Q&A: Why surviving spouses aren’t always entitled to Social Security benefits

Dear Liz: I am confused. I thought all wives were entitled to Social Security if the husband’s earnings qualified. My husband is deceased and he received a larger Social Security benefit than I because he worked longer in a qualified system. We were married almost 49 years. Most of my earnings are from a job that didn’t pay into Social Security. I was told because I had a high retirement income, I could not qualify for a percentage of my husband’s benefit. I didn’t know there was an income basis for Social Security. My income was severely reduced when he died. I appreciate any resource in understanding Social Security you could provide.

Answer: It sounds like your survivor’s benefits were eliminated by something known as the “government pension offset,” or GPO. While this sounds draconian, the GPO is actually meant to ensure that people in your situation don’t wind up getting a bigger benefit than people who paid into the Social Security system.

If you had paid into Social Security, you would get the larger of either your own benefit or your husband’s after his death. You wouldn’t be able to continue receiving both checks. Since you’re receiving a government pension from outside the Social Security system, you would be receiving much more than a typical survivor if you could keep that pension AND get your husband’s check. The GPO reduces your survivor benefit by two-thirds of your government pension to compensate. If your pension is big enough to completely eliminate your survivor’s benefit, that means you’re still better off than you would have been just receiving your husband’s check.

Q&A: Effects of closing credit card accounts

Dear Liz: I would like to know how to close credit card accounts and not get a bad credit rating for doing so. We are trying to improve our credit after filing for bankruptcy seven years ago.

Answer: If you’re trying to improve your credit, then avoid closing credit accounts. Doing so can’t help your scores and may hurt them. Credit-scoring formulas are sensitive to how much of your available credit you’re using. The formulas like to see a wide gap between your credit limits and the amount you charge, both on individual cards and in the aggregate. When you close an account, you reduce your available credit, which narrows that gap and can ding your scores.

If you want to speed up your recovery from the bankruptcy, continue using the cards lightly but regularly and paying the balances in full every month. Make sure to pay all your bills on time so that a skipped payment doesn’t undo all the progress you’ve made. Review your credit reports and dispute any errors, including accounts that were included in the bankruptcy but are still showing up as active debts.

That doesn’t mean you can never close unwanted credit accounts. You just don’t want to do so now, or when you’re in the market for a major loan. You can close an account or two once your scores are in the high 700s on the 300-to-850 FICO scale and you don’t plan to apply for credit in the near future.

Q&A: Stepmom alters terms of dad’s will

Dear Liz: My father recently passed away and his will named my stepmom’s daughter as executor along with my brother. My stepmother just informed my brother that she removed him from that role, telling him it’s easier to just leave her daughter as the executor as she lives much closer. Is this legal to remove him after my father’s death? The rest of his five children have not been able to see that will.

Answer: Your stepmother doesn’t get to alter the terms of your dad’s will after his death. As mentioned in a previous column, a probate case should be opened in the county where your dad died and the will is among the paperwork that should be included in that case. It would become public record at that point so you would all be able to read it.

Your stepmother’s unwillingness to play by the rules indicates that you may need some legal help to make sure your dad’s wishes are carried out. The five of you should consult a probate attorney.

Friday’s need-to-know money news


140814_juris_usps-jpg-crop-promo-mediumlargeToday’s top story: What to do with the extra money from the rise in median income. Also in the news: Post office banking could be the next big thing, household debt is creeping back up to recession levels, and the pros and cons of posting your consumer complaint on social media.

Median Income Is Up: Here’s What to Do With That Extra Money
Using it wisely.

Post Office Banking: An Old Idea Getting New Life
Making banking super convenient.

Household Debt Slowly Creeping Back Up to Recession Levels
What that increase means.

Should You Post Your Consumer Complaint on Twitter or Facebook?
The pros and cons of public shaming.

Thursday’s need-to-know money news

imagesToday’s top story: How to tame your student loans. Also in the news: Why you shouldn’t skimp on insurance, critical personal finance tips for your first years after college, and three bills to pay off before you retire.

How to Tame Your Student Loans (Told in Under 350 Words)
Wrangling your student debt.

Don’t Skimp on Your Insurance
Pay now or pay more later.

4 Critical Personal Finance Tips for Your First Years After College
It’s a whole new world.

3 bills to pay off before you retire
Smoother sailing.

Wednesday’s need-to-know money news

wall_street_zombie_moneyToday’s top story: How to handle “expired” debt. Also in the news: Ways to avoid a disclosure catastrophe after closing on your new home, why your small business should have its own credit score, and why you should skip the extended warranty and save the money instead.

How to Handle Time-Barred Debt
Beware of “zobmie debt.”

5 Ways to Avoid a Disclosure Catastrophe After Closing
Pay close attention to the listing language.

Your Small Business Should Have Its Own Credit Score
Protecting your personal credit.

Skip the Extended Warranty and Save the Money Instead
Build a repair savings account instead.

Tuesday’s need-to-know money news

money-under-mattress-istock-630x434Today’s top story: The high cost of being unbanked. Also in the news: What you need to ask when choosing a mortgage broker, how getting a car loan can affect your credit, and how your Facebook account can ruin your finances.

The Cost of Being Unbanked: Hundreds of Dollars a Year, Always One Step Behind
No more stuffing your money under your mattress.

4 Must-Ask Questions When Choosing a Mortgage Broker
Getting the important answers.

How Getting a Car Loan Can Affect Your Credit
For good or for bad.

How your Facebook account can slowly destroy your finances
The modern day Keeping Up with the Joneses.

Money Lessons That Actually Stick

Efforts to make us smarter about money don’t seem to be working.

A Harvard Business School study found personal finance classes taught in high school had no effect on “financial outcomes,” such as how much people saved or how likely they were to miss payments on debt. A report for Management Science found that even intensive instruction had “negligible effects” on people’s behavior. That’s led some critics to say financial literacy education doesn’t work.

But other research has found methods that show promise. If you want to improve your relationship with money or teach your children about personal finance, these findings may help you do just that.

In my latest for the Associated Press, how to best improve your relationship with money and pass that knowledge to your children.

Q&A: How to avoid hiring a Madoff-like financial advisor

Dear Liz: What is the best way to pick a financial advisor to make sure they don’t make off with all your retirement money? I don’t want Bernie Madoff handling my retirement savings.

Answer: Even if you turn over day-to-day investment decisions to an advisor, you should make sure your money is invested at an independent custodian such as a nationally known brokerage or mutual fund company. That won’t immunize you from fraud, but Ponzi schemes are a lot harder to pull off when there’s third-party oversight.

Returns that are too good to be true, investments that you don’t understand or pressure from an advisor to invest are other red flags for fraud.

Protecting yourself from fraud is important, but so is protecting yourself from bad or conflicted advice. You need to check out any advisor thoroughly. Ask about experience, credentials and other qualifications. Find out how they get paid. Fee-only advisors are compensated only by the fees their clients pay and don’t accept any commissions for recommending products. Fee-based advisors, by contrast, may accept fees and commissions.

Your advisor should be willing to sign a fiduciary oath to put your interests first. That’s not currently required. Advisors can put you in expensive or underperforming investments just because those options pay them higher commissions and there’s little legal recourse for investors unless they can prove that the investments were clearly unsuitable for their situation.

Starting next year, advisors will be held to a fiduciary standard when counseling clients about retirement funds. There’s no reason you should wait for that rule to kick in, though. You can download a copy of a fiduciary oath for your advisor to sign at www.thefiduciarystandard.org.