Ask Liz Weston

Get smart with your money

Liz Weston

Q&A: Limiting your rate shopping window

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Dear Liz: We’re planning to refinance our mortgage and are concerned about generating multiple credit inquiries which would lower our excellent credit scores. Is there some kind of licensed, bonded ethical middle-agent who could get just one official credit report from each of the three bureaus and then send it to all the lenders I designate? Our FICOs are so good that we want lenders to compete for our refi business but don’t want the process itself to lower FICOs just for inquiries only.

Answer: The FICO formula has you covered. With the FICO scores most lenders use, multiple mortgage inquiries made within a 45-day window are aggregated together and counted as one. Furthermore, any inquiries made within the previous 30 days are ignored entirely. That allows you to rate shop for mortgages without dramatically affecting your scores.

The FICO formula extends this “de-duplication” process to two other types of borrowing: auto loans and student loans. Only similar types of inquiries are grouped together, however. If you shopped for both mortgages and auto loans, then two inquiries eventually would be factored into your credit scores, rather than just one.

Credit cards, personal loans and other types of borrowing don’t get the same treatment. If you apply for two credit cards while shopping for a mortgage, you would have three inquiries — two that are immediately factored into your scores and a third that would be counted after 30 days had passed.

Also, some lenders use older versions of the FICO formula that have a shorter rate-shopping window — 14 days instead of 45. If you want to be absolutely sure your mortgage shopping has a minimal impact on your scores, you can limit your shopping to that two-week period.

Tuesday’s need-to-know money news

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Today’s top story: Dodge dealership dread with online used car sellers. Also in the news: What first-time home buyers should know about fixer-uppers, how to save for the future when it’s uncertain, and how long it takes for paid debt to be reported to credit bureaus.

Dodge Dealership Dread With Online Used Car Sellers
Car shop from your couch.

What First-Time Home Buyers Should Know About Fixer-Uppers
Don’t get trapped in a money pit.

How to save for the future when it’s uncertain
An emergency fund is crucial.

Here’s How Long It Takes for Paid Debt to Be Reported to Credit Bureaus
Be patient.

How to nag new coworkers to save for retirement

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he most important thing you can say to a new hire may well be: “Have you signed up for the 401(k) yet?”

An astounding 3 out of 10 workers don’t know whether their employers offer retirement plans, according to a survey by research firm Morning Consult for the Certified Financial Planner Board of Standards.

“That was, quite frankly, shocking,” says Kevin Keller, the board’s CEO. “But it clearly shows that people just don’t know what their options are.”

In my latest for the Associated Press, tips on convincing your younger co-workers to save for retirement.

Monday’s need-to-know money news

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Today’s top story: 3 sites to help aging parents organize vital details. Also in the news: How much you’ll really pay for that student loan, financial records to keep in your “go bag”, and online games that encourage savings.

3 Sites to Help Aging Parents Organize Vital Details
Keeping important documents straight and accessible.

How Much You’ll Really Pay for That Student Loan
The totals can be shocking.

Keep These Financial Records in Your ‘Go Bag’
Documents to have in case of an emergency.

People are paying to play online games that encourage them to save
Contradictory? Or incentivizing?

Q&A:Ready to retire? If you’ve saved 8 times your salary by age 60, maybe

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Dear Liz: I keep reading about how much money one should have saved at various ages to comfortably retire. These are usually a multiple of your annual salary. Do these projected amounts factor in whether you are single or married with a single income? Or if you still have a mortgage? What about having to take a lower-paying job in future years because of downsizing? Is Social Security included? It’s tough to know what these suggested amounts assume to know, given that each person’s situation is different.

Answer: Exactly. So it’s smart to do a little digging.

Fidelity Investments, for example, has come up with some salary-based rules that suggest you have an amount equal to:

One time your salary by age 30

Three times your salary by age 40

Six times your salary by age 50

Eight times your salary by age 60 and

10 times your salary by age 67.

Fidelity assumes you’ll want your standard of living to continue basically unchanged in retirement. Its rules are based on a number of factors, including a 1.5% real wage growth throughout one’s working life, a 15% savings rate starting at age 25, claiming retirement and Social Security at age 67 and a portfolio invested at least 50% in stocks that replaces 45% of your individual income in retirement. Fidelity used multiple market simulations “to support a 90% confidence level of success.”

Few people’s lives will follow an idealized trajectory. For example, many people who enter their 50s with full-time jobs will lose them, and only 1 in 10 will find a new one that earns as much, according to a study by ProPublica and the Urban Institute. You can’t know for sure how long you’ll live, what investment returns you’ll get, whether you’ll need long-term care (although that’s likely) or even what your fixed expenses will be, at least until you’re relatively close to retirement.

People also will have vastly different needs and interests in retirement. A thrifty homebody will probably need less than a globe-trotting spender. Working at least part time in retirement also can shift the math in your favor because you’ll need to draw less from your retirement funds.

What we do know is that people who save a lot tend to have more options as they age. And once you reach your 50s, you’d be smart to consult a fee-only financial planner who can give you a second opinion on your retirement plans to ensure you’re on track.

Q&A: About the ex’s Social Security

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Dear Liz: I’ve been divorced since 2004. My ex received half of all my pension funds and lives off that and his Social Security. I have not yet drawn Social Security, but I am retired. Am I eligible to receive part of his Social Security? How does that work?

Answer: Yes, if your marriage lasted at least 10 years. If you were born before Jan. 2, 1954, you also have the option of filing a “restricted application” for divorced spousal benefits while allowing your own benefit to continue growing.

Divorced spousal benefits, like regular spousal benefits, allow you to get an amount of up to half your ex’s benefit. The amount would be reduced if you start before your own full retirement age, which is currently 66 and rising to 67 for those born in 1960 and later. If you start at age 62, for example, you would get about one-third of his benefit, rather than half. (Your claim doesn’t take money away from him or any of his current or former spouses, in case you were concerned.)

Regular spousal benefits require that the primary worker has started his or her own retirement benefit. Divorced spousal benefits don’t have that requirement: You both just need to be at least 62. Also, the divorced benefit is based on the primary earner’s benefit at his or her full retirement age. With regular spousal benefits, the amount is typically based on what the primary earner actually receives, which could be less if the primary earner started benefits early.

If you were born on or after Jan. 2, 1954, you can’t file a restricted application. Instead, you’ll be deemed to be applying for both your own benefit and the divorced spousal benefit, and given the larger of the two amounts. You can’t switch to your own benefit later.

If your ex should die before you do, you also would be eligible for a divorced survivor benefit that is up to 100% of his. That has the unfortunate effect of making your ex worth more to you dead than alive.