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Tuesday’s need-to-know money news

Mar 18, 2014 | | Comments Comments Off

Zemanta Related Posts ThumbnailToday’s top story: How to cope when friends and family steal your identity. Also in the news: How to deal with defaulting on your student loans, storing your digital items for free, and five tax credits and deductions you should know about.

When Family and Friends Steal Your Identity
Dealing with the financial and the emotional fallout.

Debt Adviser: How to deal with student loan debt default
Communication with lenders is key.

How to store your e-memories for free
The battle for the Cloud means cheaper storage for everyone.

5 Tax Credits and Deductions You Need to Know About
Don’t give Uncle Sam more than you absolutely have to.

Retirement: A third have less than $1,000 put away
A scary situation.

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Charitable giving can help keep tax deductions steady

Mar 17, 2014 | | Comments Comments Off

Dear Liz: Regarding the reader who was worried about not having sufficient tax deductions: I recommend charitable giving. As our mortgage interest per payment fell, I augmented it with charitable giving to maintain the same annual total for income tax deductions (interest plus charity). As the years go by, our interest decreases and charity increases. Payments to charity accomplish a social benefit, while interest payments just line the pockets of bankers. We give to a broad variety of charities: national, local and international organizations, religious and secular, health and social care, care for children at risk, veterans, Red Cross, etc. The great thing about charitable giving is that we get to choose whom we wish to help. When asked, most organizations will keep your demographic information private so that you are not inundated with requests via the sale of donor lists.

Answer: Thanks for sharing your approach, but people should understand that it requires paying out more money over time to maintain the same level of itemized deductions.

Mortgage payments typically remain the same over the life of the loan, with the amount of potentially deductible interest shrinking and the amount applied to the principal increasing with each payment. So as the amount of deductible interest declines, you would have to increase your contributions to charity in addition to making your mortgage payment each month if you wanted to keep your itemized deductions unchanged.

Categories : Q&A, Saving Money
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Dear Liz: I am 55 and my wife is 65. She only worked a few part-time jobs as she spent most of her working years raising our nine beautiful children. My question is, since she does not have enough credits to collect Social Security on her own work record, can she claim spousal benefits on my work history? If so, at what age and how will it affect my benefits?

Answer: Your wife can receive spousal benefits based on your work record, but those checks can’t start until you’re old enough to qualify for benefits at age 62 (when she’s 72).

If you apply at 62, however, you’re typically locked into a check that would be about 30% smaller than what you’d get if you waited until your “full retirement age” to start. Full retirement age used to be 65, but it’s now 66 and will gradually increase to 67 for people born in 1960 or later.

At your full retirement age, you have the option to “file and suspend,” in which you file for retirement benefits and then immediately suspend your application. Your wife can start receiving spousal benefits, but because you aren’t actually receiving checks, your benefit can continue to grow until it maxes out at age 70.

For many couples, it makes sense for the higher earner to delay starting benefits as long as possible. Given your big age gap, however, you may be better off with a hybrid approach: starting your own benefits (and your wife’s spousal benefit) at age 62 and then suspending your benefit when you reach full retirement age, said economist Laurence Kotlikoff, a Boston University professor who created the site MaximizeMySocialSecurity.com to help people analyze their claiming options. Your benefit would grow 8% a year from the time you suspend to the time you restart at age 70. Your wife would continue to receive her spousal benefit in the interim.

Because your wife will be older than her own full retirement age of 66 when she starts receiving checks, she will be entitled to half of the benefit you’re scheduled to get at your full retirement age. What she gets doesn’t diminish what you get. Spouses who haven’t reached their full retirement age when they apply for spousal benefits have to settle for a discounted check.

Clearly, claiming decisions can be complicated, especially for married people and even more so when there’s a big gap in their ages. AARP has a free calculator that can help most people understand their options. T. Rowe Price also has an easy-to-use calculator, but it doesn’t work for married couples with more than a six-year age gap.

For a more detailed and customizable calculator, you may want to pay $40 to use the software at sites such as MaximizeMySocialSecurity.com or SocialSecurityChoices.com, co-developed by economist (and Social Security recipient) Russell F. Settle.

Categories : Q&A, Retirement
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Monday’s need-to-know money news

Mar 17, 2014 | | Comments Comments Off

Zemanta Related Posts ThumbnailToday’s top story: The pros and cons of couples keeping their finances separate. Also in the news: What you need to know about deducting mortgage interest, how paying old debt will affect your credit score, and when to have the retirement talk.

Should Couples Keep Their Financial Assets Separate?
The pros and cons.

Deducting Mortgage Interest: What You Need to Know
Getting the most from your mortgage deductions.

Will Paying an Old Debt Hurt My Credit Scores?
What you need to consider before writing a check.

