I’m going to explain exactly why a pension fails.  I have had the opportunity to examine my mom’s pension documents in depth.  She wanted help in deciding which pension plan to take and what would be the most beneficial.  I think it’s was really interesting and I’ll explain her decisions and rationale.

My mom worked for the state from age 22 to 55, 33 years of service + 2 years of sick leave accrued = 35 years of service.  She was guaranteed a 2%/per year of service for a pension for life = 70% of her salary at the highest 3 years.  She would also get her medical insurance premiums paid for her and her spouse for life.  She only needed to contribute 7.5% of her paycheck for 33 years.

So what choices did she have? And what were the numbers.

Her salary wasn’t great starting out, and she got minimal raises along the way.  Thus her “contribution” to her pension fund was around $250k when she retired.  Not much right?

Well she was given the option to take the maximum benefit (70%) for the rest of her life and use her pension savings first.  Or get the pension lump sum of $250k upon retirement and a smaller pension of 50% of her guaranteed pension for life, NEVER using her pension savings up.

My mom decided to use up her pension benefit because we calculated she would use up her pension savings in 5 years.  She would make a guaranteed $4k/month for the rest of her life instead of $2k, and she would be living off the state pension fund after 63 months, or a little over 5 years! This Christmas will be 3 years for my mom and she’s 58 in extremely good health.

To give you an idea the people in my family die around 90-100 years old.  So I am going to bet unless a freak accident happens she’s good to go for a long time.  Her father died at 78 (only because he was a 2 pack a day smoker). He mother is still alive at 80 and healthy as a horse.  Her grandmother lived to 100, her great-grandmother lived to 95, her grandfather died of cancer at 50, but her great grandfather lived to be 90.  On her father’s side, most of her aunts and uncles are alive and kicking in their 80s and 90s.  So let’s conservatively say she’ll live to 80.

In order to generate  $50k/year (my mom makes $48k actually), with a 4% safe withdrawal rate, you need to have a pot of $1.25 Million dollars, assuming a 6% ROI.  So my mom would never have saved that much probably.

Hence the unsustainability of the pension model.  How can pensions keep funding people for life when they don’t take in enough to pay out?

This mathematical reason is probably why 401ks were created.  You can live on what you choose to save, and more importantly there is no mistakes. You know how much  you are saving and investing and can live on.

So in a couple of years, my mom will be living high off the hog on tax payers money.  Truth is she probably is already.  With the state covering her medical premiums, she likely already ran through her $250k “pension” savings in 3 years.  And when she hits 65, she’ll have 100% medical coverage with her private insurance and medicare.

So how can we really move back to pensions or “private retirement insurance”.  How will the math work out?

Would you stop planning for the long term future and live for today? Would it be wrong to do so? Should you make plans to leave behind money? Or would you go on a spending spree and run through your money? Or better yet, would you start charging up your credit cards and spending money you don’t have because you know you have 6 months to live?

I think this is an interesting question. There are moral issues are play as well as financial ones. It’s easy to say, spend every penny. If you have no dependents, then there is no reason to plan to leave behind any savings. But what about getting a new car and car loan or charging a once in a lifetime trip, you’ll know you’ll never pay?

I don’t know what I would do.   A lot depends on how many dependents I have.  If I had my life insurance in place, savings, etc.  Would I stop paying student loans knowing they didn’t have to be repaid by my spouse and instead save the money?  Maybe.

If I had no one would I spend everything and run up bills?  I hope not, but who knows what emotional, irrational thing I would do.  That being said, do you know anyone this has happened to?  What did they do?

In the past month, I’ve bought some items online and found the experience to be unsatisfactory.  I immediately contacted the seller on ebay for two of the items, and the third item the website owner.  The website owner refunded my money, but I had already talked to my CC company and they were disputing the charges on my behalf!  Awesome, less than 24 hours later I had my refund no questions asked.

As for the ebay items, I actually paid using paypal, but made sure I used a credit card.  Darn glad I did because I bought 2 sets of diaper coupons online, but received neither.  I started a resolution investigation through paypal, which was fine.

But at the same time I talked with my CC and told them what was happening and they immediately put holds on the charges and began disputing them as well.  I did explain that I was working with paypal to resolve the situation.  One seller refused to respond and the other had excuses why I hadn’t received my shipment.  With my CC company disputing, Paypal found in my favor.

Yep, I get credit cards are NOT good tools for everyone.  Actually they really suck for many people. They can facilitate overspending in many people, although I think it’s the people not the credit cards.

But I can only say I plan to exclusively use CC to shop online, I’m never going to use a debit card ever.  I can’t imagine the hassle with not receiving my items or getting the wrong item and having to fight to get my money back cash.  For me, the extra security from shopping with a credit card is well worth it the risk.  The bottom line is personal finance is personal and everyone is different.

