Ask Liz Weston

Get smart with your money

Liz Weston

Wednesday’s need-to-know money news

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mortgage2Today’s top story: How getting a mortgage just became easier. Also in the news: Downsizing to save your retirement, handling major financial disruptions, and how to avoid or minimize bank fees.

4 Ways Getting a Mortgage Just Got Easier
The process has become slightly less stressful.

Can Downsizing Save Your Retirement?
Smaller living can protect your retirement.

How to Handle a Major Financial Disruption
Prepare in advance.

9 Ways Consumers Can Avoid or Minimize Bank Fees
Banking is getting very expensive.

5 Things You Should Never Do With a 401(k)
Protect yours for the long term.

Tuesday’s need-to-know money news

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downloadToday’s top story: How to find free help for your credit problems. Also in the news: The “Ostrich Effect,” the financial benefits of short-term thinking, and how to Voice Mail Hell.

6 Places to Get Free Help With Your Credit Problem
You don’t have to go it alone.

Beware the “Ostrich Effect” When It Comes to Your Financial Health
No burying your head in the sand.

Want To Meet Your Financial Goals Faster? Why You Should Start Thinking In Days — Not Years
Short-term thinking can get you there quicker.

Time Is Money — and This Website Can Save You Some
How to escape Voice Mail Hell.

Q&A: Tuition gifts and tax breaks

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Dear Liz: You recently answered questions about tax breaks for college education expenses. We are contributing $20,000 to our grandson’s college education yearly. He is not our dependent. We are senior citizens with a gross income of about $110,000. Is there any deduction for this expenditure that we might qualify for?

Answer: Your grandson is a lucky young man. Since he’s not your dependent, though, you can’t take any of the available education tax credits or deductions.
The good news is that you don’t have to worry about filing gift tax returns. Each person is allowed to give any other person up to a certain limit each year without triggering the need to file such returns.

This amount, called the annual gift exclusion, is $14,000 this year. Together, you and your spouse could gift up to $30,000 to one person. You wouldn’t actually owe gift taxes until the amounts exceeding this annual exclusion totaled $10.86 million as a couple.

Even if you were giving more than $30,000, there would be a way to avoid filing gift tax returns, and that’s to pay the college directly. Amounts you pay directly to a college or to medical provider are exempt from the limits.

Q&A: Divorce and Social Security spousal benefits

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Dear Liz: My ex-wife and I were married for 12 years. She is 55. I am 64 and collecting Social Security. At what age can she apply for spousal benefits?

Answer: If she doesn’t remarry, she can apply for spousal benefits as early as age 62. If she applies early, though, she would lose the option to switch to her own benefit later if it’s larger.

To preserve that option, she would need to wait until her own full retirement age, which is 67 for those born in 1960 and later.

Dear Liz: My husband is 68 and I am 59. My husband is deferring his Social Security to age 70 to get the largest amount. If he predeceases me, at what age would I be eligible for 100% of my husband’s current Social Security benefit? Would I have to wait to age 66 for that benefit?

Answer: If your husband should die, you could apply for survivor’s benefits as early as age 60 (or 50 if you are disabled). Your benefit would be reduced to reflect the early start. To get 100% of your husband’s benefit, you typically would have to wait until your own full retirement age. If you were born in 1956, that would be 66 and four months.

There’s a wrinkle here, though. By waiting to start his benefit, your husband is earning what are known as delayed retirement credits that increase his benefit by 8% annually (or two-thirds of 1% each month). Your survivor’s benefit would be based on the benefit he’s earned, including the delayed retirement credits, even if he should die before age 70. So at least some of the effect of your early start would be offset by the fact that he delayed benefits.

If your husband had started benefits early, by contrast, your survivor’s benefit would have been based on that permanently reduced amount. By waiting, your husband is ensuring that you will get the largest survivor benefit possible while increasing the odds that you as a couple will get the most out of Social Security.

Q&A: The value of associate degrees

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Dear Liz: Please continue to encourage people to look into two-year technical degrees. I got my associate’s degree in mechanical engineering and in my first job earned more than my father.

Later I worked for a company that made touch-screen point-of-sale terminals. Time and time again, I trained waiters who had bachelor’s or master’s degrees but couldn’t find better jobs. I now work for a large computer company and have folks sitting around me with those same higher degrees.

Answer: On average, people with two-year degrees are paid less than the average four-year degree holder. One in four people with associate’s degrees, however, earns more, according to the Bureau of Labor Statistics.

These jobs are often in the technical and health fields. Four of the BLS’ 30 fastest-growing job categories require two-year degrees. Those positions include dental hygienist (median annual earnings of $70,210), diagnostic medical sonographers ($65,860), occupational therapy assistants ($53,240) and physical therapist assistant ($52,160).

Other well-paying jobs with good growth prospects requiring two-year degrees include funeral service managers ($66,720), Web developers ($62,500), electrical and electronics drafters ($55,700), nuclear technicians ($69,060), radiation therapists ($77,560), respiratory therapists ($55,870), registered nurses ($65,470), cardiovascular technologists and technicians ($52,070), radiologic technologists ($54,620) and magnetic resonance imaging technologists ($65,360).

Should you bail on stocks?

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Stress Level Conceptual Meter Indicating MaximumIt’s a trick question, of course. If you’re asking it, then it’s time to review your long-term investment strategy (or to come up with one, if you haven’t done so).

The bottom line is that trying to time the market is a loser’s game. Those who say they can do it are blowing hot air up your skirt. Sure, some people sell in time to avoid the worst of a downturn–and then they typically miss the rebound that inevitably follows.

If you’re investing for a goal that’s decades away, such as retirement, then the day-to-day fluctuations of the market are irrelevant noise. Even if you’re close to retirement age, you’re still going to need a hefty exposure to stocks to give you the growth you’ll need over time to offset inflation. You can’t expect gains without declines, though. They’re part of the deal.

If you really feel you need to do something, then get a second opinion on your current asset allocation–how your investments are divided among stocks, bonds and cash. You can get free advice from sites such as FutureAdvisor or look into low-cost options from Vanguard or Schwab, among others. Another option is to hire a fee-only planners who charge by the hour or who charge a retainer or a percentage of assets. The Financial Planning Association has tips on choosing a financial planner. Once you have a target asset allocation, you’ll have a map to follow regardless of what the market does.