Mailbag Monday: Too late to save?
My husband is working part time driving a school bus. The company is offering a 401(k). My husband is 73 and is in excellent shape so hopefully he could be working there another 5 years or more. What would be safe for him? Conservative investment with part aggressive? We would like to make as much as we can without losing. Also, the company will match a certain percentage.
- Carol
I love this question because it provides a great opportunity for me to point out that it’s never too late to save, or to continue saving. I’m so happy that your husband has decided to participate in this 401(k) because even if he doesn’t earn a penny from his investments, those matching dollars will be a great return. If he contributes 3% of his salary and his company matches 3%, he’s just doubled his investment and that can go quite a way over five years.
That said, we all would like to make as much as we can without losing, and we often can when we have a long time horizon. The risk when you’re very close to retirement is that you won’t have the time to make up any losses, so you really want to stay pretty conservative here. I would invest in a conservative balance fund or a high percentage of balance funds, skewing what he saves heavily in favor of fixed income. You could still have a small stake in equities, but definitely no more than 30% or so if you’re nervous about losing your shirt.
Mailbag Monday: Insurance premiums by city
I moved last year and my insurance went up $400 more a year. How can I find out which areas will bring a lower rate when I move again?
- Anita
Anita, there are a couple tricks to this. You can simply call your insurer and ask them to run you a quote for your new neighborhood. Or you could use a tool like the one from carinsurance.com, which gives you average premiums by zip code.
But I want to point out one more thing – once a year, and definitely each time you move, you should shop around for insurance coverage and see if you can get a better deal. Often, another company will be willing to undercut your current premium to bring you on board, or your current company may be offering deals or promotions. I’ve even heard of instances where the underwriting has changed, and you’re entitled to a lower rate, but you have to call and ask for it. That’s why this kind of annual audit is so important.
Ask Jean: Buy or lease?
It is very rare that I keep a vehicle more than two years. In many cases, I will put a small amount down and roll a portion of the negative equity into the next one. I do not put excessive miles on my cars and I do keep them in good shape. Given my history trading cars every two years, do you recommend financing or leasing? If someone is upside down in a car and they would like to decrease their payment, what options do they have?
- Steve
You sound like a great candidate for leasing. Let’s be clear – leasing is almost always going to be more expensive in the long run. You’re essentially paying to rent a car, so your lease payment includes depreciation on that vehicle – which will depreciate a lot, particularly in the first year – and interest. But if you’re trading in every two years, you need to be leasing. Keep in mind, though, that the shorter the lease, the more expensive the payments will be, so I’d urge you to extend this out to three years.
When you bring a car to the dealership as a trade-in, and you’re upside down, the dealer will often roll that debt on the trade-in into the new car’s financing. That means you’re taking on debt to pay off debt. The best solution with an underwater vehicle is to simply stick it out and continue making payments – eventually, you’ll dig out. But it’s not the time to be trading in your vehicle or taking on more debt. If you can’t afford the payments, you can also try selling the vehicle privately – you’ll get more for the car than you would by trading it in.
Ask Jean: Pre-existing Conditions
About two years ago I was diagnosed with cancer. I am currently healthy and am working to avoid treatment as long as possible with lifestyle changes and a rigorous exercise program. My health care costs are currently in line with most people with the exception of additional tests and scans annually. If I were to change jobs, how likely am I to experience serious issues with a preexisting condition? I really want to check out my options because my current job is very stressful and not rewarding and that has a negative effect on my health.
- Brian
Congratulations on your progress in the face of that diagnosis! I hope your health continues to improve. To answer your question, I’m happy to say that you can rest assured that you can’t be declined coverage under an employer-based health insurance plan due to a pre-existing medical condition. This is one of the long-standing distinctions between employer-based coverage and coverage you purchase as an individual on the open market (though, per health care reform, this will change in 2014 when individually-purchased plans can no longer decline coverage to applicants based on pre-existing conditions, either).
That said, you could face a waiting period before medical care kicks in for pre-existing conditions like cancer. Generally, this can last no longer than six months, and not all employers will impose the wait. Essentially, that is your worst case scenario: That you may have to wait up to six months before coverage related to your cancer kicks in. That argues for getting all of your scans and procedures related to that taken care of while you’re on your current plan, just in case.
Ask Jean: Getting a Deal on a Gym Membership
How can i get around a gym enrollment fee ($99)? I’ve shopped around and they’re the cheapest even with the fee. Any ideas?
- Twiggy, via Twitter
A little known fact is that gyms are often willing to negotiate, so I would encourage you to ask for a better deal if you haven’t already. Mention services that gym is lacking or services that your membership covers but you won’t use, and ask if they can lower that price for you. Or wait until their slow period to join, which is, not surprisingly, not now. You may think you can get a better deal with New Year’s Day promotions, but generally the best prices are had a few months after the January sign-up blitz or in the summer, when people are forgoing the gym to exercise outside. Finally, try group-buying sites like Groupon or LivingSocial, which often post introductory deals.
If that doesn’t work, keep in mind one thing: negotiation tends to work best when the service or item is priced higher than the competition – if it isn’t, you don’t have as much ground to stand on. So if they truly are the cheapest in the area, and you’ve done your due diligence by shopping around, it may actually save you money over the long term to pay that enrollment fee but pay less each month. Just make sure that if you sign a contract, you’re going to use the gym – that $99 should be a good incentive.
Ask Jean: Too Much Life Insurance?
