

We want to have another baby. Right now daycare for our toddler is almost $13,000 a year, and we put $450/mo in a 529 plan for her. If we have another baby, we would be making double daycare payments and be able to save/invest less... we could still do some 529 saving, but prob not 450/mo/kid. Is it irresponsible to have another baby if we would have to cut back the college savings? I mean, no one is forcing us to have another kid. I don't want to wait too long for a second child because I like the idea of a smaller age difference... but again, that is a want, not a need. What do you think? More kids and less saving, or wait if/when we can save enough for both?

This is a tough question for me, being the mother of three.

But my husband and I saw great gains in our income that allowed us to add to our family and still pay for daycare and keep pace with saving for their college funds.

So, I would approach this another way. What could you give up to make room for baby? Could you downsize your lifestyle? Are there other more affordable daycare options?

If you can't save enough for them to go to a four-year college and stay on campus, how about aiming to save enough for them to go to a community college, then finish up at university while living at home?

The thing is if you can't do it all, figure out what you can do if having another child is something you really want. I love that I have three children and for awhile it did mean not living like everyone else. Besides with three, I have a greater chance that one of them will take care of me in my old age. And I don't mean financially. Even if you have money, you'll need somebody to help look out for you. 

Nice link, thanks. How do I convince the bank holding the IRA they were wrong?

Show them the links? Or ask to speak to a supervisor and keep going higher and higher until you get someone who knows what they are doing.

Hi, I too had a foreclosure due to a car accident and subsequent job loss...now gainfully employed and healthy...although I have NO DEBT...trying to rent an apartment is a challenge because they want you to have a high credit score...mine is about 590 but I'm able to afford the rent and utilities because that's all I have to pay...I don't have credit card or student loan debt or a car loan...nothing!! How can I get potential landords to see that I'm capable of paying the rent and wasn't irresponsible when I lost my house...thanks for all you do!

I'm so sorry for what you went thu. And you make a good point. We've gotten to the point where that those darn credit scores don't allow for people's back stories.

So what I've done and seen with other folks is to be upfront with landlords about why your score is down. It might mean finding a place to live that isn't part of a corporate leasing company but an individual renting a home or apartment in a small complex. You might have to pay a higher security deposit but I've seen folks with foreclosures and low credit scores get housing. Just takes more work and explanations. 

Remember, those child care payments don't stick around forever. Even if you lower the 529 amount until the child is in school (and day care costs are 0 or considerably lower), you'll still have 13 years until college.

Thank you. Really good point!

They could even suspend the saving for college for the first few years is the money is truly tight. And then get aggressive taking what they were paying for childcare and boost the college fund.

My husband and I have two small children. (5 & 1) how do we go about starting college funds for them? What should we look for? What type of account would you recommend?

I'm a huge fan of 529 plans. Here's a link with everything you need to know about them savingforcollege.com 

That's how we've saved for our three children. 

Hello Michelle, As I near retirement, what to do with my rather large TSP account has become a vexing problem. An investment management company recently told my wife and me that “TSP is great while you’re working, but is not so good in retirement.” The company was trying to persuade us to move my TSP account to an IRA that the company would manage. Is the company correct that TSP is not so good in retirement? Incidentally, the company wants a management fee of 1% (100 basis points) of capital per year. TSP collects a fee of 3 basis points. John Alexandria, VA

My husband, who works for the federal gov't, are right there with you. We were pitched some investment to move his TSP money too. But please remember that fees matter. A lot!

What you will hear is that when leaving your TSP money you're not as free to withdraw as you may like. But I think that's a scare tactic to make you believe it's not a good choice. It can be, especially given the low fees.

Here's a link I found that you should read thru 

https://www.tsp.gov/PDF/formspubs/tspbk02.pdf

Hi Michelle - your column today about how to start saving reminded me of a question I've been meaning to ask. I do have my emergency and life happens funds, and I'm working on building them back up after putting lots into a house down payment. I'm also starting to save for other stuff - vacations, home improvements, etc. Do you create separate savings funds for each of those things? Or do you have some sort of line item for such things in your budget? I also wanted to end with a quick Thursday testimonial - in part thanks to your encouragement, I paid off the last of my student loans on December 31 and have started the new year student debt-free! It's so liberating! And leaves so much more money for said vacation, home improvement, and other things!

Let's start with your Thursday Testimony.

Woohoo.......

I can feel the freedom.

As for the savings accounts. We have a a few places we park money but most of the money for vacations, home improvements are tucked in two credit union accounts (no fees). Some folks like a pot for each major thing because they are afraid of spending the money. My husband and I are pretty good at leaving money alone until we need it for what we've saved it for. But whatever works for you is fine. Just keep in mind you don't want to be racking up banking fees. 

I have been renting for 6 years, and before that owned a house. It has been since the early 1990's that I got that loan, so clearly that world has drastically changed. I have a FICO of over 800, so qualifying should NOT be an issue, but how do I go about finding lenders that are legit?

Start with your own bank or credit union. With scores over 800 they will be racing after you!

But please do shop around to various banks and credit unions. Looks for institutions that are regulated.

With a tax refund coming soon for many of us, what would you recommend as the best use of the large windfall? 1) Pay down auto loan at 3%? 2) Pay off medical expenses (no interest)? 3) Put it away for savings? (currently at approx 2 months worth of salary.) 4) Perhaps a wildcard I'm missing?

You know I hate debt, so that would be high up on my list, especially since you have a pretty decent emergency fund. So line the debts up starting with the one with the lowest balance. See how many you can pay off using that method. The more you can knock off the more charged up you may become to get rid of the rest.