Tips for couples: How to have the retirement talk
One of the most important conversations you’ll ever have.

Un-budgeting: When Your Household Budget Has Gone Too Far
You know what they say about too much of a good thing.

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Who offers real chip-and-PIN cards in the U.S.

Mar 14, 2014 | | Comments Comments Off

Chip cardMost of the rest of the world has adopted more secure chip-and-PIN credit cards–which can cause some problems for Americans traveling overseas.

When we were in Italy two years ago, we found our old-school magnetic-stripe cards wouldn’t work in automated kiosks. That included our British Airways card, which had a chip, but no PIN. Without a personal identification number to punch in, it was useless.

Unfortunately, many articles about where to get chip-and-PIN cards in the U.S. make the mistake of thinking chip-and-signature cards are the same thing. They’re so not.

Because we’re going to Europe again soon,  I hit up Bill Hardekopf of LowCards.com for a list of U.S. issuers that offer the real deal. The few organizations on this list have many members that travel overseas. And here they are:

United Nations Federal Credit Union.. If you don’t actually work for the UN, you can become a credit union member by joining United Nations Association ($25 membership fee).

USAA. You must be a member of this financial services organization for active-duty military, veterans and their families.

Andrews Air Force Base Federal Credit Union. “You can  join by becoming a member of the American Consumer Council which is open to all so essentially is open membership,” Hardekopf said. Membership is $5.

State Department Federal Credit Union. Same deal: you can  join by becoming an American Consumer Council member.

Pentagon Federal Credit Union. You can join this credit union is you’re a member of one of a host of associations. If you’re not already a member of one, you can join Voices for America’s Troops for $15.

Or you can just wait, if you don’t have an overseas trip planned. True chip-and-PIN cards should be here by October 2015, when merchants without the terminals to process the cards and banks that have failed to issue them will have to pay for fraud. As Ron Lieber of the New York Times put it, “It’s an elaborate game of chicken, fitting for an industry where the major players spent years embroiled in a lawsuit.” Ultimately, though, more secure cards will benefit banks, merchants and consumers.

 

 

 

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Friday’s need-to-know money news

Mar 14, 2014 | | Comments Comments Off

Zemanta Related Posts ThumbnailToday’s top story: How the habits of early retirees could lead you to retirement. Also in the news: Things to consider when saving for a mortgage, easing financial worries with smartphone apps, and what to do when your friends are big spenders.

5 Essential Habits of Early Retirees
Retire early by picking up these habits.

Saving for a House: It’s More Than a Down Payment
What to consider when you’re saving for a mortgage.

Face Your Retirement Fears With These Free Financial Tools
Reassurance is just a smartphone app away.

How to Keep but Not Go Broke with Expensive Friends
Balancing your friends and your budget.

5 Ways to Pick the Perfect Time to Sell Your House
As they say, timing is everything.

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Portrait Of Senior Couple In ParkMost people are better off delaying the start of their Social Security benefits as long as possible. That’s the consensus of the AARP, financial planners and researchers who have studied the thousands of different claiming options. In fact, the benefits of putting off Social Security have grown in recent years, thanks to low interest rates, gains in longevity and changes in the law since the 1990s.

Still, every time I pass along the advice that waiting is better, I hear from those who just refuse to believe it. They focus on breakeven points rather than longevity risk; they don’t factor in spousal or survivor benefits; they underestimate how much their benefit can grow with even a few years’ delay.

So when Financial Engines approached me with the results of a recent survey, I just nodded my head in recognition. Their poll found that most people nearing retirement are confident that they can make smart Social Security claiming decisions–but that most do poorly on a test that measures their understanding of basic Social Security claiming concepts. You can read more about it in my column this week for Bankrate, “Are you Social Security smart? Guess again.”

My best advice is that before you claim Social Security, use some of the software tools that are available to help you evaluate your options. The AARP has a good calculator here. If you want to play with the numbers and assumptions a bit more, MaximizeMySocialSecurity.com has software that will really let you get your geek on; a one-year license is $40. You also can talk to a fee-only financial planner who is savvy about claiming strategies.

Here are two things you should know:

1. If you’re married (and that includes you same-sex couples, if you file in a state that legally recognizes your marriage), you have unique opportunities to maximize your lifetime benefits and protect your surviving spouse from poverty. The difference between the best claiming strategies and the worst can be $250,000. No, that’s not a typo.

2. Social Security is not going to disappear. The program is simply too popular and its problems, though real, are not insurmountable. Even if Congress does nothing, the system can still pay out 75% of the benefits promised just from the taxes it will collect. If Congress does do something, the changes almost certainly won’t affect near-retirees but will instead change benefits for younger taxpayers. Signing up for benefits as soon as you’re eligible in order to “lock in” your checks will just lock you in to a much lower payment, for life.

