Ask Liz Weston

Get smart with your money

Q&A

Q&A: What a bear market really means for your 401(k)

By

Dear Liz: With the stock market tanking and no rebound likely in the near future, should I decrease the amount I am contributing toward my retirement? I earn a high-five-figure salary and currently contribute 25% of my pay to my company’s 401(k). The current balance is $450,000 with about two-thirds held in a 2030 target date fund and the remainder in a 2035 target date fund. I hope to retire at the end of 2030 at age 64. I have no other retirement accounts, but I am married and my husband collects Social Security and a pension.

It’s hard putting hundreds of dollars into my 401(k) every two weeks only to watch it seemingly disappear. Would it be smart to decrease the percentage I contribute by 5% to 7% and then use that extra money to pay down a $40,000 home equity line of credit? Or should I just stay the course, keep my percentage the same and ride out this bear market?

Answer: Since you’re within 10 years of retirement, it’s time to hire a fee-only financial planner to get specific, individualized advice about your situation. The decisions you make in the years immediately before and after retirement can have a huge impact on how long your money lasts. Mistakes made in this time frame can be difficult if not impossible to reverse.

Take, for example, this impulse to reduce your contribution rate. Your money isn’t disappearing; it’s being used to buy stocks at a discount. When the market rebounds, as it inevitably will, those shares you bought on sale will benefit from the growth.

A planner would tell you not to cut retirement contributions simply because stocks had entered a bear market. The logical response to a bear market is to invest more, not less.

That said, variable rate debt is getting more expensive thanks to Federal Reserve Bank rate hikes. Reducing your 401(k) contributions a few percentage points to pay off that debt faster could make sense, especially if you’re not giving up free money in the form of a company match and your reduced savings rate will still allow you to retire on time.

Again, a fee-only financial planner could help you weigh your options and recommend the best path.

Q&A: Can someone who has remarried claim survivor benefits from a deceased former husband?

By

Dear Liz: Can someone who has remarried claim survivor benefits from a deceased former husband?

Answer: Possibly, if the marriage lasted at least 10 years, the divorce occurred at least two years ago and she remarried at age 60 or later.

Divorced survivor benefits can be up to 100% of the former husband’s benefit. The amount would be reduced if the ex-wife applies before her own full retirement age, which is currently between 66 and 67. (Survivor benefits could be further reduced or even eliminated if the ex-wife receives a pension from a job that didn’t pay into Social Security, under the “government pension offset” rules.) If the ex-wife has earned a Social Security benefit of her own, she would get the larger of the two checks rather than both amounts.

The rules for divorced survivor benefits are different from those for divorced spousal benefits. Divorced spousal benefits may be available while the ex-husband is still alive, but only if the ex-wife hasn’t remarried. Also, divorced spousal benefits max out at 50% of the ex-husband’s benefit.

Q&A: An online bank didn’t want this reader’s deposit. Now what?

By

Dear Liz: I recently tried to open a high-yield, one-year certificate of deposit at an online bank. I already have one CD with this bank, but when I went to submit the form for the new account, I got a message on the screen that the bank had denied my request. I called the bank’s customer service line, but the rep said she could not give me any reasons as to why they denied my application.

I checked my three credit reports and everything is in order. The only thing I can think of was that I recently had a balance on one credit card that went slightly over 30% of my credit availability, but I paid that off in full. I did some research online and another reason might be that withdrawals from other bank accounts are appearing on my credit report. I have made some regular withdrawals recently from one of my money market accounts.

Why would a bank deny a customer giving them a large amount of money, so they could loan it out at the higher interest rates and make money? If I knew the reason for the denial, I could fix it. Is there a federal banking rights organization where I can dispute this denial?

Answer: You can file a complaint with the Consumer Financial Protection Bureau, which promises to work with your bank to resolve your issue. You also could file a complaint with the bank’s regulator, but there’s no guarantee you’ll get a response.

The denial probably wasn’t due to the information in your credit reports. A bank may check your credit before allowing you to open a new account, but you wouldn’t be denied because you used more than 30% of your credit limit. Bank transactions typically aren’t recorded in your credit reports, so that wouldn’t be a reason for denial, either.

The bank is required to send you an “adverse action” notice if it used your credit report or another consumer database to deny your application. That notice should explain the reason why, and the database it used.

