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Home > Smart Spending > Archives > 2008 > October > 17 > Entry
DEL.ICIO.USMoney woes? Ask the experts
The Atlanta Journal-Constitution
Are you worried about your money?
We recently gave readers the opportunity to ask the experts at the Consumer Credit Counseling Service of Greater Atlanta.
The answers were provided by Mechel Glass, director of education for CCCS.
Question:
I had saved up about 18 months of living expenses to cover my mortgage and bills in case of a lay-off. Well, I had a family emergency requiring me to spend that this past year to take care of it. I contribute the max to my 401(k) that my company allows — 25 percent — and also put in $100 a month in a Roth IRA. I want to build my savings back to that 18 month level. Should I suspend or lower my retirement contributions? Or should I claim more withholding or both? - Running on half a tank
Answer:
You are doing a great job at saving and you are to be commended on your determination and ability to think about the future. Consider temporarily lowering your contributions to your IRA to rebuild your emergency fund. Eighteen months of emergency savings is very cautious. Do you believe if you lost your job you would need 18 months to find a new job making similar income? If the answer to that question is “yes,” then resume your strategy of setting aside enough money to cover expenses for 18 months. But if the answer is “no” and you probably only need three to six months to find a new job, you should be OK with allotting six to eight months of your living expenses to an emergency fund. Make sure that your other debts are also paid while you are building up your savings. Once you rebuild your emergency fund you should resume contributing the maximum allowed to your retirement plans.
Question:
Would it be wise to move some monies from my retirement fund to a new offering from my credit union for a CD with a 7.6 percent rate? - Stefanie
Answer:
If your retirement fund is an IRA or 401(k), the transfer you suggest would not be a good idea in most circumstances. If you are younger than 59 ½ there is a 10 percent penalty for early distribution from typical retirement funds. In addition, the early withdrawal from the retirement fund will be taxed as income.
However, the 1997 Taxpayer Relief Act does allow penalty free withdrawals in a handful of circumstances. For example, a first-time homebuyer who needs a down payment can withdraw up to $10,000 from a retirement fund without penalty. But would it be “wise” to withdraw retirement fund money early and park it in a CD until it’s time to close on a home? Probably not.
Question:
What is the calculation used to pay down a mortgage in half the time? For example, a 20 year mortgage with a fixed rate of 5.5 percent? - Keeps Money
Answer:
The calculation is a bit complicated because you have to take compound interest into consideration. We’d recommend you skip the algebraic calculation and go to Mortgageloan.com’s Payoff Calculator. Using that calculator, if you borrow $200,000 at 5.5 percent interest over 20 years you’ll pay a total of $330,187 over the life of the loan, with monthly payments of $1,376. If you paid an additional $800 per month, you would pay the loan off in 10 years and save $69,931 in interest.
In recent months, CCCS of Greater Atlanta has helped clients struggling to pay their mortgages. Many lenders are now more willing to help people avoid foreclosure by changing loan terms, such as lowering interest rates, in order to get the homeowner into a situation that is viable long term.
Do you have questions about working with your lender? How do you get relief and avoid foreclosure? Or, do you have questions about other money matters? Submit your questions and we’ll get the answers.
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Comments
By Reality Check
October 17, 2008 5:59 PM | Link to this
Stephanie, Where did you find 7.6% Please share!
By helpusall
October 17, 2008 8:14 PM | Link to this
I second that, Stephanie where is the 7.6%?
By Old School
October 17, 2008 9:26 PM | Link to this
I’m a 58 year old, 34 year veteran teacher nearing retirement. The TRS offers the option of taking a PLOP and lower monthly checks or the regular retirement checks.
How do I know which option is best for me? My husband has already retired from teaching and we will be debt free in about 3-4 more years. So do I PLOP or not?
By Allan
October 18, 2008 7:44 PM | Link to this
when we get a cost of living raise for social security benfits
By katie
October 18, 2008 8:14 PM | Link to this
I’m trying to become debt free and don’t want even the temptation of credit cards. Should I use the bulk of my savings ($13,000) pay off the cards and cancel them or just contiue to pay the monthly payment plus a few dollars more and not use the cards?
By harold
October 20, 2008 12:52 PM | Link to this
I aint got no savings and after all these years I think its because of my wife’s spending habits. Should i cut my losses to probably half the house’s equity while houses are virtually worthless and get away from her while the getting’s good? I make my own coffee at home, I brown bag my lunch, I use alternative transportation about half the time going to work, i dont drink sodas, i only get my hair cut about every 6 weeks.. i cant think of how to cut back and save money with her spending everything no matter how much i cut back. help!
By harold
October 20, 2008 12:55 PM | Link to this
katie will you marry me?