So when given a choice about caring for a dog, I’ve always said that finances don’t matter. And the truth is, when presented by the decision they didn’t.  It wasn’t a financial decision.  It was a end of life decision, do we fight and go for a longer life?  Or do we say the quality of life isn’t worth the struggle?

When faced with that decision would finances play a role?  I can see why our healthcare system isn’t working.  There are very few people would who choose not to fight and spend money to live.  For the chance to be given more time.

Thus, what would happen if we were only allowed to spend what we saved on our healthcare?  How would our decisions change?  Would they even be affected?  Or would we have more BK as people just refused to accept financial limits?  That morality would be completely set aside?

Turning healthcare into a business has raised some tough questions.  In the US, we’re right now faced with the hardest.  Is there a minimum level of care people should get?  Should we financially measure what people’s lives are worth?

I can only say we are spending a lot on home repairs.  Expect next month to be even worse, because of upcoming vet bills.  Really bad vet bills, talking thousands.

The Federal Tax Credits for Energy Efficiency can be found at this Website.  Now everyone is limited to $1500 tax credit for 2009 and 2010.  How this comes about?  You get 30% back on whatever you spend on qualifying energy efficient products.  It doesn’t matter if you make $25k, $100k, etc.  You get 30% of the cost back up to a maximum of $1500!  So basically if you spend around $5k on any home repairs that are qualifying energy efficient you will maximize your tax credit.

This is a TAX CREDIT.  What that means?  It’s like you paid Uncle Sam $1500 in taxes!  Wowie!  Instead of paying $1500 in home repairs, I just paid Uncle Sam.  A dollar for dollar tax credit!

This is much better than a deduction which reduces the amount of taxable income, by say $5k.  But depending on your tax bracket, most people (including myself) aren’t in the 30% tax bracket.  So I get more bang for my buck using the Federal Tax Credits and so will most people.

So when given a choice, typically the better decision is a tax credit versus a tax deduction, like the Lifetime Learning Credit versus the Tuition Deduction!

So the Federal Tax Credits for Energy Efficiency sure were nice this year!

But here’s a statement in the article that I believe cuts to the heart of the issue…”the 401k was NEVER meant to replace the employer-guaranteed pension fund, supplemented by Social Security as the cornerstone of retirement planning.”

So what happened?  Companies cut their generous pension benefits because it was too prohibitive in cost.  Basically it was an unsustainable model.  Well then, of course it can’t compare.

Look at the first example given Robert Shively, he was supposed to get $1396/month with a 36 year pension from Occidental Petroleum. Instead he got $225/month from his new pension, $180/month from profit sharing, and $70k left in his 401k.  Why isn’t even close?  Well let’s be HONEST.  He didn’t save into his 401k for retirement.  Is it really the 401ks fault that he only makes $405/month from his “pension” instead of $1396/month?

With 21% of all American workers covered by a pension (1 in 5), then 80% of us should be saving on our own.  Is it really the fault of a 401k plan that we aren’t?  The article says it was a scam that you could save enough.

Well is it really a scam?  I don’t expect to get a pension, nor does my DH unlike our parents.  So we are saving the maximum into a 401k account annually ($16.5k/year).  If we don’t save what are we going to live on?

The truth is it’s not the fault of 401ks that retirees don’t have enough to live.  The truth is, it’s a heck of a lot easier to bank on a monthly pension than to save your own money.  And the suggested retirement insurance?  Same problem as a normal pension, whose going to fund it?

The truth is, our retirements are in jeopardy, but not because of the 401k.  Rather because we aren’t saving enough period.  Americans counted on 3x their monthly retirement income from an unsustainable retirement plan.  And now that the idea has been killed, the new idea, 401ks for retirement savings is blamed instead.  Truth is any way you cut it, people need to save instead of blaming the vehicles for savings.

Here’s the deal, if you don’t take care of your pet’s health as they grow old, like your own health it will cost more in the long run.  Well if you try to keep them alive.  If you allow your pet to become obese and have medical problems, then put them down instead, it’s probably cheaper; although one would argue not humane.

So what are some frugal pet tips?  Order the flea/tick medication and heartguard online. I usually order a 1 year supply at a time or more.  Instead of going to the vet, I put in my vet’s name and have them confirm my prescription for heartguard.  It’s honestly around 30% cheaper to buy their medications online.

Second, feed your dog better quality kibble and only kibble.  Seriously it’s worth not buying Purina and Hungry Dog, because those foods have been shown to lead to kidney stones.  That’s expensive!  It’ll eat up your “savings” of cheap food.  But why only kibble?  Well obese pets have more medical problems like heart disease, arthritis, etc.  Long term you’ll be saving money if you aren’t shoveling your leftovers onto Fido’s plate.  Also limit treats and you’ll a bundle.

