Get smart with your money
People are angry. Voters demanding change have helped make Donald Trump the presumptive Republican nominee for president and fueled Bernie Sanders’ ferocious challenge to Democrat Hillary Clinton.
But what are they angry about? Ask and you’ll hear about Washington gridlock, Wall Street greed, trade, stagnant pay, immigration. In my latest for NerdWallet, the one huge factor that’s making this election especially unique.
Today’s top story: Debunking emergency fund myths. Also in the news: How filing separately could give some couples a lower tax bill, the financial benefits of living with less, and how much down payment you should have to buy a home.
Debunking 5 Emergency Fund Myths
Separating fact from financial fiction.
Filing Separately Could Give Some Couples a Lower Tax Bill
Splitting up your tax returns could save you money.
The Financial Benefits of Living With Less
Downsizing your way out of debt.
How Much Down Payment Do You Need to Buy a Home?
How much do you really need?
Today’s top story: The red flags of a toxic online loan. Also in the news: What to do when you can’t get enough financial aid, why 43% of Millennials have bad credit, and 10 questions to help start getting your financial life in order.
5 Red Flags of a Toxic Online Loan
Who are you really borrowing from?
Can’t Get Enough Financial Aid? Here’s What to Do
Take a deep breath.
43% of Millennials Have Bad Credit, TransUnion Says
Subprime scores.
Get Your Financial Life In Order By Answering These 10 Questions
Taking the first steps.
Today’s top story: What to do when your employer is acquired. Also in the news: Tips for selling your home this summer, surprising things about cellphone insurance, and how to avoid retirement calculator mistakes.
5 Steps to Take When Your Employer Is Acquired
Tips for uneasy times.
Simple Tips to Sell Your Home for the Right Price This Summer
Summer could be the perfect time to sell.
4 surprising things about cellphone insurance
Reading the fine print.
Using These Retirement Calculators The Wrong Way Could Cost You Thousands
Complicated calculations.
Dear Liz: My son and his family are having trouble with money. I see him stepping up since he had my lovely granddaughter. I am getting ready to retire from teaching. I have my teacher’s retirement and a nest egg set aside. I was thinking of buying him a place where he could pay me rent and when the time happens, move to find his future. I was told, though, that I would have to live in the home after purchase or I cannot get a loan. I just want to see where I can stand in this endeavor.
Answer: People get loans to buy rentals and other investment property all the time. But that doesn’t mean you should be one of them.
Taking on a mortgage in retirement is risky, to say the least, and you’d be putting your financial future in the hands of a young man who has “trouble with money” and who hasn’t always been responsible, given your comment about “stepping up.” When his family hits a rough patch, how hard would it be for him to justify skipping a rent payment, or six, to Dear Old Dad? And what would you do about that — evict him and your lovely granddaughter?
If you were wealthy enough to pay cash for this house, take care of all the ongoing costs and not care if he ever paid you a dime, then maybe this scheme would make sense. In your case, you’re inviting financial distress and family trouble at a time in your life when you should be reducing the odds of both.
Dear Liz: In a previous answer to a question about liability insurance, you indicated that people should normally have enough insurance to cover their assets. Which assets should be included, as it is my understanding that some assets are exempt from creditors, such as 401(k)s and IRAs? Also, how are future earnings or future annuity payments for retirees taken into account when trying to determine how much liability insurance to carry? Should one essentially cover the present value of their future income for 10 years? Twenty years? Life?
Answer: As indicated in the previous column, there’s as much art as science in determining appropriate liability coverage. Liability insurance pays the tab when you face a lawsuit or similar claims. Some people sleep better at night with high policy limits, while others would rather deploy their money elsewhere.
Liability insurance is relatively inexpensive, so getting a lot of coverage typically won’t break the bank. But you also need to make sure you’re adequately covered for disability and long-term care, which you’re more likely to need than your liability insurance.
You’re correct that workplace retirement plans such as 401(k)s are protected from creditor claims. So are IRAs, up to $1 million. Each state has different rules about other property, but typically a certain amount of home equity is protected as well. In Texas and Florida, this so-called homestead exemption is virtually unlimited. In other states, the amount protected is relatively small. (In California, it can be as small as $25,575, according to legal self-help site Nolo.) Similarly, states are all over the map in how they treat annuities.
Social Security income, by contrast, is safe from creditors except Uncle Sam. The federal government can take a portion of your Social Security check if you’ve defaulted on federal student loans, for example.
Financial advisors typically focus on net worth, rather than incomes, when recommending appropriate levels of liability coverage. If you’re a high earner with few assets, though, you might want to take your future income stream into account. Exactly how much can be a discussion between you and your advisor or insurance agent.