Ask Liz Weston

Get smart with your money

Liz Weston

Friday’s need-to-know money news

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Today’s top story: Managing debt in retirement takes some planning. Also in the news: Why your credit score means both everything and nothing, 5 ways to save on energy during the dog days of summer, and what the Dept. of Ed’s proposed new rules on debt forgiveness requirements means.

Managing Debt in Retirement Takes Some Planning
What you can do to still retire comfortably.

Your Credit Score Means Everything — and Nothing
Don’t be afraid to look.

5 Ways to Save Energy During the Dog Days of Summer
Baby, it’s hot outside.

What the Department of Ed’s Proposed New Rules on Debt Forgiveness Requirements Mean for You
Rules are tightening up.

Thursday’s need-to-know money news

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Today’s top story: 7 tactics to help car-buying newbies bargain like a boss. Also in the news: 5 ways to save energy during the dog days of summer, what you need to know about buying a house in 2018, and how a freelancer turned dog sitting into a successful side gig.

7 Tactics to Help Car-Buying Newbies Bargain Like a Boss
Don’t be intimidated.

5 Ways to Save Energy During the Dog Days of Summer
Staying cool.

Buying a House in 2018: What You Need to Know
Things have changed a bit.

How a Freelancer Turned Dog Sitting Into a Successful Side Gig
Getting your side hustle on.

Tuesday’s need-to-know money news

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Today’s top story: How replacement window costs add up. Also in the news: Hiring a vacation photographer, how to fight about money and stay madly in love, and 5 things to do first if you win tonight’s Mega Millions jackpot.

How Replacement Window Costs Add Up
Things to take into consideration.

So Long, Selfie Stick. For Better Vacation Photos, Go With a Pro
Hiring a vacation photographer.

How to Fight About Money and Stay Madly in Love
Don’t let money come between you.

5 things to do first if you hit the $512 million Mega Millions jackpot
Besides jumping up and down on the couch.

Managing Debt in Retirement Takes Some Planning

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Owing money in retirement isn’t ideal — but most people do.

Seventy percent of U.S. households headed by people ages 65 to 74 had at least some debt in 2016, according to the Federal Reserve’s latest Survey of Consumer Finances. So did half of those 75 and older.

Paying debt usually gets more difficult on a fixed income. Mortgage debt, especially, can be a huge burden in retirement. Retirees may have to withdraw larger amounts from their retirement funds to cover payments on debt, which can trigger higher tax bills and increase the chances they’ll run short of money.

People have the most options to deal with debt if they create a plan before they retire, financial planners say. Refinancing a mortgage, for example, is usually less of a hassle while people are still employed. It’s also typically easier to generate the extra income that may be needed to pay off debt.

“It is much easier to keep working for another year or two than to try and come back into the workforce when they are older and the employer needs have changed,” says Linda Farinola, a certified financial planner in Princeton, N.J.

In my latest for the Associated Press, three loans to consider before you stop working.

Monday’s need-to-know money news

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Today’s top story: Don’t let your love of logos become a financial faux pas. Also in the news: No-sweat solutions to save money on car fixes, what it’s like to use a financial advisor, and overlooking a risk in your home could cost you nearly $10,000.

Don’t Let Your Love of Logos Become a Financial Faux Pas
A pricey new trend.

5 No-Sweat Solutions to Save Money on Car Fixes
Break out the toolbox.

What’s It Like to Use a Financial Advisor?
Help for planning your financial future.

Overlooking this risk in your home could cost you nearly $10,000
Don’r drown in bills.

Q&A: Should a soon-to-be retiree use savings to pay off the mortgage?

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Dear Liz: I am 64, single and planning to retire in two years. I have saved enough to pay off my $100,000 mortgage. It will take the bulk of my savings but I have no other debts. I will have a pension and Social Security. I also have a credit score over 800. Should I do this?

Answer: Being debt free in retirement is wonderful, but being stuck short of cash is not. It’s a particularly bad idea to use pretax money from retirement accounts to pay off a mortgage. Not only can the withdrawal trigger a big tax bill, but it may push you into a higher tax bracket for that year and cause other unexpected tax consequences.

Even if your pension and Social Security cover your expenses now, that probably won’t be the case for the rest of your life. For example, Medicare covers about half of the typical retiree’s medical costs, and doesn’t pay at all for most long-term care expenses if you should need those.

You could pay off the mortgage and then arrange a home equity line of credit you could tap for such expenses or for emergencies. Just be aware that lenders can freeze or close lines of credit at their discretion, so it won’t be the same as having cash on hand.

Decisions made about retirement are complex and often irreversible. Consider consulting with a fee-only financial planner about your retirement plans so you better understand your options and the consequences of the choices you’re making.