Third, find someone to trade dog sitting favors with.  I’ve found that boarding our dogs when we want to go away for the weekend, prohibitively expensive.  Ideally I’d love to find someone to dog sit, but it’s impossible.  My DH is very picky about our dogs and many owners aren’t so religious about walking them 3x/day, let alone 1x/day.  But I know other owners who do trade dog sitting favors.

Finally, adopt an adult dog.  I seriously saved a bundle by going through a rescue group/shelter instead of buying a puppy.  I did not pay $800 for a puppy, then go to training classes, or pay for the neutering of my dogs.  I had housebroken, neutered, and somewhat trained dogs.  In my experience the first year of a dogs life is the most expensive.

These are a couple of my frugal pet tips. Do you have any?

In 2007 we spent $4512 on home repairs, 2008 we spent $4152, and in 2009 I assumed again $5k for the year.  Sounds reasonable since I have previous data to show around 1% of our home value is spent on repairs annually.  I like to believe we’re being responsible home owners.

So what ended up happening?  Well we knew we had to do the heat pumps this year in order to sell the home, and we had nursed them through the winter last year.  But then we ended up doing a lot of other projects, some due to vanity and others because of our baby.

According to my excel spreadsheet we’ve paid $2500 on painting, $3750 on heat pumps, $1325 on heat pump labor, and $1800 on insulation.  We’ve also spent $1500 on painting supplies, insulation, sod, leveling the backyard, etc for do-it-yourself projects this year.

I can justify the painting as being necessary since we had lead paint removed and walls properly repaired in the nursery and stairway.  Absolute necessities to sell and for the baby’s health.  The heat pumps were necessary as well, and the tax break on the insulation too good to pass up.  So the grand total was $10868 on home repairs this year, plus probably another $500 for a few extras these next two months.  I guess windows are out of the question this year.

But did are we really spending that much?  With the heat pumps and insulation being federal tax deductible we spent $5550 *30% = $1665 or the maximum $1500 tax credit.  That means we get back $1500 in federal taxes paid.  I’ll take that.  We also get a $500 cash rebate from our electric company for installing more efficient heat pumps.  Nice.   Finally, we get back 75% cash back from our gas company for weatherizing our house with insulation to the tune of $1350!  Thus we basically are getting back $3350 in cash in our pockets!  This is not counting any extra cash we get back from our state income taxes.  I’ve heard from neighbors there are state tax credits as well. Whew.

So the total damage we’ll be spending after rebates will be at least $7518 (and ~$11k out of pocket!), but it turned out a lot better than I expected.  Plus this is not counting how much we’ll save on with the more efficient heating system, better insulation. I am going to guess at least $1k this winter alone if not more.

I’ll post after the winter, although we’ll likely be spending the same and raising the temperature in the house from 55 to 68.  And while I’m not wild about all this spending, at least it makes our lives more comfortable.

Interesting question.

I had a big, fancy wedding (well second wedding) after our quickie at the courthouse.  It was nice and fun, and we paid for it 100% ourselves.  That and our honeymoon to boot.  We had been living together 5 years when we got married and waited another 5 years to have kids.

So from my perspective, we could have saved for our “future” kids, but it seemed so far off that I couldn’t do it.  Would I do it again?  Probably.  Looking at my wedding photos it was a great day and we didn’t do it terribly expensive ($15k for everything, around $8k for the wedding, $2k travel, $5k honeymoon and pets boarding).  The honeymoon we had a blast and we’ve always spent money on traveling.

But now with a baby on the way, I find myself thinking a little differently.  Now I’m contemplating more about her future, our savings, and things we need to line up financially: life insurance, wills, trusts, long term care, etc.  These things seems very important, more than our wedding day.

So I guess my opinion is why are you bothering to save for a big, splashy wedding and $10k engagement ring (I think mine was $2k, probably less) if you already have a kid or two?  Why are you trying to “do it right” with the fancy wedding when you already have other responsibilities?

Honestly I can’t see buying an expensive engagement ring, $20k on the wedding when you have a child.  That could easily pay for college.  Or a down payment for a home in a better school district.

But I wasn’t in that situation, so probably I don’t understand.  And it’s possible it’s a new relationship, where the kids are from a previous relationship (not marriage), thus you want the wedding you’ve never had.

But is it financially responsible to do so?  And I understand that some people can afford to do anything they want.  But reality is if you are “Saving” up for a wedding and engagement ring,  you probably are not in the best financial shape to afford EVERYTHING.  I can’t even afford everything, it’s all about priorities.

Thus, if the cart already came before the horse (you had a kid before being ready to be married or getting married), should you still do the fancy wedding?  Or use the money for college, retirement, home, etc?