Get smart with your money
If you leave a job or retire, you’re often encouraged to roll over your 401(k) or other workplace retirement account into an individual retirement account. That might not be the right move.
In my latest for the Associated Press, why having more investment choices isn’t necessarily better.
Today’s top story: A year-end checklist to make the most of retirement age. Also in the news: How the government’s next step to fight inflation could impact savers, myths about iBuyers, and why you shouldn’t spend a dollar to save a nickel on gas.
A Year-End Checklist to Make the Most of Retirement Savings
Age brings unique opportunities and obligations, including some important year-end tasks that can help you make the most of your money.
Inflation Keeps Surging: Government’s Next Step Could Impact Savers
Fed officials project as many as three 0.25 percentage point interest rate hikes in 2022.
The Property Line: Don’t Be Misled by These Myths About iBuyers
They aren’t responsible for runaway house prices and can lessen some seller pain points. So why all the hate for iBuyers?
Don’t Spend a Dollar to Save a Nickel on Gas
It’s about the worst time possible to buy any car unless you absolutely have to.
Today’s top story: The surprising change in airfares since last year. Also in the news: Smart Money Podcast on holiday shopping report and retirement plan options for self-employed people, and Fitbit Black Friday 2021 deals.
The Surprising Change in Airfares Since Last Year
Airfares dropped 4.6% in terms of unadjusted percent change between October 2020 and 2021.
Smart Money Podcast: Holiday Shopping Trends and Self-Employed Retirement Options
A discussion about NerdWallet’s holiday shopping report and money question on retirement plan options for self-employed people.
Fitbit Black Friday 2021 Deals: Are They Worth It?
Kohl’s will throw in Kohl’s Cash with Fitbit purchases.
Today’s top story: 3 Signs you’re ready to retire. Also in the news: 2022 Tax bracket, and buying budget tech.
Reluctant to Retire? 3 Signs You’re Ready
Some people do have a choice about when they retire, and yet they can’t quite bring themselves to quit working.
Your Tax Bracket Just Changed for 2022
Federal tax brackets will have the highest inflation-adjusted increase in years.
Stop Buying Cheap Tech
“It was such a great deal,” they said, tossing their new tech into the trash.
Many people don’t have much choice about when they retire. Illness, job loss or caretaking responsibilities push them out of the labor force, ready or not.
But some people have the opposite problem: They do have a choice, and yet they can’t quite bring themselves to quit working.
In my latest for the Associated Press, check three signs you may be ready to retire.
Dear Liz: I am 55 and have health issues that I don’t talk about at work. I want to retire soon. I know that getting health insurance is going to be hard. I am just at a loss as to how I am going to keep working when I don’t feel well. What are my options?
Answer: In the past, getting health insurance could be difficult or prohibitively expensive if you had even relatively minor health conditions. That changed with the Affordable Care Act, which requires insurers to extend coverage without jacking up the premiums for preexisting conditions. In addition, most people qualify for tax subsidies that reduce the premiums, and those subsidies were expanded this spring when President Biden signed the American Rescue Plan into law. You can start your search for coverage at HealthCare.gov.
Before you quit, however, consider whether your employer could make accommodations that would allow you to continue working. Many people at 55 don’t have enough saved for a comfortable retirement that could last decades. Shifting to part-time work, if your employer allows it, could help you continue to save or at least reduce the amount you need to withdraw from your savings.
Dear Liz: I just wanted to comment on a recent question about refinancing a mortgage in retirement. The writer wrote: “… at 67 and 72 years old, it’s unlikely that both of us will survive for another 15 years to pay off this loan.” This seems an old way of thinking about age. The obituaries in my paper are full of people who have lived into their 90s and even past 100 years old!
Answer: Good point. People often misjudge life expectancies, which over time have lengthened considerably. At 67, a typical female could expect to live nearly 19 more years, according to Social Security’s life expectancy tables, while a male at 72 has a 13-year life expectancy. People with higher incomes, good health and good habits (nonsmokers, for example) could add many years to those estimates.
