Q. My husband and I have saved for 18 years. We now have a substantial retirement. He has been the primary earner; I have worked on and off part time. I have recently been ill with a potentially fatal disease and recovered, only to sustain a broken arm and nerve damage that rendered my dominant hand useless for about seven months. I am waiting for a settlement on that. He had a pre-stroke event last year.
So here is the dilemma: His habit is to save as much as possible, and I have gladly supported that fiscal behavior. But now I feel we need to spend money on ourselves and travel while we still can. He just can't agree with me, saying we need it for our retirement. I'm talking a few thousand for a Europe trip, or buying/renting a motor home and seeing the USA.
It's to the point that I'm threatening to go alone, or to ask for my half of our savings to manage myself. No more saying "someday we'll...." ---someday is now! Other than that, we are usually on the same page for most life issues. ---C. O., by email from Texas
A. Many people are constitutionally incapable of cutting themselves some slack or, for that matter, having a good time. It's not that they don't intend to never have a good time; it's just that it will be sometime in the future. It's never today, this week, or this year.
The best mechanism for dealing with this is to separate some amount of money from your regular retirement funds. Earmark that money as your "good-time fund." Agree that you will spend it on having a good time.
The hard part is getting on the same page about the amount of money you can earmark for this. It's a long heart-to-heart.
So here's a suggestion. Suppose you are 65. Suppose also that you decide that you will take 10 percent of your retirement assets and spend them over the next 10 years. If those assets earn 5 percent, that means each $10,000 you put aside will give you a good-time allowance of $1,273 a year. If you have, say, $500,000 in investment assets and earmark 10 percent to the good-time fund, you'll have a $50,000 fund that will generate $6,365 a year.
Your spouse may ask, "But what about the future?"
Your answer is simple: "We're taking care of the next ten years first. If we're poor in 10 years, we won't do it again. If we've still got plenty of money in 10 years, we'll create another good-times fund."
The basic task here is to find the amount of money your spouse thinks is necessary to keep invested and the amount that he can let go of. It's a matter of finding his comfort zone. Ask the questions smoothly and you'll be able to find some amount that works for him. The same exercise will be instructive for you--- find out how much money you could put into a good-times fund without feeling foolish or endangered. It's probably way more than your husband. But the "spread" may not be as big as you think.
Q. We own a house worth about $100,000. There is no mortgage on the house. We have been thinking about buying a new house in the $150,000 to $165,000 price range. We have $70,000 in the bank. Between us, my wife and I make $65,000 a year. We are debt-free. Should we put the proceeds from the sale of the first house on the balance owed on the second house and pay off the second house in two to three years? ---E.W., by email
A. Probably not. What you do depends your other income tax deductions. If you netted $90,000 from your current house, you would need to have $60,000 to $75,000 in mortgage debt. Unless your other itemized deductions (real estate taxes, charitable donations, state income tax, etc.) are substantial, there is a good chance there will be no income tax benefits from your borrowing--- remember, the standard deduction on a joint return is now $10,700. You only benefit when your itemized deductions exceed that amount.
If you are young, the best course is to borrow more and trust that inflation will reduce the value of what you have to pay back. If you are in late career, say age 50, you might consider a large 15-year mortgage. The shorter term will reduce the interest rate slightly, and you will enjoy the maximum tax benefits in your peak earning years. When you retire, the loan will be paid off and your income requirement will be lower. You'll also have the benefit of being able to invest some of your equity. If the new house costs $150,000 and is financed with an 80 percent mortgage, you'll only need about $30,000 of your $90,000 home equity. So you'll have $60,000 to add to your retirement savings.
------------------------------------------------------------------------------------------------
Personal finance writer Scott Burns is syndicated by Universal Press. His twice weekly column appears in newspapers from Boston to Seattle. He is the Chief Investment Strategist for AssetBuilder, Inc. Readers can register at
www.scottburns.com. Questions/comments can be posted directly. They can also be sent, without registration, to
scott@scottburns.com. Questions of general interest will be answered in future columns and on this blog.
Click on the "Archive" navigation to see other columns. All comments are welcomed and appreciated.
