Wednesday’s need-to-know money news

Zemanta Related Posts ThumbnailToday’s top story: A major data breach hits the IRS. Also in the news: Protecting your credit while traveling overseas, how to build an emergency budget, and how to prepare financially to become a stay-at-home parent.

Identity Thieves Got Private Data for 104,000 U.S. Taxpayers
Another week, another massive data breach.

4 Ways to Protect Your Credit Back Home While Traveling Overseas
How to avoid coming home to a mess.

How to Build an Emergency Budget (and Why You Need One)
Handling the unexpected.

How to Get Financially Ready to Be a Stay-at-Home Parent
Preparing for a major life change.

4 Ways To Avoid Outliving Your Nest Egg
Timing is everything.

Tuesday’s need-to-know money news

Zemanta Related Posts ThumbnailToday’s top story: The best credit cards for new homeowners. Also in the news: Determining the right time to retire, what items you should buy in large quantities to save money, and finding a bank that offers the best protection for its customers.

5 Credit Cards for New Homeowners
How to save money on one of the biggest purchases you’ll ever make.

How to Know When Retirement is Right for You and Your Family
Timing is everything.

10 Items to Always Buy in Large Quantities
Buying in bulk can help you stick to a budget.

Top 10 Banks That Offer The Best Customer Protection
Protecting your personal information and your assets.

The magic of tidying up your money

ClutterFor the uninitiated, it probably seems weird that a book with the unlikely title “The Life-Changing Magic of Tidying Up” can be a New York Times bestseller–or that the introverted Japanese author Marie Kondo is now so famous she can no longer ride the Tokyo subway for fear of being mobbed.

Kondo contradicts a lot of the accepted wisdom about the best ways to organize, urging marathon sessions and encouraging people only to keep what “sparks joy.”

Here’s how the New York magazine writer Molly Young describes the appeal:

In theory, Kondo should translate poorly to American audiences. We don’t like being scolded, we don’t like foreigners telling us how to live, we don’t like our sloppily balled socks treaded on. We don’t like paying $16.99 for 224 pages of nagging. Our roommates and spouses do that for free.

But Kondo doesn’t nag. Instead, she urges a kind of animistic tenderness toward everyday belongings…Kondo’s thesis—that the world is filled with worthy recipients of mercy, including lightweight-microfiber ones—is as lovely as it is alien. It’s empathy as an extreme sport.

While reading the book, it struck me that while you may not want to apply all Kondo’s principles to your stuff, they actually work pretty well when applied to your money. For more, read my DailyWorth column, “The Life-Changing Magic of Tidying Up Your Finances.”

 

Q&A: 529 plans vs. education tax breaks

Dear Liz: You recently mentioned in your column that you can’t use any of the three education tax breaks — the American Opportunity Credit, the Lifetime Learning Credit or the tuition and fees deduction — for expenses paid with 529 college savings plan money. This has me wondering if those 529 plans are really worth it.

Wouldn’t you have to have a really large amount invested to have enough earnings to make it worth not taking one of the credits?

Answer: If college were cheap, that might be a problem. But most people have far more college expenses than they can write off on their tax returns.

The average net price for one year at a four-year college — the published cost minus free financial aid such as grants and scholarships — was just under $13,000 last year, including tuition, fees, room and board. The average net price was around $6,000 at two-year public colleges and $23,550 at private four-year schools.

Many people pay a lot more, as the sticker prices at colleges continue to rise.

As mentioned in the previous column, the three available tax breaks are mutually exclusive, so you can’t take more than one in any given year.

The most generous credit, the American Opportunity Credit, reduces taxes dollar-for-dollar for the first $2,000 of college expenses and then by 25% of the next $2,000 — for a total of $2,500 per student.

If your qualified education expenses exceed $4,000, as they probably will, those tax-free 529 plan withdrawals will come in handy.

Q&A: “File and suspend” Social Security

Dear Liz: You’ve been writing about the “file and suspend” option that allows you to delay taking Social Security while still reserving the ability to get a lump sum if you later change your mind.

If I file and suspend but choose not to take a lump sum before my benefit maxes out at 70, what happens to those funds? What happens to those funds if I die before 70?

Answer: Remember that Social Security is a pay-as-you-go program. The Social Security taxes you pay aren’t piled up in some kind of account, waiting for you to retire. Your taxes pay current retirees’ benefits, just as future workers’ taxes will pay yours.

When you delay starting Social Security, you’re rewarded with a potentially larger check each year you put off claiming until age 70. Your benefit grows by about 7% each year between age 62 and your full retirement age, which is currently 66.

Between full retirement age and 70, your benefit grows at 8% each year in what’s called “delayed retirement credits.”

