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Liz Weston

Tuesday’s need-to-know money news

July 24, 2018 By Liz Weston

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.

Filed Under: Liz's Blog Tagged With: couples and money, lottery, Mega Millions, replacement windows, tips, vacation photographers

Managing Debt in Retirement Takes Some Planning

July 24, 2018 By Liz Weston

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.

Filed Under: Liz's Blog Tagged With: debt, Loans, Retirement

Monday’s need-to-know money news

July 23, 2018 By Liz Weston

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.

Filed Under: Liz's Blog Tagged With: car repairs, fashion, financial advisors, homeowners insurance, logos, tips, water damage

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

July 23, 2018 By Liz Weston

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.

Filed Under: Q&A, Retirement Tagged With: mortgage, q&a, Retirement

Q&A: Figuring the tax toll for an inherited house

July 23, 2018 By Liz Weston

Dear Liz: I inherited my home when my husband died. If I sell this house now at a current market value of around $900,000, what will be the basis of the capital gains tax? I think at the time of my husband’s death, the house’s market value was $400,000.

Answer: Based on your phrasing, we’ll assume your husband was the home’s sole owner when he died. In that case, the home got a new value for tax purposes of $400,000. That tax basis would be increased by the cost of any improvements you made while you owned it. When you sell, you subtract your basis from the sale price, minus the costs to sell the home, such as the real estate agent’s commission, to determine your gain. You can exempt up to $250,000 of the gain from taxation if it’s your primary residence and you’ve lived in the house at least two of the previous five years. You would owe capital gains taxes on the remaining profit.

Here’s how the math might work. Let’s say you made $50,000 in improvements to the home, raising your tax basis to $450,000. You pay your real estate agent a 6% commission on the $900,000 sale, or $54,000. The net sale price is then $846,000, from which you subtract $450,000 to get a gain of $396,000. If you meet the requirements for the home sale exclusion, you can subtract $250,000 from that amount, leaving $146,000 as the taxable gain.

If your husband was not the sole owner — if you owned the home together when he died — the tax treatment essentially would be the same if you lived in a community property state such as California. In other states, only his share of the home would receive the step-up in tax basis and you would retain the original tax basis for your share.

Filed Under: Inheritance, Q&A, Taxes Tagged With: capital gains tax, Inheritance, q&a, real estate, Taxes

Q&A: Self insurance brings risk

July 23, 2018 By Liz Weston

Dear Liz: A letter writer in your column says that “self insurance,” or going without health insurance, “certainly reinforces healthy lifestyle choices.” My husband made all of those “right” choices for more than 60 years, which was absolutely no protection against being diagnosed with brain cancer. Your penny-pinching correspondent might currently be running marathons or doing daily yoga, but as Clint Eastwood put it: “You’ve gotta ask yourself one question: ‘Do I feel lucky? Well, do ya, punk?’”

Answer: As a nation, we could certainly lower our healthcare costs by choosing healthier lifestyles — exercising, avoiding obesity, not smoking and so on. But accident or illness can strike even the healthiest among us, which is why health insurance is a necessity not just to ensure we can get care but to protect against catastrophic medical bills.

Unfortunately, as human beings we often have the delusion that what’s happened in the recent past will continue indefinitely. If we’ve been lucky with our health, we may think that will always be the case. The reality is that everybody’s luck runs out at some point, and often does so at great expense.

Filed Under: Health Insurance, Q&A Tagged With: health insurance, q&a

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