Ask Liz Weston

Get smart with your money

Liz Weston

Q&A: Delaying Social Security

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Dear Liz: In a recent column you mentioned Social Security’s delayed retirement credit, writing that someone’s benefit could grow 32% by delaying benefits for four years between ages 66 and 70. Four years’ worth of accrued 8% increases in Social Security result in a cumulative increase of 36%, not 32%. I would think any financial planner would understand compound growth.

Answer: Social Security’s delayed retirement credits don’t compound.

Now, you may feel a little silly for pointing out an error that wasn’t actually an error, especially because you could have found the correct answer through a quick internet search (“Is Social Security’s delayed retirement credit compounded?”). But who hasn’t made a similar mistake? Sometimes what we don’t know about money isn’t the problem — it’s what we do know for sure that just isn’t true. (A similar quote is often attributed to Mark Twain, although there seems to be no evidence he ever said or wrote it.)

When I’ve made errors in this column, it’s often because I thought I understood something I didn’t or that my knowledge was up to date when it wasn’t. That’s why it’s so important to double-check our information with authoritative sources.

Q&A: Nearing retirement and in debt? Now isn’t the time to tap retirement savings

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Dear Liz: I’m 60 and owe about $12,000 on a home equity line of credit at a variable interest rate now at 7%. I won’t start paying that down until my other, lower-interest balances are paid off in about two years. I have about $130,000, or about 20%, of my qualified savings sitting in cash right now as a hedge against a falling stock market. Should I use some of that money to pay off the HELOC? I know I would pay tax on what I pull out of savings, but I’m not sure what the driving determinant is: the tax rate now while I’m working versus tax rate later after retirement? I don’t think there’s going to be a 7% difference in that calculus but please provide your recommendation.

Answer: There are enough moving parts to this situation, and you’re close enough to retirement, that you really should hire a fee-only financial planner.

Getting a second opinion is especially important when you’re five to 10 years from retirement because the decisions you make from this point on may be irreversible and have a lifelong effect on your ability to live comfortably.

In general, it’s best to pay off debt out of your current income rather than tapping retirement savings to do so. You’re old enough to avoid the 10% federal penalty on premature withdrawal, but the decision involves more than just tax rates. Many people who tap retirement savings haven’t addressed what caused them to incur debt in the first place and wind up with more debt, and less savings, a few years down the road.

That might not describe you, as you seem to be on track paying off other debt. But it’s usually best to tackle the highest-rate debts first, which you don’t seem to be doing. It’s also not clear if you’re saving enough for retirement. That will depend in large part on when you plan to retire, when you plan to claim Social Security, how much your benefit will be and how much you plan to spend.

A fee-only financial planner could review your circumstances and give you the personalized advice you need to feel confident you’re making the right choices. You can get referrals from a number of sources, including the National Assn. of Personal Financial Advisors, Garrett Planning Network and XY Planning Network.

Thursday’s need-to-know money news

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Today’s top story: 4 ways to cut your tax bill by April 15th. Also in the news: How banking apps can motivate you to save, what to do in a bank outage like Wells Fargo’s, and how to make extra money online.

4 Ways to Cut Your Tax Bill by April 15 (Yes, There’s Still Time)
But you’ll need to act fast.

How Banking Apps Can Motivate You to Save
Following through on wanting to save.

In a Bank Outage Like Wells Fargo’s, Here’s What You Can Do
Don’t panic.

How to Make Extra Money Online
A little extra pocket cash is always a good thing.

Wednesday’s need-to-know money news

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Today’s top story: 6 things your side gig will probably do to your taxes. Also in the news: How banking apps can motivate you to save, contributing to your IRA by April 15th could lower your 2018 tax bill, and social media is making Valentine’s Day super expensive for millennials.

6 Things That Side Gig Will Probably Do to Your Taxes

How Banking Apps Can Motivate You to Save

Contributing to Your IRA by April 15 Could Lower Your 2018 Tax Bill

Social media is making Valentine’s Day super expensive for millennials

Tuesday’s need-to-know money news

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Today’s top story: 5 tips for cutting the cost of having your taxes done. Also in the news: How to find the dirt on your tax preparer, making the most of a gig economy to pay down debt, and 11 smart ways to spend your tax refund.

5 Tips for Cutting the Cost of Having Your Taxes Done
How to rein in the costs.

How to Find the Dirt on Your Tax Preparer
Don’t give your info to just anyone.

How I Ditched Debt: Making the Most of a Gig Economy
A woman pays down over $25K in three years.

11 smart ways to spend your tax refund, according to personal finance experts
Don’t think of it as a windfall.

Don’t let others pick your financial adviser

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Gaylen Rust must have seemed trustworthy to the people who gave him money.

Rust was a longtime businessman in Layton, Utah, where he ran a coin shop started by his father in 1966. Rust also founded a charity called Legacy Music Alliance that funded arts programs in schools. An admiring 2013 profile in The Salt Lake Tribune called Rust “the state’s biggest proponent of arts education.”

Federal and state regulators, however, say Rust was running a Ponzi scheme. Civil lawsuits filed late last year by the Securities and Exchange Commission , the Commodity Futures Trading Commission and the Utah Division of Securities say Rust, his wife and one of his five children persuaded hundreds of friends, customers and business associates across the country to invest more than $200 million in a bogus silver trading pool.

When scam artists target groups of people who know each other or have something else in common, such as religion, it’s known as “affinity fraud.” In my latest for the Associated Press, why you shouldn’t rely solely on recommendations from friends and family when choosing a financial adviser.