If you file and suspend at your full retirement age, then change your mind, you can get a lump sum equal to all those checks you passed up since you filed. However, you lose the 8% delayed retirement credits you could have otherwise claimed.

Your benefit is reset to the lower amount you would have received at full retirement age, and that’s the benefit on which all future cost-of-living calculations would be made.

Should you die after filing and suspending, your surviving spouse would be able to benefit from those delayed retirement credits. His survivor’s benefit would be equal to what you could have claimed as of the date of your death.

Q&A: Waiting on Social Security

Dear Liz: I started Social Security at 62 and did the spreadsheet myself showing the break-even point. I would have to be 80 before the graphs even cross.

You, and others, have to stop that business about waiting on Social Security if you can. My own mother lived to 90 and it is about quality of life, not collecting lots from the government.

Answer: Exactly. And since you have longevity in the family, you especially should have paid better attention to the message about the importance of delaying benefits.

If your mother started benefits at 62, or ended up living on a survivor’s benefit from a husband who started early, then her checks were 30% to 50% smaller than they could have been. That difference can be especially crucial in a person’s later years, when she’s far more likely to have outlived her other assets and need the additional money.

Remember that the decision to claim Social Security is separate from the decision to retire. People can retire early and draw from other accounts while putting off Social Security to maximize their checks.

Most people who try to do the math on spreadsheets fail to factor in the effects of inflation and taxes, among other factors.

You can get better calculations from one of the free calculators, such as the ones at AARP and T. Rowe Price. You can find a more robust calculator for about $40 at MaximizeMySocialSecurity.com and SocialSecurityChoices.com.

Another option is to read the recent bestseller published by Simon & Schuster: “Get What’s Yours: The Secrets to Maxing Out Your Social Security.”

Friday’s need-to-know money news

Zemanta Related Posts ThumbnailToday’s top story: Big changes are coming to your credit report. Also in the news: Excuses for not saving for retirement, how your social life changes when you’re saving money, and what to do as you approach retirement.

Big Changes to Credit Reports Are on the Way: What It Means for You
A new way of handling disputes.

5 Poor Excuses People Have for Not Saving for Retirement
No excuses!

Why Saving Money Means Changing, Not Eliminating, How You Socialize
No reason to become anti-social.

5 Things to Do Now if You’re Near Retirement
Start getting ready!

Thursday’s need-to-know money news

321562-data-breachesToday’s top story: Health insurer CareFirst is hit with a massive data breach. Also in the news: How to dive into the investment pool, when you shouldn’t use a credit card, and identity theft facts that will terrify you.

1.1 Million User Records Stolen From Health Insurer CareFirst
Another day, another data breach.

5 Tips First-Time Investors Need to Know
Jumping into the investment pool.

3 Times You Shouldn’t Use a Credit Card
Using your card wisely.

Are you susceptible to a ‘cracking card’ scam?
How to safeguard your cards.

5 Identity Theft Facts That Will Terrify You
Fear can be a good thing.

Wednesday’s need-to-know money news

Zemanta Related Posts ThumbnailToday’s top story: What to do when your car loan outlasts your car. Also in the news: What to buy during this weekend’s Memorial Day sales, how to plan for semi-retirement, and how to trick yourself into spending less by using direct deposit.

What to Do If Your Car Loan Outlasts Your Car
Your options are limited, but they exist.

Best Things to Buy at Memorial Day Weekend Sales
Get the most bang for your buck.

How to Plan for Semi-Retirement
Choosing to work instead of having to work.

Direct Deposit Into Your Savings To Trick Yourself Into Spending Less
You won’t even miss it.

Is your car part of the airbag recall?

gravestoneIt would be good to know if your car is one of the 34 million with potentially defective airbags than can explode and kill you in an accident. You may need a little patience to find out.

The government Web site that can allow you to look up recalls by your car’s vehicle identification number (VIN) seems to be overwhelmed at the moment. You also can call the hotline at 888-327-4236 and request a callback (I’m still waiting). Even if your car isn’t currently listed, you still have to check back regularly to see if it gets added.

If your car is affected, there won’t be a charge for the fix. You can contact any dealer of your vehicle to schedule the repair, according to the Consumer Federation of America. You also can ask your dealer or the manufacturer for a loaner car if there will be an extended wait.

After a decade of denial, Japanese airbag manufacturer finally admitted its airbags were defected and widened a recall to 34 million vehicles. You don’t want to ignore this serious issue–the sooner you contact a dealer, the sooner you can get on the list for a repair, said Jack Gillis, CFA’s automotive expert and author of The Car Book, published with the Center for Auto Safety.