September 9, 2019 By

Q&A: Signing up for Medicare

Dear Liz: Is it mandatory to sign up for Medicare at age 65, and how is it paid for? I’m 64, don’t have any assets and I’m not working (I’m living with a friend for free). I’d like to wait until 70 to collect Social Security. Is that possible? Someone just told me that I have to sign up for Medicare, and to pay for it, I have to sign up for Social Security. Is that true?

Answer: No.

You’re not required to get Medicare at 65. You should, however, at least sign up for Medicare Part A. Part A is the portion of Medicare that’s free and covers hospital visits. You sign up for Medicare through Social Security, either online or in a Social Security office, but you don’t have to start your Social Security benefit to do so.

The other parts of Medicare — Part B, which covers doctor’s visits, and Part D, which covers prescription drugs — require paying premiums, but you can pay those without signing up for Social Security. Some people are confused about this, because most people who get Medicare have those premiums deducted from their Social Security checks. But that’s not required.

Filed Under: Medicare, Q&A, Social Security Tagged With: ,
September 3, 2019 By

Q&A: Social Security spousal benefits

Dear Liz: I’m confused by Social Security benefits for divorced spouses, which you’ve written about recently. I was told that because I remarried (after age 60), I have to wait until my ex-husband died before receiving a part of his benefits. Is this still true for remarried ex-spouses? My ex does collect Social Security and I collect my small benefit (both of us started at full retirement age).

Answer: Yes. Divorced spousal benefits would be available only if you are currently unmarried. Survivor benefits, on the other hand, could still be available if you remarried at 60 or older.

Spousal and divorced spousal benefits can be up to 50% of the worker’s benefit, while survivor and divorced survivor benefits can be up to 100%.

Filed Under: Q&A, Social Security Tagged With: , ,
September 3, 2019 By

Q&A: Unloading a timeshare

Dear Liz: How can a timeshare owner get rid of the timeshare and claim the loss on taxes?

Answer: Timeshares typically are considered a personal asset, like a boat or a car, so the losses aren’t deductible. The best way out of a timeshare is often to give it back to the developer, if the developer will take it. You also could try to sell it on sites such as RedWeek and Timeshare Users Group. Unless your timeshare is at a high-end property, you are unlikely to recoup much and may have to pay the buyer’s maintenance fees for a year or two as an incentive.

Filed Under: Q&A, Taxes Tagged With: , ,
September 3, 2019 By

Q&A: Strategies for overcoming a spouse’s bad investment decisions

Dear Liz: I tell people we lost a huge chunk of money in the Great Recession, but it wasn’t the downturn that did us in. My husband made some incredibly poor choices. I’m embarrassed to admit that he absolutely refused to listen to me and stop the financial self-destruction until I grew a backbone. I told him I’d divorce him unless he stopped. He has mended his ways and we’re still together (which is really for the best; we’ve been married almost 47 years).

He’s now being very transparent and prudent about investing, but we’re still looking at an underfunded retirement and I’d like to maximize what we have. We’re both 71 and still working (we’re self employed). Our home is worth about $800,000 and we owe $160,000. We have a rental nearby with about $100,000 in equity that pays for itself, but there’s no extra income from it. We have $210,000 in investments and $25,000 in savings with no debt.

I think more real estate would be a good investment vehicle for us, but we’d have to cash out some of our limited portfolio in order to purchase more. So instead, I make an extra principal payment equal to half the regular mortgage payment on each of the properties each month. I’m not sure if that’s the wisest thing to do, but I figure it’s still investing in real estate and will help us when we finally retire, sell and downsize.

Answer: Right now, the vast majority of your wealth is tied up in two properties in the same geographic area. A financial planner would want you to diversify, not double down by putting even more money into real estate.

And a fee-only financial planner is what you need to help you map out your future while easing the investment reins out of your husband’s hands. As we get older, we’re more vulnerable to fraud, exploitation and just plain bad choices. Your husband may have been scared straight for now, but he easily could make future decisions that could again imperil your finances. That’s especially true if his prior behavior was related to a gambling addiction. Not all problem gamblers choose casinos or horse tracks; some are day traders.

Given all that, you may want to consider purchasing a single premium immediate annuity when you retire. These annuities offer a guaranteed stream of income for life, in exchange for a lump sum. This would be income that can’t be lost to stock market downturns, real estate recessions, bad investments or fraud.