This is a really tough issue for me right now. I did not have children because I couldn't afford them. I was paying student loans and other debts from college during my prime childbearing years. (No family support: living at home was not an option: long story.) The industry I worked in collapsed and I had to go back to college in my 30s, so more bills. My husband didn't earn much. I was 35 before I was financially stable, and then my husband had health problems. I made the choice not to bring children into the world that I couldn't support. Now I'm in my 40s and really wonder who's going to be there for me when I'm old. Did I do the right thing or not? Everyone seems to have an opinion.

The only opinion, including mine, that counts is yours.

You made a decision given your life circumstances and you have to be ok with that. Regrets that can't be change is just torturing yourself. Please don't. 

You were doing what more folks should do and that was putting potential kids first. I applaud you for that.

Forge relationships with others, nieces, nephews or extended relatives. Besides having kids doesn't mean they would have taken care o you. Trust me.

If you still want children, adoption may be an option or foster care.

The point is you did the best you could with the information you had at the time. Kids can and are a blessing. But plenty of people without kids live and die just as happy.

 

We're doing that too. Aggressively. I just turned 50, and although we bought our house 7 years ago, have paid 21 years' off. Going to continue. Life is just too uncertain. What I don't understand, and maybe you, Michelle can explain, is why ANY financial adviser would recommend never paying it off?

Why?

So they can make money off the money you are investing instead of paying down your home. 

Now I don't have any problem with financial advisers, planners, etc making money. But if you can get rid of your biggest expense in retirement that's going to go a long way to helping you have a comfortable retirement. I don't want you to be house rich and cash poor, meaning you still need to save but being debt-free in retirement is and should be a goal.

How can I get my spouse to commit to doing life together (financially speaking) for now? Can you stressed the topic at the next and the next and the next pp meeting? I'll be creative in pointing him out.

I will stress it. But I'll say to you, don't nag. Men hate that. 

So folks I direct a financial ministry at my church. We meet once a month and talk about a variety of financial issues. Often I'll have one spouse attend when both should. Sometimes both come but one isn't happy to be there.

But rarely do they both leave not the the better.

Just come, participate and let me work on the spouse.  

Hi Michelle. What is the fastest way to pay debt? I have tried budgeting and listing all of my debts but nothing seems to work. Do you have any suggestions? By the way I am doing the 21 Day Fast and haven't spent any money but for groceries.

In my book, "The 21 Day Financial Fast" you'll read about the debt dash. I just explained it in an earlier answer. List all your debts starting with the one with the lowest balance. If you can completely knock off a debt and quickly that feeling of accomplishment is often the kick you need to kick up paying off the other debts.

So try it. You'll learn more about it on Day 12

I will have enough for a 10% down payment, but if I borrow from my 401(k) I could have 20% down. Should I leave the retirement money alone or borrow it?

Leave the retirement money alone. And maybe wait and save more if you really want to put down a larger down payment.

Michelle, My current car is 8 1/2 years old and has low mileage since I take Metro to work. However, I have a bad knee and with the ice and snow having a car that is higher up would be better. I have no debt other than my mortgage and even after paying cash for the new car would have 2 years of expenses in my emergence/life happens funds, plus investments and a close to maxed out TSP (having problems getting the system to take the dollar amount and went to the closest percentage). I can clearly afford the new car. Why am I having a hard time pulling the trigger?

You hate spending money.

But if you the cash and want a new, get it.

However, I'm still not sure why you can't drive the older car if it's in good shape and safe. I'm driving my old car until I'm on a first name basis with the low tow truck drivers!

Hi Michelle. I'm 35, divorced, no kids, no student loans, no credit card debt, and no mortgage (living the apartment life). I have short-term financial goals (pay off my car and save up 3 months of living expenses), but no long-term goals, primarily because I'm not sure what my future holds. Maybe I'll get remarried, buy a house, and retire in my current (affordable) midwest town, but maybe I'll stay single in my apartment, and retire in (expensive) DC to be with my family. Because I don't have a clear vision about my future, I have no idea how much money I'm going to need or if I'm on track to meet that number. Should I keep increasing my 401K contribution (currently at 11%), or should I start saving cash in case I decide to eventually buy a home? I realize I'm fortunate to be in this position, and I'm grateful for how open and full of possibility my future is, but I think I need a more specific plan beyond "save money." P.S. Doing the 21 fast for the first time. It's been a really great experience. Thanks for all of the good work you do!

I get you.

So why not do this:

-- Pay off the car

-- Build up your emergency fund to at least six months of living expenses

-- Build up life happens fund to a few thousand

-- Within the life happens fund build up enough for a move to DC, which might include downpayment on a home. Think about where you might live and how much it would cost of a home in that area. This way, even if you don't move or choose an apt, the money is there nonetheless

- Make sure you're on track for retiring the way you want. Go to choosetosave.org and plug in your numbers to the Ballpark Estimator. I bet that number won't leave you thinking you have a lot of money leftover. 

Then really enjoy your life because you are indeed not like so many others. 

Thank you as always for joining me today. So sorry if I didn't get to your question or comment. But, as I say every week, I look at all your posts. All of them. And keep an eye out for my column because I often answer your questions there.

Take care and if you're facing bad weather, hope you stay warm, dry and safe. 

Please come back next week.

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Michelle Singletary
Michelle Singletary writes the nationally syndicated personal finance column, "The Color of Money," which appears in The Post on Thursday and Sunday and is carried in more than 120 newspapers.

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