My husband and I are 44. We have several universal and whole life policies and are currently still paying monthly or quarterly premiums. We both have $10,000 policies we bought when were about 18. We also bought a $200,000 policy when we got married 20 years ago and when our daughter came into the picture four years ago we bought term policies ($500,000 each) with a 20 year term. My husband wants to cash out the universal and whole life policies (cash is approximately $10,000 +) to put into either our ROTH or 529 for our daughter…keeping of course the 20 year term policies. We also both have policies with our employers that are worth 1x our yearly salaries. Thoughts?
- Darlene
Darlene, I agree that this money could be working harder for you elsewhere, particularly what you’ve invested in the whole life policies. I generally advise term policies as the best life insurance option for most people – they are inexpensive and provide adequate coverage. Yes, whole life policies have an investment component, but you’re better off investing elsewhere because they carry high fees and commissions.
Depending on your life insurance needs – which you can find by using a calculator like the one at insure.com – you may be covered with those term policies and the insurance offered by your employer. There is no sense canceling either of those – group life insurance is generally cheap, and doesn’t carry a cash value, and the term policies are likely a good option for you. As for the whole life policies, are you still paying premiums on the $10,000 policies you purchased 25 years ago? If so, I would dig deeper into that, because it seems strange to me. If they are paid up, I would hang on to them.
Then take a very close look at the $200,000 policy – the terms, including the surrender fee, should be outlined on the documents you originally signed and you should be able calculate how much you would actually recoup there. Generally, cashing out a whole life policy isn’t going to yield much, particularly if you do it early, because it takes time to build cash value and if a surrender fee applies, that can eat a lot of your takeaway. But you’ve held this policy for a while so you may walk away with something worthwhile, and if you do, that money will work harder for you invested elsewhere, as your husband says.
Ask Jean: Your Magic Retirement Number
“I’ve heard that the average person needs 80% of their current income level for retirement. What goes into that figure? Does that 80% include paying on a mortgage? Leaving a financial legacy to others? If neither of these two cases are valid, would that % come down?”
- Greg
Believe me, I know – it’s confusing. These averages – whether you hear 70%, 80% or 85% – are generally considered what is needed to maintain your current standard of living. That means provided you save X amount, you’ll be able to continue living as you are right now, minus going to work every morning. Sounds pretty good, no? If you golf on Saturdays today, you’ll still be able to golf on Saturdays. But if you don’t travel currently, don’t expect to be a jet setter in retirement.
That said, I have to tell you that I don’t like these rules of thumb. They’re a good guide, but the best way to plan for retirement is to run the numbers based on your specific needs. And the best place I’ve found to do that is the Ballpark E$timator at choosetosave.org. You’ll input specifics about your individual situation – expected Social Security income, any additional cash flow from pensions or part-time work, your planned retirement age – and the calculator will crunch the numbers and give you a good idea of your savings target. Then you can work on reaching it, by putting away money toward that goal each and every month. The best part? You’ll find it’s easier to do that when you have a tangible savings target in mind.
Ask Jean: Kids and Credit
“Do you recommend parents conduct a credit freeze for their minor children?”
- Tim, via Twitter
You actually can’t freeze a credit report unless there is a credit report to freeze – and your children, unless they’ve already been victims of identity theft or you’ve added them as an authorized user for your credit card, shouldn’t have a credit report. So unless you have reason to suspect fraud – in which case, you can contact a credit bureau to see if a file has been created using your child’s Social Security number – I’d focus on protecting your children’s identities in other ways:
- Give out their Social Security number only when necessary and, and keep it in a safe place at home. A large percentage of identity fraud is committed by friends and family members of the victim, believe it or not.
- Keep an eye toward red flags. Watch the mail for credit card offers in their name, a sign that there’s something fishy going on.
- Teach your children well. Namely, tell them not to share personal information – including their birthday, address, phone number and, of course, Social Security number, with strangers. This extends to Facebook and other social networks, which thieves tend to mine for information.
Ask Jean: Credit Card Interest Rates
Hi Jean,
I’ve watched you on TV for many years and I love your money advice!! I put a budget/plan in place about a year ago to pay back about $20,000 in credit card debt. My strategy is to pay more than the minimum on the highest interest card as well as calling each company every 5-6 months asking for an interest rate reduction.
What has prompted me to write to you today is a phone call I made last night to my Citi MasterCard. It’s my highest balance and highest interest rate card of 15.22%. In the past year I’ve called twice have that reduced from 19.99%. The man said he was looking into “a couple of programs” to see if the interest rate could be reduced. The first “program” was a minimal reduction, he didn’t say what that reduction would be. He looked at a second “program” and said wow, this one is much better. I can lower it to 9.22%!!
My question is how can these credit card companies be so arbitrary in their charges for repaying debt? The last phone call I made 6 months ago to that same card only got me a .25% reduction. How long was I really eligible for the “program” that allowed my interest rate to be lowered to 9.22%?
Thank you so much for your time!! Look forward to hearing what you think about this!!
Sincerely,
Marcia
Hi Marcia,
This is tough, because it does seem very arbitrary on the surface (and it may, in fact, be a bit arbitrary, because in my experience, it can really depend on who you talk to. If at first you don’t succeed, try, try again – and ask for a supervisor.).
But I called Citi to find out more about their process for lowering interest rates. This is what they told me:
Ask Jean: Small Business Health Insurance
On the Today Show this morning, during the Money 911 segment, mention was made about small Mom and Pop businesses qualifying for group medical insurance. Could I please get more information?
Thank you.
Happy to. I called up the folks at ehealthinsurance.com to find out some more information, and they tell me that if you’re a small business owner and have at least two employees on payroll — including yourself — you may qualify for a small business group health insurance plan. This is true in all fifty states, as well as DC.