Thursday’s need-to-know money news

Zemanta Related Posts ThumbnailAdvice on how to hire a contractor, how not to waste your summer vacation money on AMT fees, and what to do when you realize someone has hacked your email.

Top 8 Pro Tips on Hiring a Contractor
Home renovations can be much less stressful with the right contractor.

Save Money on Summer Travel by Avoiding ATM Fees
How not to waste your souvenir money on ATM fees.

9 Things to Do When Your Email is Hacked
Panicking is not one of them.

9 Ways to Save on Flights
How not to waste the aforementioned souvenir money on plane tickets.

Do Women Over 50 Need Life Insurance?
The pros and cons of purchasing a policy after 50.

All my exes and Social Security taxes: a quiz

PolygamyThe questions I get about Social Security have made it clear how incredibly complicated this benefits system can be. So here’s a little story to illustrate one important facet of Social Security: spousal benefits.

Jack was a charming guy—maybe too charming. He enjoyed the ladies and the ladies enjoyed him, at least until they discovered they weren’t the only ladies in his life. This led to more than a little drama, and a few divorces.

Jack first married at 20, to Mary. Their marriage lasted 10 years and produced two children before breaking up. Mary went on to marry again and had a happy 30 years until her second husband died.

Jack’s second marriage was to Anne. That lasted five years. Anne never remarried.

After a few years playing the field, Jack married a third time, to Jo Beth. They separated after nine years and divorced a couple years later. Jo Beth remarried and had kids with her second husband. This marriage also ended in divorce after thirteen years.

For the past decade, Jack has been happily married to Dianne. Both are 62, but Jack has decided not to retire for a few years (all those divorces took their financial toll).

Now for the question: which of Jack’s wives qualify for Social Security spousal benefits based on Jack’s earnings record?

The answer: Mary and Jo Beth. Both were married to Jack for at least 10 years, and neither is currently married. Mary and Jo Beth also would be eligible for benefits based on their second husbands’ records (Mary as a survivor, Jo Beth as a divorced spouse) but they wouldn’t be able to claim more than one benefit. They would typically get whatever benefit is largest: the one based on Jack’s earning record, the one based on the second spouse’s earnings record, or the one based on her own earnings record.

Why wouldn’t Dianne qualify for spousal benefits, since she’s the current spouse? Because Jack hasn’t applied for his own benefits. That doesn’t matter to the former wives, since the ex’s cooperation isn’t required for them to start getting spousal benefits. The ex merely has to be old enough to qualify for retirement benefits (which you typically are at age 62.). If you’re currently married, though, you can’t start spousal benefits unless your “earner” has applied.

Jack could allow Dianne to start benefits with a technique called “file and suspend,” in which he would file for benefits and then immediately suspend his application. That would allow his own benefit to continue to grow while allowing her to get checks based on his earnings record.

So conceivably, three women and Jack himself eventually could be earning benefits based solely on Jack’s earnings records. The amounts the women get wouldn’t affect or reduce each other’s benefit, or his.

Most people can’t squeeze quite that much mileage out of the Social Security taxes they pay. But since spousal benefits could result in a bigger check than you might get on your own, they’re worth knowing about.

 

Wednesday’s need-to-know money news

Doctor feesNegotiating medical bills, why a financial power of attorney is a must, and the pros and cons of “pocket listings”.

Is It Ever Too Late to Negotiate a Medical Bill?
How soon do you need to question that eight dollar aspirin?

Why You Need a Financial Power of Attorney
Preparing for the unexpected is a necessity.

Poll: Just 32% of Americans Keep a Household Budget
Which percentage do you fall in to?

How to Pay Less for High-End Homeowners Insurance
High-End home insurance doesn’t need to break the bank.

Should You Sell a House Under the Radar?
Is the privacy worth the price?

Three ways to retire poor

Will Work for FoodI hear from a lot of people who think they’re doing the right things with their money—little realizing that they’re impoverishing their future selves. Three behaviors you’re most likely to regret later:

Putting off saving for retirement. Some people spend every dime they make, while others delay saving while they pursue other goals that seem more worthy, like saving for a home or paying off debt. The reality is that retirement savings opportunities are “use it or lose it”—you can’t get back the company matches, tax breaks or (most important) the power of compounding if you don’t get those contributions into your account. Compounding is so powerful, in fact, that it gets harder and harder to catch up the older you get…until it gets impossible. The smarter solution: Start saving for retirement from your first job, and don’t stop.

