Wednesday’s need-to-know money news

Today’s top story: The death of the 20% mortgage down payment. Also in the news: What you need to know about P2P payment apps, working beyond 65, and 5 cars that cost the lowest to insure.

The 20% Mortgage Down Payment Is Dead
R.I.P

Ditching Cash for P2P Payment Apps? 3 Things to Know
The world of digital currency.

Working Beyond 65 — Will You Want To Or Need To?
What the future holds.

5 cars that cost the least to insure
You don’t have to break the bank.

Q&A: Deferred compensation plans

Dear Liz: I’m 54 and plan on retiring at 55 with a government pension. I have about $450,000 in a 457(b) deferred compensation plan. I owe about $220,000 on my home. I would like to pay off my 15-year, 2.5% interest mortgage. This would free up $1,900 a month and leave us debt-free. Everyone I’ve spoken to says this is a bad idea since I’d lose my mortgage interest deduction and I’d be “investing” in a low-interest vehicle (my mortgage). My only other obligation is my daughter’s college education, and I’m paying that in cash. Am I crazy to pay off this mortgage?

Answer: You’re not crazy, but you probably haven’t thought this all the way through.

The money in your deferred compensation plan hasn’t been taxed. Withdrawing enough to pay off your mortgage in one lump sum would shove you into a higher tax bracket and require you to take out considerably more than $220,000 to pay the tax bill. You could easily end up paying a marginal federal tax rate of 33% plus any applicable state tax — all to pay off a 2.5% loan.

There are a few scenarios where using tax-deferred money to pay off a mortgage can make sense. Some people have so much saved in retirement plans that the required minimum distributions at age 70½ would push them into high tax brackets and cause more of their Social Security to be taxed. They also may have paid down their mortgage to the point where they’re no longer getting a tax break.

In those instances, it may be worth withdrawing some money earlier than required to ease the later tax bill. The math involved can be complex, though, and the decisions are irreversible, so anyone contemplating such a move should have it reviewed by a fee-only financial advisor who is familiar with these calculations.

In fact, it’s a good idea to get an objective second opinion from a fiduciary any time you’re considering tapping a retirement fund. (Fiduciaries are advisors who pledge to put your interests ahead of your own.)

During your meeting, you also should review the other aspects of your retirement plan. How will you pay for health insurance in the decade before you qualify for Medicare? If you’re a federal employee, you should be eligible for retiree health insurance but your premiums may rise once you quit work. If you’re planning to buy individual coverage through a healthcare exchange, what will you do if that’s yanked away or becomes unaffordable? How will you pay for long-term care if you need it, since that’s not covered by health insurance or Medicare?

You can get referrals to fee-only financial planners from the National Assn. of Personal Financial Advisors at napfa.org. You can find fee-only planners who charge by the hour at Garrett Planning Network, garrettplanningnetwork.com.

Tuesday’s need-to-know money news

Today’s top story: 401(k) mistakes for new grads to avoid. Also in the news: 6 financial questions you’re too embarrassed to ask, why you should scatter your bank accounts, and 5 facts that prove Americans don’t know anything about managing money.

New Grads, Don’t Make These 401(k) Mistakes
Plan carefully.

6 Financial Aid Questions You’re Too Embarrassed to Ask
We’ve got answers.

Why You Should Scatter Your Bank Accounts
Don’t keep it all in one place.

5 Facts that Prove Americans Don’t Know Anything about managing money
We need to get better at this.

Wednesday’s need-to-know money news

Today’s top story: Fed point fingers as ‘Debt Relief’ companies prey on student loan borrowers. Also in the news: Distressed borrowers say student debt help was anything but, why investors care about rate hikes, and why your credit cards shouldn’t retire when you do.

Feds Point Fingers as ‘Debt Relief’ Companies Prey on Student Loan Borrowers
Looking for easy targets.

Distressed Borrowers Say Student Debt Help Was Anything But
Compounding a problem.

Why Investors Care About the Fed (and Rate Hikes)
The impact on investments.

Credit hit: Why your credit cards shouldn’t retire when you do
Building credit is still important.

Q&A: Money in the bank isn’t safe from inflation

Dear Liz: I am 68 and not in very good health due to heart disease. I’m not sure what do with my savings of over $1 million, which sits in online bank accounts, earning 1.25% to 1.35% in 18-month certificates of deposit. (No account contains more than $250,000 to remain under the FDIC insurance limits.) The money will eventually go to my daughter, though I could use it for my retirement. I don’t have the appetite for market swings. What should I do with my money?

Answer: Your money currently is safe from just about everything except inflation. If you want to keep your nest egg away from market swings, you’ll have to accept that its buying power will shrink. There is no investment that can keep your principal safe while still offering inflation-beating growth.

If you do want a shot at some growth, you could keep most of your savings in cash but also invest a portion in stocks — preferably using low-cost index mutual funds or ultra-low-cost exchange-traded funds.

Before you know how to invest, though, you’ll need to think about your goals for this money. A fee-only financial planner could help you discuss the possibilities and come up with a plan. You can find fee-only planners who charge by the hour through the Garrett Planning Network, www.garrettplanningnetwork.com.

Friday’s need-to-know money news

Today’s top story: How to gift stock to a new grad. Also in the news: Memorial Day weekend sales, what to do if you miss a financial goal, and why your 401(k) can be a cash drain.

How to Gift Stock to a New Grad
A gift for the future.

Making a Major Purchase? Wait for Memorial Day
But remember the real reason for Memorial Day.

If at First You Miss a Financial Goal, Try, Try Again
Don’t give up!

Why your 401(k) can be a cash drain
It’s possible to be “401(k) rich and cash poor.”

Tuesday’s need-to-know money news

Today’s top story: Budgeting for college students. Also in the news: What to do when the GI Bill won’t cover college, 6 ways to travel cheaply, and why frugal retirees are ditching the 4% rule and hoarding their savings instead.

Budgeting for College Students: Where to Start
You don’t have to live on ramen.

What to Do When the GI Bill Won’t Cover College
Finding alternatives.

6 Smart Ways to Travel Cheaply
You don’t have to go overboard.

Frugal retirees ditch 4% rule, hoard savings instead
Why they’re making this choice.

Monday’s need-to-know money news

Today’s top story: How credit card bonuses got so big and hard to grab. Also in the news: VA Loan eligibility and requirements for 2017, how to detect scams that could ruin your retirement, and 10 numbers that may make or break your retirement.

How Credit Card Bonuses Got So Big and Hard to Grab
And you thought blackout dates were bad.

VA Loan Eligibility and Requirements for 2017
What you need to know.

How to Detect Scams That Could Ruin Your Retirement
Don’t put your savings at risk.

10 numbers that can make or break your retirement
Focus on the important ones.

Tuesday’s need-to-know money news

Today’s top story: How to dodge scams and time-wasters in the online job market. Also in the news: Credit card bonuses are drifting further away, how job hopping can hurt Millennials in retirement, and how to fraud-proof your retirement savings.

Online Jobs: How to Dodge Scams and Time-Wasters
Don’t get taken for a ride.

As Credit Card Bonuses Balloon, They Drift Further Away
Bigger isn’t necessarily better in this case.

Job Hopping Can Hurt Millennials in Retirement
The 401(k) game.

6 ways to fraud-proof your retirement savings
Protecting your savings.