Ask Liz Weston

Get smart with your money

Liz Weston

Thursday’s need-to-know money news

By

Today’s top story: When leasing a car is the more frugal option. Also in the news: How to actually achieve your debt payoff resolution, 5 basic features you should expect from your bank, and holiday debt could take years to pay off.

When Leasing a Car Is the More Frugal Option
Car buying has changed enough over the years that leasing may no longer be the costliest choice.

How to Actually Achieve Your Debt Payoff Resolution
Start the new year on the right foot.

5 Basic Features You Should Expect From Your Bank
Services you should expect.

Holiday debt could take years to pay off
Here come the bills.

When leasing a car is the more frugal option

By

If you need a car, the most frugal option is to buy one that’s 2 to 3 years old, pay cash and drive it until the wheels fall off.

The least frugal option traditionally has been leasing, where you make monthly payments to drive a car but don’t own it. You’re paying for the vehicle during its most expensive period — cars lose more than half their value on average in the first three years — and you have nothing to show for your payments after the lease ends.

Few people opt for the frugal way, however, and car buying has changed enough that leasing may no longer be the costliest option. In my latest for the Associated Press, why, in some situations, leasing could be the most sensible option.

Q&A: How deposit insurance limits work

By

Dear Liz: My parents, who are in their 80s, just moved and are about to sell their former home. Their net gain from the sale will be approximately $400,000. I am advocating they put this money in a high-yield savings account as capital preservation is key. I know an individual account is insured by the FDIC for up to $250,000. But if we set it up so they are joint account holders, would the FDIC insurance limit on that one account rise to $500,000?

Answer: Yes. The FDIC insures up to $250,000 per depositor, per institution and per ownership category. Ownership categories include single accounts, joint accounts, certain retirement accounts such as IRAs, revocable trust accounts and irrevocable trust accounts, among others. Each depositor in a joint savings account is covered up to $250,000, so a couple would have $500,000 of coverage.

Q&A:Getting bum info from Social Security

By

Dear Liz: After taking Social Security early at 62, I have called, written and visited in person asking to have my benefit suspended so it can earn delayed retirement credits. Nothing has worked. Social Security representatives say I cannot change anything after the first 12 months.

I turn 66 this month and wanted to get this done.

Answer: The employees you’re talking to are confusing benefit suspension with application withdrawal.

As you know, Social Security benefits grow by 5% to 8% each year you delay between 62 and 70. Starting early can be an expensive mistake that permanently reduces the amount you receive over your lifetime.

There are two potential ways to fix the mistake. One is a withdrawal, where you rescind your application and pay back the money you’ve received. Withdrawals are a “do over” that resets the clock entirely on your benefit so that it’s as if you never applied. Withdrawals are only allowed in the first 12 months after your application.

A suspension, on the other hand, is when you ask Social Security to halt your benefit so that it can earn delayed retirement credits. You don’t have to pay any money back, but you also don’t get to reset the clock. Instead, the benefit you’re currently receiving is allowed to earn delayed retirement credits. You can only suspend your benefit once you’ve reached full retirement age. If you were born between 1943 and 1954, your full retirement age is 66.

Social Security explains how suspension works online in the retirement section. You might want to print that out and take it with you to the Social Security office. If someone again tries to tell you that suspension isn’t allowed, ask to speak to a manager. This is your right, and it could make a big difference in providing you a more comfortable retirement.

Q&A: Here’s why one donation of $1,000 beats 10 donations of $100

By

Dear Liz: I want to support about 10 charities and nonprofits but have a limited budget of $1,000. I’ve been dividing it among those charities, but would I have a bigger impact contributing the full amount to just one?

Answer: Absolutely, for a number of reasons.

Each charity spends a certain amount to process your donation. The smaller the donation, the more of it is eaten up by these costs. If it costs $5 to process a donation, for example, the costs represent 5% of each $100 donation. If $1,000 went to one charity, just one fee would be incurred and it would represent just 0.5% of the total.

Any donation you give can trigger more appeals from the charity, so you’re potentially incurring 10 times the junk mail.

Wise donors also research charities using services such as GuideStar or Charity Navigator to make sure the bulk of their contributions go to the cause, rather than to executive salaries, fundraising and overhead. Monitoring 10 charities is a lot more work than keeping track of one or two.

You might also consider making monthly contributions, rather than waiting until the end of the year, since that helps charities budget. A direct debit from your checking account is often the best way to set this up, because using a credit card incurs transaction fees that reduce your contribution.

How to create a retirement ‘paycheck’

By

Your expenses don’t end when your paychecks do, but creating a reliable income stream in retirement can be tricky. The right choices can result in sustainable income for the rest of your life. The wrong choices could leave you uncomfortably short of cash.

In fact, retirement includes so many important, potentially irreversible decisions that most people could benefit from a few sessions with a fee-only, fiduciary financial planner. (Fiduciary means the adviser is committed to putting your interests ahead of their own.) These ideally would start about 10 years before retirement. In my latest for the Associated Press, key concepts that could make those discussions easier — or keep you from making serious mistakes if you take a do-it-yourself approach.