That’s something to discuss with your planner, along with ways you can use your businesses to maximize your retirement savings. (The self employed have many options, including a basic Simplified Employee Pension or SEP, solo 401(k) plans and traditional defined benefit pension plans.)

You can get referrals to fee-only planners at the National Assn. of Personal Financial Advisors, the XY Planning Network, the Alliance of Comprehensive Planners and the Garrett Planning Network.

Filed Under: Investing, Q&A, Retirement Tagged With: , ,
August 26, 2019 By

Q&A: Why not to prepay a mortgage

Dear Liz: I want to save interest by making biweekly mortgage payments. My loan company said I couldn’t do that, but I wondered if there was a way by first paying the monthly mortgage and then making a half payment mid-month toward the next month’s due date, to get started. Then I’d make another half payment at the beginning of the following month. Ideally, this would all be arranged with autopay. I’m retired with a 4%, 30-year mortgage that has a $1,900 monthly payment and my retirement accounts are currently paying better returns.

Answer: You actually won’t save any interest until your mortgage is paid off, which could be 25 years from now if your mortgage is relatively recent. And getting a better return from your investments is a good reason not to accelerate your mortgage payments. You also shouldn’t prepay a mortgage if you have any other debt, lack a substantial emergency fund or are inadequately insured. (Those who are still working also should be maxing out their retirement contributions before making extra mortgage payments.)

With a biweekly payment plan, you’d pay half your monthly mortgage payment every two weeks. Instead of making 12 payments a year, you make the equivalent of 13 payments. Paying the extra amount helps you pay off the mortgage sooner. A bi-weekly payment plan would shave about four years off a $400,000 mortgage at 4%. The interest savings kick in once you’re mortgage-free. Then you’d save the $47,000 or so in interest you’d otherwise pay in the final years of the loan.

If you’re determined to do this, you should talk to your mortgage lender, because the arrangement you’re describing sounds a lot like the biweekly payments it won’t accept. You could hire a company that specializes in these arrangements, but the fees you pay for the service detract from your savings and aren’t really necessary. Instead, consider simply making an extra payment against the principal each month. Ask your lender how to set this up with autopay so that you’re actually paying principal. Otherwise, the extra amount might just be applied to the next month’s payment, defeating the purpose.

Filed Under: Mortgages, Q&A, Real Estate Tagged With: , ,
August 26, 2019 By

Q&A: Can this marriage’s finances be saved?

Dear Liz: I am 64 and my husband is 63. I retired five years ago after a 30-year professional career. My husband is an executive and plans to work until 70. We own two homes and one is a rental property. Both our boys are successfully launched. Currently, 67% of our retirement money is in stocks and stock index funds. The rest is cash and IRAs or 401(k)s. I am working on re-allocating that 67% to safer investments, but our two investment advisors don’t even agree on what that would look like. And my husband does not want to leave potential stock market gains. Help! I think it is time to switch to more conservative investments. What do you think?

Answer: Many financial planners would say you should only take as much risk as required to in order to reach your goals. Exactly what that looks like depends on how much you’ve saved, how much you spend and how much guaranteed income you expect to receive from Social Security, pensions and annuities, among other factors.

Most people need a hefty exposure to stocks in retirement to get the returns they’ll need to beat inflation, but whether that proportion is 30% or 60% depends on their individual circumstances. Your current allocation could be fine if your basic expenses are entirely covered by guaranteed sources (Social Security, pensions, annuities) and you want to leave a substantial legacy for your sons. Or you could be way overexposed to stocks and vulnerable to a downturn if you’ll need that money for living expenses soon.

Your IRAs and 401(k)s are not investments, by the way. They’re tax-deferred buckets to hold investments. How that money is allocated among stocks, bonds and cash matters as much as how your other investments are allocated and should be included when calculating how much of your portfolio should be in stocks.

If neither of your investment advisors is a certified financial planner, consider seeking one out to create a comprehensive financial plan for you and your husband. The plan should consider all aspects of your finances and give you a road map for investing and tapping your retirement savings. You can find fee-only financial advisors through the National Assn. of Personal Financial Advisors, the XY Planning Network, the Alliance of Comprehensive Planners and the Garrett Planning Network.

Filed Under: Couples & Money, Investing, Q&A Tagged With: , ,
August 19, 2019 By

Q&A: Confusion over spousal benefits

Dear Liz: I am currently receiving a spousal benefit from Social Security that’s equal to 50% of my husband’s benefit. My husband and I applied when we were 66 years old in 2015. I do not think my own benefit will be higher than the spousal benefit I am currently receiving when I turn 70 later this year.

