Ask Liz Weston

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Liz Weston

Q&A: A follow-up question about payable on death accounts

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Dear Liz: I’ve worked for various broker dealers for 33 years and have never heard of a “payable on death” account. Did you mean transfer on death (TOD) in your previous column?

Answer: I did not.

Payable on death accounts are similar to transfer on death accounts since both allow owners to designate beneficiaries and avoid probate, the court process that otherwise follows death. But the two accounts are meant for different types of assets. Bank accounts use the payable on death designation, while investment accounts are transfer on death. Some states have transfer on death registration for vehicles and transfer on death deeds for real estate.

Q&A: You can’t spend it when you’re gone, but delaying Social Security payments makes sense

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Dear Liz: I’m a single person with no children. I worked for one private employer for 36 years, retired from there at 54 and am now 57. My home is paid off. I receive a pension of $2,400. I’ve been working a nearly full-time job averaging $3,800 a month with 8% going into a 401(k) and 4% being matched. I have observed many fellow workers wait till 65 to collect Social Security and then die a few years later. I also volunteer at my local VFW and listen to people complain about the lack of money they have, especially the women, who unfortunately relied on their dead husbands. So would it be bad for me to start collecting my Social Security at 63?

I am a very healthy person and longevity is in the family.

Answer: Some people do die shortly after retiring. Most, though, live well past the “break-even” age, when the smaller checks they give up by delaying Social Security are more than made up for by the larger checks they receive by waiting.

And the ones who die early … well, they’re dead. They no longer care about Social Security checks. The ones who care intensely about how much they’re getting are those who survive and run through their savings. Perhaps some of the women at the VFW had husbands who started their retirement benefits early, thus stunting the survivors’ checks their wives are getting. A few years’ delay could have made a huge difference to these women, who may have to live for years or even decades on a too-small benefit.

That’s why it’s so important for the higher earner in a couple to delay starting Social Security as long as possible, preferably to age 70, when their benefit maxes out. That’s also good advice for single folks who haven’t been previously married and don’t have another person’s benefit to supplement their own.

Plus, starting Social Security before your full retirement age of 67 means you’re subject to the earnings test. That test reduces your check by $1 for every $2 you make over a certain amount, which in 2024 is $22,320.

Your good health and family longevity don’t guarantee a long life, but they certainly make it more likely. Maximizing your Social Security benefit is a powerful way to ensure you don’t run short of money in your old age.

This week’s money news

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This week’s top story: Holiday deals and don’t let debt follow. In other news: What to buy during Amazon’s Prime big deal days 2024, replacing HVAC with BTC, and 4 mom-approved cheap Halloween costume ideas.

Holiday Deals Are Here. Don’t Let Debt Follow
Make a budget, research retailer policies and compare prices to keep holiday debt at bay.

What to Buy (and Skip) During Amazon’s Prime Big Deal Days 2024
We tracked the prices and these October 2024 deals are worth a look. Check your order history to find bargains on things you already use and need.

Replace Your HVAC with BTC? These Innovators Are Doing it
Heating your house by mining Bitcoin may sound far-fetched, but some creative people are working hard to make it more common.

4 Mom-Approved Cheap Halloween Costume Ideas
Moms share tips for how to DIY and repurpose Halloween costumes.

Q&A: Using retirement savings to pay down debt is risky business. Do this instead

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Dear Liz: I’m way behind on retirement funds. I did get pension funds from my employer after 25 years of service but used a large portion to pay debt that was crushing me. I’m widowed, age 62 and work full time as a nurse. I rent my place. How do I catch up? I have $200,000 in an IRA.

Answer: This answer comes too late for you but may help others who are overwhelmed by debt as they approach their retirement years.

People understandably want to pay what they owe, but bankruptcy is sometimes the best of bad options. This is particularly true as you approach the end of your working years and don’t have enough time to replenish your savings. The typical bankruptcy filing can erase debt while protecting the retirement funds you’ll need for the future. Before using your lump sum pension payout to pay debts, you should have discussed your situation with a bankruptcy attorney.

At this point, your best options may be to work as long as possible, save as much as you can and figure out a smart Social Security strategy. As a widow, you may qualify for Social Security survivor benefits as well as your own retirement benefit. You can’t receive both simultaneously, but you would be allowed to switch between benefits. For example, you could start survivor benefits and then switch to your own when it maxes out at age 70, if that amount is higher. Typically you would want to wait until at least your full retirement age to start benefits, because otherwise you’ll face the earnings test that reduces your benefits by $1 for every $2 you earn over a certain amount, which in 2024 is $22,320. Paid services such as Maximize My Social Security or Social Security Solutions can help you determine the best approach.

Q&A: The fine print on deducting medical expenses

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Dear Liz: I take $5,000 per month out of my brokerage account (and the $1,400 in taxes when I withdraw the money) for my husband’s Alzheimer care facility where he now lives 24/7. Can I only claim that on my taxes under medical expenses if I itemize my deductions on my taxes? I don’t have any other deductions.

Answer: Your husband’s expenses may be enough to justify itemizing even if you don’t have other deductions.

The standard deduction for married couples in 2024 is $29,200. To itemize, your deductions would need to be higher than that amount. Furthermore, medical expenses must exceed 7.5% of your adjusted gross income to be deductible, notes Mark Luscombe, principal analyst for Wolters Kluwer Tax & Accounting.

If your husband meets certain criteria, however, the deduction can include the expenses related to meals and lodging at the facility as well as the medical care portion, Luscombe says.

A licensed healthcare professional must certify annually that your husband is chronically ill and living in the care facility due to medical necessity, he says. A tax pro or the facility itself can provide further details.

Q&A: More on payable-on-death accounts

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Dear Liz: You recently wrote about payable-on-death accounts. You wrote that one of the disadvantages to these accounts is that an estate’s executor might have to try to get money back from beneficiaries or pay expenses out of their own pocket if there wasn’t enough money left in the estate to pay the bills. I thought your bills would have to be paid before any money was distributed. Is that not the case?

Answer: No. Payable-on-death accounts typically go directly to the named beneficiaries. Such accounts avoid probate, the court process that otherwise follows death, so there’s no mechanism to withhold money that might be needed to pay final expenses or other bills.

Furthermore, beneficiary designations usually override the terms of a will or living trust. If you were counting on an account to pay final expenses but forgot you named a beneficiary, your executor probably couldn’t access those funds.

Payable-on-death accounts might be a solution for people with simple situations and too few resources to justify a living trust. For example, you might use a pay-on-death designation if you’re leaving a bank account to an only child and you trust them to use the money to pay your final bills.

Otherwise, you’ll want to discuss your situation with an estate planning attorney and get personalized advice about how best to settle your affairs.