It’s possible you encountered a technical glitch, or were trying to deposit more than the bank allowed for that account. Another possibility is that there were typos or errors in your online application. Whatever the case, the CFPB complaint should prompt a clearer response from the bank about what happened and what you can do to resolve the problem.

Q&A: If the credit card is paid off, will the credit score go up or not?

By

Dear Liz: If I pay off my credit card and carry a zero balance, will my credit score go up quite a bit?

Answer: That depends, among other factors, on how much of your available credit you were using on that card. The closer you were to being maxed out — which means using most or all of your available credit — the more dramatic the improvement you might see.

But your credit scores also depend on a number of other factors, including how long you’ve had credit, how many open accounts you have, how much of the available credit you’re using on those accounts, when you last applied for credit and whether you have any negative marks, such as late payments, in your credit reports.

In general, credit scores respond favorably if you use only a small portion of your available credit. People trying to obtain top scores generally try to keep their credit usage below 10% of their credit limits.

Q&A: Social Security’s complex rules

By

Dear Liz: You recently mentioned that people can’t always trust the information they get from Social Security representatives. I worked for Social Security for 25 years. When I was ready to file for spousal benefits a few years later in another town, the rep I got immediately told me I wasn’t eligible and was not even going to fill out an application. I knew he was wrong but he was adamant. Always, always tell your readers to insist on filing an application no matter what, as that protects their appeal rights. The applicant might be wrong but will receive a formal determination telling them why. I spent 20 minutes educating that rep on what he should have already known. They don’t train them like they used to.

Answer: Social Security rules can be immensely complicated and, as you note, not every Social Security representative understands those rules as well as they should.

Anyone who’s thinking of applying should first educate themselves as much as possible (the latest edition of “Social Security for Dummies” by Jonathan Peterson is an excellent place to start). Consider using Social Security claiming software or getting personalized advice from a fee-only financial planner. Once you’re well informed, you’ll be better able to recognize and avoid bad advice.

Q&A: How to practice good credit card hygiene to avoid getting hacked

By

Dear Liz: We have one primary credit card, which we use all the time, that collects airline miles we use for travel. Every few months it is “compromised” and we have to get a new one. Is there something we’re not doing right? Are there “good hygiene” rules for credit cards?

Answer: Yes, and most involve reducing the number of places that have access to your card’s information.

Many online retailers and web browsers offer to save your card information to make future purchases easier.

While these autofills save time, they mean your credit number information is being stored in databases that are outside your control. Refusing this option — and deleting your stored cards from browsers and retail accounts — means less convenience but more security.

Another option is to add two-factor authentication to your retail accounts, which makes them harder to break into. This would require you to enter a code that’s texted or emailed to you or generated by an authentication app.

Some credit cards offer the option to use virtual numbers online. If yours does, this is another option worth using. The retailer never has access to your real credit card number, so it can’t wind up in a potentially vulnerable database.

You can avoid exposing your credit card numbers while shopping in person by using mobile payment apps such as Apple Pay and Google Pay.

These apps create a “token” from your credit card information that’s transmitted to the merchant when you want to buy something. Again, the merchant never sees and can’t store your actual card details.

Other good practices involve steering clear of unsafe merchants and sites. When shopping online, always make sure the little lock symbol shows in the left side of your browser’s address bar and that the site’s address starts with “https” rather than just “http.” If a site doesn’t offer these basic security features, you shouldn’t shop there.

Be wary of in-person merchants that use old-fashioned magnetic card readers, the ones that require you to swipe, without the option of tapping or inserting your chipped card. It’s much easier to clone the information on a card’s magnetic stripe than from its chip, so avoid swiping if you possibly can.

Also be wary of skimmers and shimmers, which are devices that thieves install on unattended ATMs and fuel pumps to steal card information. These devices can be hard to detect, so consider paying for your gas inside the station and using ATMs attached to banks.

You also should avoid using public Wi-Fi for any financial transactions because these networks usually aren’t encrypted and are easily compromised. Finally, be on the lookout for phishing attempts, which is when criminals try to get you to divulge credit card and other sensitive personal information by pretending to be from a trusted source.

Understand that you can do everything right and criminals may still steal your card’s information. Fortunately you’re protected against fraudulent charges, so a compromised card is more of a hassle than a financial disaster.