Q&A: Keeping pace with retirement saving

Dear Liz: My wife is distressed by your recent column about how many multiples of salary are needed to retire. She interpreted the column as saying you must have the sum total of those numbers. So if you need one times your salary saved at 30, three times by 40, six times at 50 and eight times at 60, she thinks you would need 18 times your salary in total by age 60, or $1.8 million if you earn $100,000. I interpreted it to mean that your target would be $800,000 at age 60. Am I wrong?

Answer: You are interpreting the guidelines correctly: You would need eight times your salary at 60, not 18 times. The numbers, by the way, come from Fidelity Investments and are meant as general guidelines for people hoping to retire at 67 (at which point, Fidelity says they should have 10 times their salaries saved). Your needs may vary; some people will need less, some will need more. People who have large traditional defined benefit pensions, for example, may not need to save as much, while those who want to retire early or indulge in expensive hobbies, such as traveling or supporting adult children, may need to save more.

Guidelines tend to be the most helpful when you’re many years away from retirement and only guessing about how much money you’ll need. Once you’re five to 10 years from your desired retirement age, you should have a better handle on your likely expenses and sources of income. Well before you actually retire, though, you should consider consulting with a fee-only, fiduciary financial planner for a second opinion on your retirement plans. (“Fee only” means the advisor is compensated only by fees paid by clients, rather than through commissions or other arrangements. “Fiduciary” means the advisor is required to put your interests first.)

The National Assn. of Personal Financial Advisors, the XY Planning Network and the Garrett Planning Network all represent fee-only planners and can offer referrals.

Q&A: Claiming an ex’s benefits

Dear Liz: You recently answered a question pertaining to divorced spousal Social Security benefits. Social Security told me years ago that I had to wait till my former husband died before receiving a part of his benefits. We divorced after a long-term marriage, and I remarried after age 60. Is this still true for remarried former spouses? My ex does collect Social Security, and I collect my small benefit (both of us started at full retirement age).

Answer: The information you received was correct. You can’t get spousal benefits from your ex’s work record if you’re married to someone else. You can, however, get survivor benefits if your ex dies, as long as you remarried after you turned 60.

Friday’s need-to-know money news

Today’s top story: 7 things college freshmen don’t need – and 10 they do. Also in the news: Stocking up for school can be eco-friendly and economical, what to do when back to school bites you in the budget, and how to get rid of your back taxes.

7 Things College Freshmen Don’t Need — and 10 They Do
Skip the giant television.

Stocking Up for School Can Be Eco-friendly — and Economical
Looking for freebies and bargains.

What to Do When Back to School Bites You in the Budget
Prioritize.

Tax Relief: How to Get Rid of Your Back Taxes
Getting your tax bill back under control.

Thursday’s need-to-know money news

Today’s top story: Teach your teens about college costs long before they apply. Also in the news: Haggling for vacation souvenirs, getting cheap car insurance for new drivers, and what to do with unexpected money.

Teach Your Teens About College Costs Long Before They Apply
Prepare them for reality.

Save Money on Souvenirs: Learn to Haggle
Make a plan and stick to it.

Getting Cheap Car Insurance for New Drivers
Discounts can add up over time.

What to Do With Unexpected Money
Be methodical.

Wednesday’s need-to-know money news

Today’s top story: How your vacation spending can help fund next year’s trip. Also in the news: How much you’ll really pay for that student loan, the 5 best and 5 worst states for retirement, and what NOT to buy on Amazon Prime Day.

Record Summer Vacation Spending? Pay It Forward to Your Next Trip
Consider a travel rewards card.

How Much You’ll Really Pay for That Student Loan
Interest rates can be shocking.

Here are the 5 best and 5 worst states for retirement
Did yours make the list?

What NOT to buy on Amazon Prime Day
Not all sales are created equal.

Tuesday’s need-to-know money news

Today’s top story: Stocking up for school can be eco-friendly and economical. Also in the news: Why this Southwest Airlines card is a solid choice for budget travelers, how to choose a secured credit card, and the best tip calculator apps.

Stocking up for school can be eco-friendly AND economical
Look for freebies first.

Why This Southwest Card Is a Solid Choice for Budget Travelers
Putting the Companion Pass within reach.

How to Choose a Secured Credit Card
Not all secured cards are created equal.

Best Tip Calculator Apps to Download Now
Make tipping much easier.

Teach your teen about college costs starting now

Many families struggle to pay college expenses for one or two kids. Certified financial planner Sarah Carlson, mother of two sets of twins, will soon have all four of her children in college at the same time.

The older twins are already there, to be joined soon by the younger two. But years ago, Carlson started teaching her children how to get an affordable education. One of the first steps was making clear what she would contribute.

“I let them know early on what I was comfortable spending and what I wasn’t,” says Carlson, who’s based in Spokane, Washington.

In my latest for the Associated Press, why you need to teach your teen about college costs long before the first application essay is written.

Monday’s need-to-know money news

Today’s top story: 5 good times to shop for almost anything. Also in the news: How one woman ditched $36K of debt, how to nag new coworkers to save for retirement, and saving on airline booking fees by buying your ticket at the airport.

5 Good Times to Shop for Almost Anything
Spend a holiday weekend shopping.

How I Ditched Debt: ‘I Just Pretended I Didn’t Have Money’
How one woman paid off $36K of debt.

How to Nag New Coworkers to Save for Retirement
The good kind of nagging.

Save on Airline Booking Fees by Buying Your Ticket at the Airport
The savings can add up when booking a family trip.

Q&A: Escaping California’s tax auditors is tough even after leaving the state

Dear Liz: My husband and I will be trying out several different areas after the sale of our Los Angeles area house, which will be some time this summer. What happens if we end up renting in three different states? I’m under the impression that we need to be able to prove that we resided in a particular state for six months and one day in order to say we are residents of that state. Even though my husband has been retired for many years, he still does a small amount of business through a company based in Southern California. Will we be forced to pay California tax even though we are residing elsewhere?

Answer: California, like other higher-tax states, has residency auditors whose specialty is asserting that affluent people who have left the state are still legal residents and thus are subject to its taxes. The audits can be stunningly thorough, looking at everything from the doctors you visit to where your artwork and other valuable possessions are stored.

If audited, you would need to prove that you have a fixed, permanent residence elsewhere and that it’s truly your home. And yes, it’s up to the taxpayer to prove this — there’s no presumption of innocence in tax audits, says tax attorney Mark Klein, chairman of Hodgson Russ LLP in New York City. (New York is another state with notoriously hard-nosed residency auditors.)

Just leaving the state for six months and registering to vote elsewhere typically won’t be enough. You likely would need to spend substantially more time in your new “home” state than in California. Klein, who recently taught a session on establishing residency at the AICPA’s annual ENGAGE conference, tells his clients to spend at least two months in the new place for every month they spend in the old one.

Also, you should “stick the landing,” in Klein’s words. Let’s say you try to establish residency in Nevada but then move to Florida by the time California’s auditors find you. They may well decide that your Nevada stay was temporary and that you were still subject to California taxes during the time you lived in the Silver State.

Escaping the long arm of California’s tax auditors could be tough while you’re still figuring out where to live next. You’d be smart to consult a CPA experienced with California residency audits for advice on how to cut ties to the state cleanly.

Q&A: Limiting your rate shopping window

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.