Cashing out your retirement when you leave a job. The next most widespread and destructive behavior is tapping into what you do manage to save. About 42% of those who lost their jobs in 2010 cashed out their retirement plans, which is about the same percentage as before the recession, according to an Aon report. More than half of those in their 20s cashed out. Not only do you incur taxes and penalties that eat up 25% or more of your withdrawal, but you lose all the future tax-deferred compounding on that money—which means those in their 20s are hurt even more by cash-outs than those who do it later. (Figure every $1,000 you withdraw in your 20s will cost you $20,000 or more in lost future retirement income.) The smarter solution: Leave your retirement money for retirement. If you can’t or don’t want to leave your balance when you leave your job, roll it into your new employer’s plan or into an IRA.

Grabbing your Social Security benefit early. Social Security will be a big part of most people’s retirements, but too few people understand how much they’re hurting themselves—or their loved ones—when they apply early and lock in a permanently reduced check. It’s not just that you’re likely to live past the “breakeven point” when, mathematically, waiting until full retirement age pays off in terms of total benefits. More importantly, you may be cutting yourself off from strategies that would maximize your lifetime benefits and leaving your surviving spouse with a bigger check. Take a minute to read AARP’s excellent primer on the subject, “How to Maximize Your Social Security Benefits,” and use the free calculator at T. Rowe Price to help you understand the impact of different strategies. (If you want more freedom to customize a tool, www.maximizemysocialsecurity.com gives you that for $40.) The smarter solution: View Social Security as a kind of longevity insurance that helps protect you against the possibility of outliving your savings.

 

Tuesday’s need-to-know money news

Smart PhoneHow to avoid mistakes with your credit cards, plan a cheap summer vacation and get personal finance advice in the palm of your hand.

Best Personal Finance Apps of 2013

How your smartphone can make your wallet smarter.

Nine Stupid Things You’re Probably Doing With Your Credit Card
Innocent mistakes can lead to serious problems.

How to Plan a Cheaper Summer Vacation
There’s still time to get away on the cheap.

Good News: Homeowner’s Insurance Covers a Sharknado
Just like an asteroid, falling sharks are covered.

Is a Roth worth losing a tax deduction?

Dear Liz: Everyone talks about Roth IRAs and how beneficial they are. But I am self-employed, my husband contributes 16% toward his 401(k), our house is paid off, and we no longer have dependents to deduct on our 1040 tax return. My contribution to my traditional IRA is the only tax deduction we have left. Should I consider a Roth anyway? If so, why?

Answer: A Roth would give you a tax-free bucket of money to spend in retirement. That would give you more flexibility to manage your tax bill than if all your money were in 401(k)s and traditional IRAs, where your withdrawals typically are taxable. Also, there are no minimum distribution requirements for a Roth. If you don’t need the money, you can pass it on to your heirs. Other retirement funds require you to start taking money out after you turn 701/2. If you need to crack into your nest egg early, on the other hand, you’ll face no penalties or taxes when you withdraw amounts equal to your original contributions.

So is it worth giving up your IRA tax deduction now to get those benefits? If you have a ton of money saved, you want to leave a legacy for your kids and you’re likely to be in the same or a higher tax bracket in retirement, the answer may be yes. If you’re like most people, though, your tax bracket will drop once you retire. That means you’d be giving up a valuable tax break now for a tax benefit that may be worth less in the future.

You may not have to make a choice, however, between tax breaks now and tax breaks later if you have more than $5,500 (the current annual IRA limit) to contribute. Since you’re self-employed, you may be able to put up to $51,000 in a tax-deductible Simplified Employee Pension or SEP-IRA. At the same time, you could contribute up to $5,500 to a Roth (assuming your income as a married couple is within or below the phase-out range for 2013 of $178,000 to $188,000).

This would be a great issue to discuss with a tax pro.

Is moving in with Mom unfair?

