Thursday, May 24, 2007

Forever Stamp

The United States Post Office has come out with a new stamp. The forever stamp will not have a price posted on it. You buy the forever stamp at the current first class postage rate and the stamp is good for first class postage – forever. Even if the first class postage rates go up, your old forever stamps are still good.

I like this idea. Not because I intend to stock up and save money once the rates go up. But this way I don’t have to count how many stamps I have laying around and then go buy enough one or two cent stamps to make them all good. I’m still trying to use up the last of my 37 cent stamps, not to mention my 39 cent stamps.

USPS Forever Stamp

I have heard several people saying that they plan on stocking up on the new forever stamps so that when the postage rates go up, they will be saving money. I have a better plan. Just save your money. Buy stamps when you need them and invest the money that you would have spent on stamps so that it is earning some interest or dividends.

Now before I go too far with this I should explain – I’m not an investment banker, a financial analyst or a stock broker. I’m just a guy who did a little simple math and decided that I don’t think that stocking up on 41 cent postage stamps is going to be a good hedge against inflation.

Let’s look up a little data, and then make some assumptions. Over the last 5 years, postage rates have gone up 4 cents. The last 10 years – 9 cents. 15 years – 12 cents. 20 years – 19 cents and so on. On average the postage rates tend to increase a little less than one cent per year. So I’m going to be pessimistic and assume that they are going to go up 1 cent per year every year.

Since I need a place to start, let’s assume that you use about 5 stamps per week, or 260 postage stamps per year. That seems to be about what my family goes through with birthday cards, Christmas cards, and the miscellaneous items that we still need to mail each week. The number used to be a lot higher, but with online bill paying, I only have to mail about one check per month.

If I use 260 stamps per year, over the next 5 years I would need 1300 stamps. If I buy forever stamps now, those 1300 stamps will cost me $533. But since I expect the price of postage to go up 1 cent per year, if I wait and buy my stamps as I need them over the five year period I would pay $559 for my stamps. So buying a five year supply of forever stamps now will save me $26 over the next five years.

Well, I have a different suggestion. Instead of spending $533 on 1300 stamps that will sit in my drawer for five years I plan on buying about 260 stamps each year as I need them, and investing the rest of the money in an account that earns at least 4% compounded monthly. That way my invested money earns enough interest that I can pay the income taxes on my earnings, and still earn enough to cover the increased cost of the postage increases.

So how could I lose or win in these situations? If the postage rates don’t go up one cent a year, then I’m money ahead. If they go up more than one cent a year they I’m going to wish I had bought 1300 stamps when I had the chance to. If my investments earn more than 4% then I’m money ahead, if they earn less, then I’m behind again. If the Democrats get their way and my taxes go up then I lose.

Of course I will try and be smart about buying my stamps. If in August the Postal Service tells me that the first class postage rate is going up 2 cents in November and I know I need 100 stamps for Christmas cards. Then I will buy my stamps before the price increase. What idiot wouldn’t? I think everyone understands the concept of “On sale.”

So is it a good idea to stock up on forever stamps or not? Like everything else in life there is no clear cut answer, which, by the way, I’m getting tired of. I miss the good old days of my youth when my decisions were much easier. Do I whack my sister when she pisses me off and then let Dad wail on my butt when he gets home, or should I just go outside and blow the heads off her Barbie dolls with my left over 4th of July firecrackers and risk Mom yelling at me for days if I wasn’t able to blame it on the kid across the street.

Never mind, I guess the decisions I had to make a child weren’t all that cut and dried either.

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