Ask Liz Weston

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Liz Weston

Q&A: Social Security and inflation

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Dear Liz: If I wait until I am 70 to claim Social Security, my benefit will increase 8% a year. With inflation above 8%, should I take Social Security early? I am almost 68.

Answer: This question was answered in a previous column but needs to be addressed again because so many people misunderstand how Social Security cost-of-living increases work.

Social Security applies cost-of-living adjustments to your benefits whether you’re currently receiving them or not. In other words, your benefit has been receiving inflation adjustments since you turned 62, when you were first eligible.

Applying now doesn’t get you anything extra and, in fact, costs you because you’re giving up the 8% annual delayed retirement benefits you would otherwise receive.

How to handle your medical bills

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When she was 19, writer Emily Maloney found herself facing about $50,000 in medical debt after hospital treatment for a mental health crisis. The debt followed her throughout her twenties, hurting her credit and leading to stressful calls from collection agencies.

Her experience is all too common: The Consumer Financial Protection Bureau reports that about 1 in 5 U.S. households carries medical debt. People with medical debt are more likely to face anxiety, stress or depression and avoid filling prescriptions because of the cost.

In Kimberly Palmer’s latest for the Associated Press, learn how to handle your medical bills.

Q&A: Investigate a credit score drop

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Dear Liz: I had an 836 credit score as of last week. I’m a business owner and have been using my company credit card to pay bills on a large project to get 2% cash back. I charged $52,000 of the $70,000 I have available on that one card. (I have about $175,000 available across the three business cards I have) and my credit score went down to 699! I pay my cards off within days of receiving my statements. Is this a bad use of my cards? How long do you think it will take to get my score back up? Side note: I don’t need any more credit, but my business line of credit is coming up for renewal and I am buying a new truck in two months. Do you think this will be an issue?

Answer: Lower scores could cause you to pay more for credit, so it’s worth fixing this issue promptly.

There’s nothing wrong with using your cards to get rewards, as long as you’re paying your balances in full and not using too much of your available credit. Ideally, you’d use less than 10% of the limit on any card at any given time. (Credit scoring formulas pay close attention to the amount of credit you’re using on each revolving account as well as how much of your available credit you’re using overall.)

If you need to use a lot more of your credit limit, consider making more than one payment a month. Some people make bi-weekly or even weekly payments to keep their balances low.

(The balances that factor into your scores are typically the amounts that you owe on your statement closing date.)

Credit card issuers typically report to the credit bureaus every month, so it shouldn’t take more than 30 days for lower balances to improve your scores.

It’s a little unusual, however, for a business credit card to affect your personal credit scores. Typically, business accounts don’t show up on your credit reports, even if you used your personal credit history to apply for the cards. You may want to pull your three credit reports from AnnualCreditReport.com to see if other problems may have contributed to your score drop.

Q&A: What a bear market really means for your 401(k)

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Dear Liz: With the stock market tanking and no rebound likely in the near future, should I decrease the amount I am contributing toward my retirement? I earn a high-five-figure salary and currently contribute 25% of my pay to my company’s 401(k). The current balance is $450,000 with about two-thirds held in a 2030 target date fund and the remainder in a 2035 target date fund. I hope to retire at the end of 2030 at age 64. I have no other retirement accounts, but I am married and my husband collects Social Security and a pension.

It’s hard putting hundreds of dollars into my 401(k) every two weeks only to watch it seemingly disappear. Would it be smart to decrease the percentage I contribute by 5% to 7% and then use that extra money to pay down a $40,000 home equity line of credit? Or should I just stay the course, keep my percentage the same and ride out this bear market?

Answer: Since you’re within 10 years of retirement, it’s time to hire a fee-only financial planner to get specific, individualized advice about your situation. The decisions you make in the years immediately before and after retirement can have a huge impact on how long your money lasts. Mistakes made in this time frame can be difficult if not impossible to reverse.

Take, for example, this impulse to reduce your contribution rate. Your money isn’t disappearing; it’s being used to buy stocks at a discount. When the market rebounds, as it inevitably will, those shares you bought on sale will benefit from the growth.

A planner would tell you not to cut retirement contributions simply because stocks had entered a bear market. The logical response to a bear market is to invest more, not less.

That said, variable rate debt is getting more expensive thanks to Federal Reserve Bank rate hikes. Reducing your 401(k) contributions a few percentage points to pay off that debt faster could make sense, especially if you’re not giving up free money in the form of a company match and your reduced savings rate will still allow you to retire on time.

Again, a fee-only financial planner could help you weigh your options and recommend the best path.

This week’s money news

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This week’s top story: Smart Money podcast on what the Fed news means for you, and choosing a new bank. In other news: October mortgage rates that will continue to rise, 3 common types o f life insurance fraud and how to stay savvy, and Medicare Part B 2023 premiums dip, bucking inflation trends.

Smart Money Podcast: What the Fed News Means for You, and Choosing a New Bank
This week’s episode starts with a discussion about the Fed’s most recent interest rate hike.

October Mortgage Rates Will Continue to Rise, Haunting Home Buyers
Mortgage interest rates will likely rise in October as lenders contend with the Federal Reserve’s more aggressive stance.

3 Common Types of Life Insurance Fraud — and How to Stay Savvy
Misleading a life insurance company might mean your loved ones never see the money you intended for them.

Medicare Part B 2023 Premiums Dip, Bucking Inflation Trends
Medicare beneficiaries will save a little over $5 per month on Medicare Part B compared to the previous year.

How to cultivate a happier retirement

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Researchers have identified several factors besides money that contribute to a happier retirement, including good health, strong relationships and a sense of purpose.

But setbacks are inevitable, in life and in retirement. Not everyone enjoys good health — and no one enjoys it forever. Loved ones die or move away. The pursuits you thought would give your life meaning may not, or may not be possible: Think of all the activities and plans canceled because of the pandemic.

Yet many retirees continue to be happy despite difficulties. In my latest for the Associated Press, learn how to cultivate a happier retirement.