Although due to volume, I can’t personally answer all my mail, I occasionally pull together questions sent to me about recent columns. Here are my answers to readers on three topics I’m asked about frequently.
Q: I have no consumer debt, do not own a house, and have about $24,000 of student loan debt remaining. I make about $80,000 gross per year. I want to be totally debt-free before looking to purchase a house. Would you recommend paying off the debt first?
A: During a recent online discussion, I advised a new college graduate to aggressively pay down his student loans. When I give such advice, someone always second-guesses me. On Twitter, one person said: “Only pay down the loans expeditiously if the net interest rate exceeds your rate of investment return #duh.”
What the folks in the keep-the-debt camp don’t take into account is risk. I view debt from the prism of a potential job loss, illness or some other disruption in income. What if you lose the money you are investing that instead could have been used to retire your education loans?
You’d have to figure out how to keep making the loan payments when you don’t even have enough money to cover your expenses for essentials such as food, utilities or transportation. But if you have no debt, you can more easily weather the economic storm.
So when I answer the questions about aggressively paying off student loans, I generally say a big fat yes. And it doesn’t matter to me what interest rate you have. If you don’t have income, even a zero percent loan is still debt you can’t afford.
If you pay off your student loans as quickly as you can, you are removing risk from your balance sheet. It’s a great and sensible goal to be debt-free before buying a home. And oh, what a feeling you will have to walk into your new home with that burden off your shoulders.
Q: My sister and I are the caregivers for an elderly aunt whose husband, now deceased, served in the Marines. We understand there may be assistance available to her. Unfortunately, we have been unable to find any details of the benefit, including the specific qualifications and the process for applying. Could you please point me in the right direction?
A: The benefit you saw me mention in a recent column is called “Aid and Attendance” pension received through the Department of Veterans Affairs.
It is meant to provide monthly financial assistance to help pay for long-term care assistance received at home, at a nursing home or in an assisted living facility. Veterans who served during wartime can apply, as can surviving spouses. You have to meet certain medical and financial qualifications.
I found the most helpful materials about this program at www.veteranaid.org. You’ll find a gold mine of information with advice, resources and links. You will want to read everything you can because the application process can be time consuming and it can takes months before an application is approved.
But it’s worth the effort. As of 2012, the A&A pension benefit provided up to $1,732 per month to a veteran, $1,113 per month to a surviving spouse, or $2,054 per month to a couple, according to veteranaid.org.
Q: My husband and I have pensions that will pay us a combined $60,000 a year, plus Social Security. He has about $300,000 in his 401(k). I have about $100,000 in cash and we will own our house when we retire. I would like to put some of my cash into college savings plans for my five granddaughters. I would also like to pay cash for some home renovations and have a “life happens” fund. Do I even need an emergency fund?
A: The point of an emergency fund is have available cash for unplanned for expenses or a disruption in your income. Be careful about spending down your cash reserves even for a good deed as helping grandchildren attend college. Even with your good pensions, you still should have an emergency fund for future cash needs you haven’t anticipated.