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Liz Weston

Q&A: Here’s a strategy to avoid going broke in retirement

January 31, 2022 By Liz Weston

Dear Liz: A lot has been written about how much can safely be withdrawn from a balanced investment portfolio so that it will last a lifetime. A popular strategy is to withdraw a percentage, say 4%, in the first year and then increase that withdrawal each subsequent year by the rate of inflation.

What are your thoughts on an alternate strategy of withdrawing a fixed percentage, say 4%, at the beginning of each year? This has the disadvantage of providing a more variable income stream year to year but has the advantages of simplicity and it can never deplete the portfolio to zero.

Answer: Many retirees would find it hard to cope with incomes that swing wildly from one year to the next. One way to address that volatility is to ensure that retirees have enough guaranteed income — through Social Security, pensions and annuities — to cover their basic, must-have expenses. Retirement plan withdrawals then would provide for their “wants,” such as travel, meals out and so on.

Cutting back on the nice-to-haves isn’t easy, but it’s better than not having enough money to pay the mortgage or buy groceries.

This approach is the core of the “Spend Safely in Retirement Strategy,” created by retirement researchers Wade Pfau, Joe Tomlinson and Steve Vernon with the help of the Society of Actuaries and the Stanford Center on Longevity.

The strategy suggests maximizing Social Security and basing withdrawals on the IRS’ required minimum distribution percentages. Reports detailing the strategy and the research behind it are available on both organizations’ websites, and Vernon’s book “Don’t Go Broke in Retirement” explains the strategy in detail.

Of course, trying to eliminate any possibility of running short means that you may die with a whole lot of unspent money. That may be great news for your heirs, but sad for you if you denied yourself excessively while you were alive. Finding the right balance between security and spending is tough, to say the least.

Filed Under: Q&A, Retirement Savings Tagged With: q&a, retirement savings

Q&A: Don’t bother with max credit score

January 31, 2022 By Liz Weston

Dear Liz: I am seeking your advice on how to maximize my credit score. Recently one of my cards was canceled for non-use, which reduced my available credit to $75,000. I use three other cards in rotation, never use more than 3% of my credit limits and always pay the balances off. I have made a few requests to have my credit limits increased in order to elevate my current 835 FICO score, only to be denied. I want to maintain as high a FICO score as possible (850). In order to do that I need to “play the game” … only I have no idea what the rules are! Could you please help me navigate this?

Answer: There is absolutely no practical benefit to having the highest possible credit score. You’ll get the best rates and terms once your scores are above the mid-700s on a 300-to-850 scale.

Regular readers can recite this next part by heart: Keep in mind that you don’t have one credit score. You have many, and they change all the time.

Even if you did hit 850 with one scoring formula from one credit bureau, you probably wouldn’t keep it for long or achieve the same number with all the other available scores.

You already know the most important credit rules: Use your cards regularly but lightly and pay your balances on time and in full every month. (Credit scoring formulas typically don’t “know” if you’re carrying a balance, so there’s no advantage in doing so.)

If you’re determined to hit 850, however, you could try using even less of your credit limit, applying for a new card to increase your available credit (the initial small ding to your scores would be short-lived) or simply waiting, since often the mere passage of time will add points to your scores.

Filed Under: Credit Scoring, Q&A Tagged With: Credit Scores, q&a

Thursday’s need-to-know money news

January 27, 2022 By Liz Weston

Today’s top story: The mental health risks of retiring. Also in the news: Prepare your business finances now in case of natural disasters, a new episode of the Smart Money podcast on achieving your dreams, and why you should switch to online invoicing.

The Mental Health Risks of Retiring
Retiring can pose challenges.

Prepare Your Business Finances Now in Case of a Natural Disaster
Insurance, disaster loans and a business continuity plan can help you weather a natural disaster.

Smart Money Podcast: Make a Plan to Achieve Your Dreams
A pilot with sky-high ambitions gets some help figuring out how to launch his dreams.

4 Reasons to Switch to Online Invoicing
Small businesses can better manage cash flow, be more efficient and get paid faster with online invoicing.

Filed Under: Liz's Blog Tagged With: financial dreams, natural disasters, online invoicing, retirement and mental health, Smart Money podcast

Wednesday’s need-to-know money news

January 26, 2022 By Liz Weston

Today’s top story: 5 ways businesses can get ahead of stalled supply chains. Also in the news: What you need to know about Medigap Plan A, traveling without a vaccine, and questions to answer before buying a house with a friend.

5 Ways Businesses Can Get Ahead of Stalled Supply Chains
Virtually no small business has been spared from recent supply chain disruptions.

What Is Medigap Plan A? What You Need to Know
Medigap Plan A offers all of the “basic benefits” included in every Medicare Supplement Insurance plan without any extras.

Ask a Travel Nerd: Can I Travel Without a COVID Vaccine?
Traveling while unvaccinated, whether domestically or internationally, will introduce some challenges.

Answer These Questions Before Buying a House With a Friend
Make it through the process with your friendship intact.

Filed Under: Liz's Blog Tagged With: ask a travel nerd, buying a home with a friend, Medigap Plan A, real estate, supply chain issues, traveling and vaccines

Tuesday’s need-to-know money news

January 25, 2022 By Liz Weston

Today’s top story: 5 things small businesses need to know about the Metaverse. Also in the news: Grads left behind $3.7B in free college aid in 2021, buying your next used car online, and why you should teach your kid to invest while they’re still a kid.

What Is the Metaverse? 5 Things Small Businesses Need to Know
The metaverse is coming — eventually. Here’s what you need to know in the meantime.

Grads Left Behind $3.75B in Free College Aid in 2021, Study Says
An estimated 813,000 Pell-eligible high school graduates didn’t submit the FAFSA in 2021, a college access nonprofit found.

Buy Your Next Used Car Online
Learning how to navigate online car dealerships can help you find your next used car from the comfort of your home.

Why You Should Teach Your Kid to Invest While They’re Still a Kid
Teaching them to save is good; teaching them to invest might be even better.

Filed Under: Liz's Blog Tagged With: free college aid, kids and investing, Metaverse, small businesses, used car shopping online

The mental health risks of retiring

January 25, 2022 By Liz Weston

The late Pamela Hixon of Leipsic, Ohio, was eager to retire from her job running a hospice agency. Soon after she quit, however, Hixon spiraled into depression and anxiety. She sought help from counselors and her pastor, but it wasn’t enough. Six months after retiring, she took her own life.

“She lost purpose, she lost significance, she lost a sense of meaning in her life,” says her son Tony Hixon , a Findlay, Ohio-based wealth manager who wrote about the experience and how it transformed his financial planning practice in a book, “Retirement Stepping Stones: Find Meaning, Live with Purpose, and Leave a Legacy.”

Overall, retirees are a contented bunch and many report being happier in retirement than they were at the end of their careers. Older adults are less likely than younger people to experience major depression, says Brent Forester, president of the American Association for Geriatric Psychiatry.

In my latest for the Associated Press, how to manage the challenges of retirement and how to get help.

Filed Under: Liz's Blog Tagged With: mental health, Retirement

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