Q&A: Brokerage follow-up

Dear Liz: You recently explained the insurance limits for brokerage accounts covered by the Securities Investor Protection Corp. I recently retired from the brokerage industry and wanted to add that many firms have additional insurance coverage beyond the SIPC limits.

Answer: Good point. Brokerages often purchase additional coverage from private insurers on top of what’s provided by the SIPC. To find out how much coverage may be available, ask your brokerage or conduct a search with the brokerage name and “how are my accounts protected” as a search phrase.

Friday’s need-to-know money news

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January tune-up: Your paperwork

iStock_000015900242LargeIs anyone else drowning in paperwork? I try to “prevent, prune and process,” but paper has a way of multiplying on its own.

Here’s my game plan for reducing paper clutter:

Prevent. I’ve signed up for the Direct Marketing Association’s opt out list to reduce junk mail and I use Catalog Choice to cut down on catalogs. Unfortunately, some retailers ignore these requests, so I keep a recycling bin handy. Unwanted mail goes straight to the bin so it can’t make its way any farther into our house.

Another way to prevent paper from proliferating is to sign up for electronic delivery. You can download statements or, in many cases, just let the financial institution store those for you. (Check to find out how long they do so; seven years should be as long as you’d need most statements.*) Every time I handle a piece of paper this week, I’ll be checking to see if there’s a way to receive it electronically instead.

One caveat: Going electronic doesn’t mean ignoring your accounts. I regularly check the balances and transactions of all our accounts. An account aggregator such as Mint can be a big help with this process. If receiving a paper statement is the only way you’ll remember to check your accounts, then use the scan-and-shred method as follows:

Prune. Most of our remaining paperwork can be scanned into my computer and then shredded. The IRS accepts electronic documents so there’s typically no reason to hang on to the paper version. The exceptions are paperwork that would be a pain to replace: birth, marriage and death certificates, military discharge papers and so on. Two tools that really help: my ScanSnap scanner and a heavy-duty shredded that can handle up to 15 sheets at a time.

Process. This tends to be my Achilles heel. I can think of so many better things to do than deal with that pile of paperwork on my desk. I’ve tried weekly process sessions but am coming around to the idea that it’s better not to let it pile up even that long.

*You’re likely to get different answers from different providers, which is why you need to ask. Banks and brokerages typically keep statements for 7 years (Schwab keeps them for 10) but may limit free online access to just a few years. Credit card companies are all over the map on this one. For instance, Capital One has access for four years (although you can order older statements) while Amex keeps them available for seven.

While cars no longer require traditional tune-ups, your finances still do. This month I’ll be reviewing some areas of your money that deserve some extra scrutiny and offering suggestions for the best moves now. Stay tuned for more posts–and to make sure you don’t miss any, you can sign up for my newsletter using the link on my home page.

Thursday’s need-to-know money news

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Wednesday’s need-to-know money news

how_to_build_an_emergency_fundToday’s top story: How to boost your emergency fund. Also in the news: What you need to worry about for retirement besides money, why you should worry about medical identity theft, and deciding when it’s time to dump your credit card.

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This Simple 6-Step Routine Could Save You $30 Per Week on Groceries
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Tuesday’s need-to-know money news

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Monday’s need-to-know money news

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Q&A: Keeping investments in one brokerage

Dear Liz: I recently retired at 56 and am receiving a pension. My wife is set to retire next year at 56 and will also receive a pension. I chose to leave my 401(k) in my employer’s plan but am planning to consolidate it with my wife’s 457 and four 403(b) accounts once she retires. We also have a portfolio of stock and bond mutual funds. I’d like to consolidate everything at one brokerage firm to simplify record keeping, but what’s the level of risk of having all our investments with one company? We have about $3 million in assets total.

Answer: You can’t combine your retirement accounts with your wife’s, but you certainly can move everything to a single brokerage firm to reduce fees and make it easier to coordinate your investment strategy.

Whether you should is another matter. The chances of a well-established brokerage firm going bankrupt or suffering massive fraud are slim, but it does happen: Lehman Bros. and Bernard L. Madoff Investment Securities are two examples from the 2008 economic meltdown.

Investors have some protection against bankruptcy and fraud when their accounts are covered by the Securities Investor Protection Corp. Protected accounts are insured for up to $500,000 in securities and cash, with a $250,000 limit on the cash.

SIPC uses a concept called “separate capacity” to determine coverage when investors have multiple accounts. You can learn more about coverage limits on its website.
You can expand your total protection by using different types of accounts. Accounts held in your name alone are covered up to $500,000, and you can get another $500,000 in coverage for joint accounts. Your individual retirement accounts and Roth IRAs are also treated separately, and each type of account gets another $500,000 of coverage. (You don’t get $500,000 on each IRA if you have multiple accounts, though. SIPC combines all your traditional IRAs and treats them as one.)
Let’s say you and your wife have individual brokerage accounts as well as a joint account. Then we’ll suppose you each have IRAs as well as Roth IRAs, for a total of seven eligible accounts. That could give you a total of $3.5 million of SIPC coverage.

Of course, the amounts in your accounts may not line up so neatly with the coverage limits. You might not have any Roth IRAs, for example, but have more than $500,000 in that 401(k) you were hoping to roll over to an IRA, or your wife may have more than $500,000 in her retirement accounts (which, if rolled over into one or more IRAs, would be treated as one account). If you leave your 401(k) with your employer, on the other hand, you would be covered under federal employee benefit laws that require defined contribution accounts to be held in trust, separate from the company’s own funds, which would protect your account regardless of its size.

There’s a chance you could be made whole even if your accounts exceed SIPC limits. That was the case with Lehman, where individual retail customers got all their money back. With Madoff, everyone with claims under $925,000 is expected to be made whole, while the remaining claimants have gotten about half their money back in addition to the $500,000 advance SIPC paid out.

But you’ll have to assess your risk tolerance. If you have none, then use more than one brokerage firm.

Q&A: Could reducing your credit limit hurt your credit score?

Dear Liz: I asked one of my credit card issuers to increase my credit line from $2,000 to $5,000 but was turned down. The reason given was that I have too high credit limits from my other cards. Combined, I have about $100,000 in available credit, although I’ve never used more than $15,000 at any time and always paid promptly. If I ask these credit card companies to reduce my available credit, will I damage my FICO credit scores, which are around 785?

Answer: Your credit scores may well take a hit if you reduce your available credit, and there’s no guarantee that doing so will induce the issuer you’re courting to raise your limit. If this card is relatively recent, you may find that simply waiting a few months and asking again will get you the credit line increase.

If not, you have plenty of other options. Credit card companies are falling all over themselves to attract creditworthy customers like yourself. Check out some of the offers you’ll find at credit card comparison sites such as NerdWallet, CreditCards.com, CardRatings, LowCards.com and others.

Friday’s need-to-know money news

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