Dear Liz: My husband and I are retired, with enough income from our pensions and Social Security to cover our modest needs, plus additional money in retirement accounts. We have owned our home for 35 years but refinanced several times and still have 15 years to go on a 20-year mortgage.
With rates so low, we were contemplating refinancing to a 15-year mortgage just for the overall savings on interest, but we started thinking about the fact that, at 67 and 72 years old, it’s unlikely that both of us will survive for another 15 years to pay off this loan. Since that’s the case, we’re now thinking about taking out a 30-year mortgage, with monthly payments $700 or $800 less than what we currently pay.
Our house is worth around 10 times what we owe on it, and if we had to move to assisted living we could rent it out at a profit, even with a mortgage. We also each have a life insurance policy sufficient to pay off the balance on the mortgage should one of us predecease the other.
I know that conventional wisdom says that we should pay off our mortgage as quickly as we can. But an extra $700 or $800 a month would come in handy! Am I missing something? Is this a bad idea?
Answer: Answer: Not necessarily.
Most people would be smart to have their homes paid off by the time they retire, especially if they won’t have enough guaranteed income from pensions and Social Security to cover their basic living expenses. Paying debt in retirement could mean drawing down their retirement savings too quickly, putting them at greater risk of ultimately running short of money.
Once people are in retirement, though, they shouldn’t necessarily rush to pay off a mortgage. Doing so could leave them cash poor.
You are in an especially fortunate position. Your guaranteed income covers your expenses, including your current mortgage, and you have a way to pay off the loan when that income drops at the first death. (The survivor will get the larger of the two Social Security checks. What happens with the pension depends on which option you chose — it may drop or disappear or continue as before.) Even with a mortgage, you have a large amount of equity that can be tapped if necessary.
So refinancing to a longer loan could make a lot of sense. To know for sure, though, you should run the idea past a fee-only, fiduciary financial planner who can review your situation and provide comprehensive advice.
Today’s top story: 7 ways to manage Medicare drug costs. Also in the news: Prep for hiring your first employee with these 6 steps, how to have a retirement worth saving for, and how to buy and sell a house at the same time.
7 Ways to Manage Medicare Drug Costs
Medicare beneficiaries with pricey drugs can face high out-of-pocket costs. Here are some ways to lower the tab.
Ready to Hire Your First Employee? Prep With These 6 Steps
To hire successfully, business owners need to understand their finances, find professional support and more.
How to Have a Retirement Worth Saving For
A happy retirement isn’t all about money. Make a plan for health, social connection and day-to-day enjoyment.
How to Buy and Sell a House at the Same Time
Dear Liz: I have a Roth 401(k). Are withdrawals from it the same as from a Roth IRA? And how do I move it to a Roth IRA?
Answer: Roth 401(k)s are a type of workplace retirement plan that, like Roth IRAs, allow tax-free withdrawals. But the rules for Roth 401(k)s are somewhat different from those governing Roth IRAs.
For example, a Roth IRA allows you to withdraw an amount equal to your contributions free of taxes and penalties anytime, regardless of your age. Earnings can be withdrawn from a Roth IRA tax- and penalty-free once you’re 59½ and the account is at least 5 years old. The clock starts on Jan. 1 of the year you make your first contribution.
To withdraw money tax- and penalty-free from a Roth 401(k), you typically must be 59½ or older and the account must be at least 5 years old.
In addition, Roth 401(k)s — like regular 401(k)s and traditional IRAs — are subject to required minimum distribution rules that require you to start taking money out at age 72. Roth IRAs aren’t subject to those rules.
Many people roll their Roth 401(k)s into Roth IRAs to avoid the required minimum distribution rules or to have more investment choices. Such a rollover resets the five-year clock that determines whether a withdrawal incurs taxes and penalties, however. If you wait until you retire to roll over your Roth 401(k) and need access to the money, that waiting period could be problematic.
You can roll over your Roth 401(k) after leaving the employer that offers the plan. But you also could ask if your plan allows “in service” rollovers — in other words, rollovers while you’re still working for the employer. Some Roth 401(k)s allow these, although they may be restricted to people 59½ and older.