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Liz Weston

How to get more joy while giving to good causes

January 18, 2022 By Liz Weston

We may think spending money on ourselves will make us happier than spending it on someone else. That belief can make it hard to carve money out of our budgets to give to good causes.

But research shows that spending money on others is more likely to make us happy. This seems to be a worldwide phenomenon, and one that applies whether we have a lot of money or only a little.

In my latest for the Associated Press, what to consider if you want to maximize your happiness while helping others.

Filed Under: Liz's Blog Tagged With: donations charity

Q&A: Social Security and government pensions

January 17, 2022 By Liz Weston

Dear Liz: You recently mentioned the windfall elimination provision that affects pensions from jobs that don’t pay into Social Security. I’m wondering what those jobs are. Are they just part of the gig economy, or is there some other category of jobs that don’t pay into Social Security?

Answer:
Gig economy jobs are supposed to pay into Social Security, just like the vast majority of other occupations. People with gig jobs are often considered to be self-employed, so instead of paying just 6.2% of their gross wages into Social Security like most workers, they also pay the employer’s 6.2%, for a total of 12.4% of their earnings.

Some state and local governments have their own pension systems that don’t require workers to pay into Social Security. People who get pensions from those systems and who also qualify for Social Security benefits from other jobs can be affected by the windfall elimination provision, which can reduce their Social Security benefit. They also can be affected by the government pension offset, which can reduce or even eliminate spousal and survivor benefits from Social Security. Here’s an example:

Dear Liz: I am 59, retired, and receive a pension of approximately $150,000 a year. My husband receives a small pension, about $1,000 a month, and Social Security disability due to a diagnosis of Stage 4 lung cancer. I am the sole financial support of my 88-year-old destitute mother, who requires care that costs approximately $5,000 a month. I retired earlier than anticipated to care for my ailing mother and husband.

Although I worked many years where I paid into Social Security, I knew I would receive only about half of my Social Security check due to the windfall elimination provision that affects pensions received from jobs that didn’t pay into Social Security. What I didn’t know is that when my husband passes, I will receive no survivor benefits from his 41-plus years of paying into the system.

Our entire retirement planning was based on his Social Security combined with my pension. He’s just a few months from passing, and I will not be receiving anything, which will immediately put me in an untenable financial position. How is it that after 30 years of marriage I will receive nothing because I have a pension? This just doesn’t seem right. Do I have any options?

Answer: Your situation shows why it’s so important to get sound advice about Social Security before retiring because many people don’t understand the basics of how benefits work.

Even if you didn’t have a pension, for example, your income would have dropped at your husband’s death. When one spouse dies, one of the couple’s two Social Security benefits goes away and the survivor gets the larger of the two checks the couple received.

Your pension is much, much larger than the maximum you could have received from Social Security in any case. If you can’t get by without your husband’s benefit, consider ways to reduce your expenses. Because your mother is destitute, she may be eligible for Medicaid, the government healthcare program for the poor. Unlike Medicare, Medicaid pays the costs of nursing home and other custodial care expenses. Contact your state Medicaid office for details.

Filed Under: Q&A, Retirement, Social Security Tagged With: Pension, q&a, Social Security, windfall elimination provision

Q&A: What is the capital gains tax, and how big a bite does it take?

January 17, 2022 By Liz Weston

Dear Liz: We own stocks with enormous capital gains — as in, six figures or more. The tax would be a lot. Any advice on how to limit the tax bite? Our income consists of Social Security and a teacher’s pension.

Answer: Capital gains taxes may be less of a problem than you fear. If your taxable income as a married couple is less than $83,350 in 2022, your federal tax rate on long-term capital gains is zero. (Long-term capital gains apply to profits on stocks held one year or more.) If your taxable income is between $83,350 and $517,200, your federal capital gains tax rate is 15%.

In addition, you may owe state taxes. California, for example, doesn’t have a capital gains tax rate and instead taxes capital gains at the same rate as ordinary income.