If you’re one of those people who likes to dive into the academic research surrounding claiming strategies, here are a few articles to check out:

“Recent Changes in the Gains from Delaying Social Security.” This article in the Journal of Financial Planning demonstrates how changes in interest rates, longevity and the benefit formula have dramatically improved the benefits from delaying Social Security claims.

How the Social Security Claiming Decision Affects Portfolio Longevity.” Researchers William Meyer and William Reichenstein have done a lot of research on Social Security claiming strategies, and in this Journal of Financial Planning article they use a sophisticated model that factors in taxes to weigh how delaying Social Security can help retirees make their savings last longer.

Should You Buy an Annuity from Social Security?” This brief from Boston College’s Center for Retirement Research explains why it often makes sense to tap retirement savings so that you can delay the start of Social Security benefits.

When Should Married Men Claim Social Security?” This article, also from the Center for Retirement Research, should be required reading for any married couple thinking of starting benefits early. It does a great job of summarizing potential spousal and survivor benefits–and of making the point that starting too early can leave your surviving spouse in a world of hurt.

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Thursday’s need-to-know money news

Mar 13, 2014 | | Comments Comments Off

Zemanta Related Posts ThumbnailToday’s top story: Finding the best tax software. Also in the news: The cost of the marriage tax penalty, how to convince your spouse to stop spending, and the hidden costs of buying a home.

Which Tax Software Is Best for You?
Which program best serves your tax needs?

How Much the Marriage Tax Penalty Will Cost You
Your spouse’s higher income could bump you into a new tax bracket.

How to Persuade Your Spouse to Stop Spending Money
Compromise could make all the difference.

The Hidden Costs of Buying a Home
Fees, fees, everywhere fees.

Should You Put Your Tax Refund On A Prepaid Card?
Faster access to your money could mean less of it.

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Wednesday’s need-to-know money news

Mar 12, 2014 | | Comments Comments Off

images (1)Today’s top story: How to build credit at any age. Also in the news: The best length of time for car loans, getting the most from store reward programs, and what heirs need to know about reverse mortgages.

Am I Too Old to Build Credit?
No. Never.

Should you take on a six-year car loan?
Probably not.

How to Get the Maximum Value Out of Coupons and Loyalty Cards
Getting the most from that annoying loyalty card.

What Heirs Need to Know About Reverse Mortgages
How much will you have to pay back and when?

Whether to Wed: 5 Tax Issues Facing Same-Sex Couples
Come tax time, marriage equality doesn’t necessarily mean financial equality.

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Advisors to women: Don’t quit

Mar 11, 2014 | | Comments (2)

Zemanta Related Posts ThumbnailWomen with young children often discover that child care costs eat up much of what they earn. If they’re married to a big earner in a high tax bracket, they could lose most of the rest of their wages to high marginal tax rates.

But advising them to quit working is short sighted, two Certified Financial Planners suggest in the most recent issue of the Journal of Financial Planning.

Jerry A. Miccolis and Marina Goodman note in “Advising Married Women on Investing–in Themselves” (may be restricted to FPA member access only) that child care costs usually drop when the kids enter school while the mother’s income typically rises over time. Stopping out, meanwhile, often leads to lower lifetime earnings. The authors suggest women view those early years, when they’re working for not much financial gain, as an investment in their future–sort of an extended internship, if you will. They write:

“[W]ork experience leads to career advancement, which could have a quantum-level impact on her financial future. Say a woman spends five years working while getting no financial benefit due to taxes and child care costs. Her youngest then enters school and suddenly child care costs plummet. After five years of experience, she may get promoted and now her income may be $75,000. If, instead, she was just starting out at that point, she would be earning $50,000. (We’re ignoring inflation in this simple example—it would, of course, merely magnify the effects.) The difference is not $25,000. It is more like being an entire professional level higher for the next 30 years. Over the course of a career it can be the difference between middle management and eventually being in the C-suite.”

The authors note that “A woman’s ability to earn a decent salary is the most comprehensive insurance policy she can have.” Staying employed, even part time, and keeping up any professional credentials can help her family if her partner loses a job, becomes disabled or suffers a business setback. It can also be an insurance policy for her in the far greater risk of divorce:

“Even among upper-income families, many women would still experience a significant decline in lifestyle upon divorce, especially if they have no means of supporting themselves. The risk that a woman will get divorced is greater than the sum of the risks of her husband’s premature death, disability, or just about any other financial catastrophe all put together.”

This information may be most relevant for the kinds of women financial planners are most likely to advise: college-educated women with careers, rather than jobs. The price for stopping out may be less if you’re in a low-wage, low-skilled job rather than one where significant financial advances are possible. But any parent contemplating time away from work should be looking at the longer term financial picture, and those who choose to stay home should make sure they have significant savings to help offset their greater financial vulnerability.

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