But I was told by an agent over the phone that I am still required to file for my own benefit at age 70, and she set me up with a phone appointment. Is this true?

If I do apply and my benefit comes out less than the spousal benefit I have been receiving, will that amount be adjusted so that I can still receive the full 50% of my husband’s benefit? Or will I end up with a smaller amount just for applying?

I can’t see why I should “rock the boat” if I might get benefits taken away. I was just curious when I called in to see if they could figure it over the phone for me to see if I would benefit from the change, but instead I had to set up the appointment.

Answer: You won’t end up with a smaller amount. You’ll either continue with your current benefit or get an increase.

If you didn’t file a restricted application four years ago, then you’re already receiving your own benefit, plus an additional amount so that your checks equal 50% of your husband’s. If that’s the case, there’s no reason to do anything further and your benefits will continue as they are now.

But the phone rep’s insistence that you needed the appointment could mean that you filed what’s known as a “restricted application for spousal benefits only.” That form allowed people born before Jan. 2, 1954, to receive only a spousal benefit while their own benefits continued to grow.

Retirement benefits can increase 8% each year they’re delayed after full retirement age (which for you was 66) and 70, when benefits max out. If your benefit has been growing and is now larger than your current benefit, you’ll get the increase, so it’s certainly worth checking.

Filed Under: Q&A, Social Security Tagged With: ,
August 19, 2019 By

Q&A:Closing credit accounts

Dear Liz: I paid off and closed two large home equity lines of credit in April, but these HELOCs still appear on my credit report. The lender says they reported the transactions to the credit reporting agencies “immediately” and that the delay in having them removed is the credit bureaus’ fault. Are they right? What is required?

Answer: Closing a credit account won’t remove it from your credit reports. Furthermore, positive or neutral information can be reported indefinitely. The only time limit applies to negative information, which typically must be removed after 7 years.

If the lines of credit are showing as open accounts on your credit reports, then you certainly can file disputes with the credit bureaus and ask that the account status be updated. But since closing credit accounts usually can’t help your credit scores and may hurt them, you probably don’t need to be in a rush to make sure this information is reported accurately.

Filed Under: Q&A Tagged With: , ,
August 19, 2019 By

Q&A: How to keep a loan to family from turning into a problem

Dear Liz: My husband and I have saved close to $2 million. He is 58, and I am 59. Our son is a hardworking, bright young man awaiting responses to medical school applications. My husband wants to loan him $200,000 to $500,000 to reduce his debt from interest on loans. I want to help too, but I think $200,000 should be the limit.

I want a legal contract to determine when it will be paid back, how much interest we will charge, and so on. My concern is that we are unsure how to set this up and I don’t want a nice gesture to end up causing problems with our son down the road. My husband is still working and has a nominal pension from military retirement.

Answer: The first rule of friends-and-family loans is to offer only what you can afford to lose. Even with all the proper documents, many loans turn into inadvertent gifts when the borrower can’t or won’t make the payments.

So your first stop should be a fee-only financial planner, who can review your entire financial situation, including your retirement plans, and let you know how much you can afford to lend your son.

The exact amount will depend on when your husband plans to stop working, how much you anticipate spending and how much you expect to receive from the pension and from Social Security, among other issues.

The planner also can tell you what interest rate you’ll need to charge to avoid having to file gift tax returns with the IRS.

Once you have that information, you and your husband can work together to determine the size of the loan and the interest rate. You can find promissory note templates online, or you can hire an attorney to draft the actual agreement.

Filed Under: Q&A Tagged With: , , ,
August 13, 2019 By

Will you be a scam artist’s next target?

Believing that fraud can’t happen to us — because we’re too smart, logical or informed — may make us more vulnerable. Successful scam artists skillfully overcome our defenses and get us into emotional states that override logical thinking, says Kathy Stokes, AARP’s director of fraud prevention programs.

“Scammers call it getting the victim under the ether,” she says.

Various studies have tried to identify characteristics that make people more susceptible to fraud. But that can create a “blame the victim” mentality and give the rest of us a false sense of security, she says.

In my latest for the Associated Press, how to reduce the chances of being taken by a scammer.

Filed Under: Liz's Blog, Scams Tagged With: , ,