Capital gains aren’t included when determining your taxable income, by the way, but they are included in your adjusted gross income, which can affect other aspects of your finances. A big capital gain could determine whether you can qualify for certain tax breaks, for example, and could inflate your Medicare premiums. That’s why it’s important to get good tax advice before selling stocks with big gains.

A tax pro can discuss strategies that might reduce a tax bill, such as offsetting gains with capital losses by selling any stocks that have lost value since you purchased them. You also could consider donating appreciated shares to qualifying charities. If you itemize your deductions, you can deduct the fair market value of these shares. The write-off is typically limited to 30% of your adjusted gross income for the year, although if you donate more you can carry forward the excess deduction for up to five years.

All this assumes that these shares aren’t held in retirement accounts. Withdrawals from retirement accounts are typically taxed as ordinary income and don’t benefit from the more favorable capital gains rates. If the stocks are in an IRA and you’re at least 70½, however, you could make qualified charitable distributions directly to nonprofits and the distributions wouldn’t be included in your income. Again, this is something to discuss with a tax pro before taking action.

Filed Under: Investing, Q&A, Taxes Tagged With: capital gains tax, Stocks

Friday’s need-to-know money news

January 14, 2022 By Liz Weston

Today’s top story: This year, resolve to leave no gift card unused. Also in the news: A new episode of the Smart Money podcast on saving for your dream retirement, how to have the wedding you want for less, and comparing car insurance rates.

This Year, Resolve to Leave No Gift Card Unused
Most gift cards are spent within a year, but billions of dollars remain unspent and about 1% to 2% of gift card dollars typically go unused.

How to Have the Wedding You Want for Less
When planning a wedding, there’s pressure to create a perfect event. But you can still have the day of your dreams with a wedding budget of any size.

Smart Money Podcast: Saving for Your Dream Retirement
Budgeting pro Marissa Lyda talks with Sean and Liz about saving and how she’s made a full-time job out of YouTube.

Compare Car Insurance Rates
The NerdWallet guide to finding the best car insurance rate

Filed Under: Liz's Blog Tagged With: car insurance rates, dream retirement, gift cards, Smart Money podcast, wedding costs

Wednesday’s need-to-know money news

January 12, 2022 By Liz Weston

Today’s top story: Here’s which airline rewards program gives the most value. Also in the news: The most valuable hotel rewards program in 2022, 5 steps to strengthen your finances, and despite higher wages, inflation gave the average worker a 2.4% pay cut last year.

Here’s Which Airline Rewards Program Gives the Most Value
Alaska, Frontier and Southwest lead the way on cash value per mile.

The Most Valuable Hotel Rewards Programs in 2022
Radisson Rewards America and World of Hyatt lead the way on key measures of value.

5 Steps to Strengthen Your Finances in 2022
In 2022, setting grand financial goals may not be realistic for every budget, but there are still smart steps you can take to shore up your finances.

Despite higher wages, inflation gave the average worker a 2.4% pay cut last year
Inflation grew 7% in December from a year earlier, the U.S. Department of Labor said Wednesday.

Filed Under: Liz's Blog Tagged With: finances, hotel rewards, inflation, pay cuts, reward cards, tips, travel rewards

Tuesday’s need-to-know money news

January 11, 2022 By Liz Weston

Today’s top story: Crushing student loan debt prompts parents to consider postponing their retirement. Also in the news: Who should and shouldn’t consider using a personal loan to pay off holiday debt, the number one insurance claim filed by homeowners in the winter, and will employees be able to travel more this year?

Crushing student loan debt prompts parents to postpone their retirement
A federal program allows parents to borrow the full amount of a college education for their child, which could take decades to pay off.

Who should — and should not — consider using a personal loan to pay off holiday debt
How best to get a personal loan if it makes sense for you.

The number one insurance claims filed by homeowners in winter
If a winter weather disaster strikes would you know what to do?

Will you be able to travel more this year?
Working remotely from abroad is still a roll of the dice—should you do it, or just unplug?

Filed Under: Uncategorized Tagged With: employee travel, holiday debt, Personal Loans, Retirement, student loan debt, winter home insurance claims

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