Dear Liz: I just read your reply to the woman who was struggling to make ends meet with her part-time job. She was wondering whether she should sell her house and move in with her mother. I couldn’t get to my computer fast enough to ask you how on Earth you can recommend with a clear conscience that someone move back in with a parent because she can’t pay her bills.

Why should she be able to mooch off Mom and expect her to take her Social Security check to pick up the slack? I was in basically the same situation when I was 39, except that I had three kids and my ex passed away within a week of our divorce, so I got no child support. I still managed to find a full-time job, maybe not the job of my dreams, but it paid well and allowed me to keep the house and continue to raise the kids. I built up a good retirement, which I felt I had earned and was enjoying very much, until my adult son went through a bad divorce and “temporarily” moved himself back into my home.

I’ve tried to help him get back on his feet and moving again, but so far all that has happened is my credit cards are getting out of control, my home equity line of credit is maxed out, my property has been damaged, and my life is now miserable, as I share my once-lovely home with an ungrateful jerk, his girlfriend and three cats. I can’t figure out how to get him out, and I can see no end in sight. I’m not saying this woman would do the same, but it’s still not fair to expect her mom’s life to be disrupted, no matter how nice the lady is.

Answer: The other reader was considering going back to school to get training that would qualify her for a full-time job. Selling her home and moving in with her mother would allow her to keep her current part-time job while she went to school. There was no suggestion that Mom would pick up her bills — only that she would share her home for a finite period.

So the other reader’s situation probably isn’t like yours. But perhaps it’s easier to get mad at a stranger than to acknowledge that you helped create this mess and you’re the only one who can fix it.

Schedule a meeting with an attorney familiar with landlord-tenant laws in your state so you’ll understand the best way to evict your freeloader. Then do.

Perhaps your parents did a better job of setting boundaries with you than you did with your son, but it’s not too late to reclaim your retirement, your house and your life.

Monday’s need-to-know money news

No sharksWhy you’re never really alone while shopping at the mall, what debt you should focus on first after graduating, and how to protect your finances from natural disasters (sharknado!).

Is Your Mall Spying on You?
Your cellphone could be providing retailers with a wealth of information.

How to Keep Telemarketers at Bay
Putting a stop to those annoying calls for good.

How Grads Should Prioritize Their Debt Repayment
Find out which debt should take the highest priority.

How to Save for Retirement on a Small Salary
Saving for retirement is possible even when living paycheck-to-paycheck.

Prepare Your House and Finances for a Natural Disaster
Protecting your house and your wallet from unexpected disasters.

In case you missed it: credit score myths, zero waste and baby dilemmas

YCS4 coverToo many people believe too many lies about credit scores, and it’s costing them money. Read the real scoop in my MSN Money column “Credit score myths that need to die.”

Our family may never achieve “zero waste,” but we’ve started some easy ways to reduce the amount of garbage we generate. More in “Are you ready for a zero-waste lifestyle?

Kyle has a good job, and better health care coverage than her husband. He thinks those are reasons to keep working and create a more flexible schedule. But daycare is eating up most of her paycheck and she’s wondering if she should quit to stay home with their baby. Read my assessment, plus what you need to do if you’re considering becoming a stay-at-home parent, in Marketplace Money’s new feature “Financial Feud.”

Some financial missteps may not show up on your credit reports, but they’re big red flags that you’re headed for trouble. Read more in CardRatings.com’s “Danger ahead: 5 warning signs that won’t show up on your credit report.”

Friday’s need-to-know money news

Old windmill in the town of Gorinchem. NetherlandsHow to save big bucks when traveling, preparing for back to school shopping, and what mistakes to avoid when managing your 401(k).

5 Coolest Travel Share Websites
Why pay for an overpriced hotel room when you can have the literal run of the house?

9 Money Management Tips for Newly Employed Millennials
Finally making real money is exciting. But finding ways to save it is vital.

Help with Managing Finances for People with Disabilities
Things to take into consideration when taking care of a disabled person’s finances.

2013 Sales Tax Holidays for Back-to-School Shopping
Find out when your state’s holiday is and what purchases will be tax-free.

The Experts: The Biggest 401(k) Mistakes to Avoid
Important tips on how to properly manage your 401(k).