Liz Weston

Who offers real chip-and-PIN cards in the U.S.

March 14, 2014 By Liz Weston

Most of the rest of the world has adopted more secure chip-and-PIN credit cards–which can cause some problems for Americans traveling overseas.

When we were in Italy two years ago, we found our old-school magnetic-stripe cards wouldn’t work in automated kiosks. That included our British Airways card, which had a chip, but no PIN. Without a personal identification number to punch in, it was useless.

Unfortunately, many articles about where to get chip-and-PIN cards in the U.S. make the mistake of thinking chip-and-signature cards are the same thing. They’re so not.

Because we’re going to Europe again soon, I hit up Bill Hardekopf of LowCards.com for a list of U.S. issuers that offer the real deal. The few organizations on this list have many members that travel overseas. And here they are:

United Nations Federal Credit Union.. If you don’t actually work for the UN, you can become a credit union member by joining United Nations Association ($25 membership fee).

USAA. You must be a member of this financial services organization for active-duty military, veterans and their families.

Andrews Air Force Base Federal Credit Union. “You can join by becoming a member of the American Consumer Council which is open to all so essentially is open membership,” Hardekopf said. Membership is $5.

State Department Federal Credit Union. Same deal: you can join by becoming an American Consumer Council member.

Pentagon Federal Credit Union. You can join this credit union is you’re a member of one of a host of associations. If you’re not already a member of one, you can join Voices for America’s Troops for $15.

Or you can just wait, if you don’t have an overseas trip planned. True chip-and-PIN cards should be here by October 2015, when merchants without the terminals to process the cards and banks that have failed to issue them will have to pay for fraud. As Ron Lieber of the New York Times put it, “It’s an elaborate game of chicken, fitting for an industry where the major players spent years embroiled in a lawsuit.” Ultimately, though, more secure cards will benefit banks, merchants and consumers.

Friday’s need-to-know money news

March 14, 2014 By Liz Weston

Today’s top story: How the habits of early retirees could lead you to retirement. Also in the news: Things to consider when saving for a mortgage, easing financial worries with smartphone apps, and what to do when your friends are big spenders.

5 Essential Habits of Early Retirees
Retire early by picking up these habits.

Saving for a House: It’s More Than a Down Payment
What to consider when you’re saving for a mortgage.

Face Your Retirement Fears With These Free Financial Tools
Reassurance is just a smartphone app away.

How to Keep but Not Go Broke with Expensive Friends
Balancing your friends and your budget.

5 Ways to Pick the Perfect Time to Sell Your House
As they say, timing is everything.

You may not be as smart as you think you are

March 13, 2014 By Liz Weston

Most people are better off delaying the start of their Social Security benefits as long as possible. That’s the consensus of the AARP, financial planners and researchers who have studied the thousands of different claiming options. In fact, the benefits of putting off Social Security have grown in recent years, thanks to low interest rates, gains in longevity and changes in the law since the 1990s.

Still, every time I pass along the advice that waiting is better, I hear from those who just refuse to believe it. They focus on breakeven points rather than longevity risk; they don’t factor in spousal or survivor benefits; they underestimate how much their benefit can grow with even a few years’ delay.

So when Financial Engines approached me with the results of a recent survey, I just nodded my head in recognition. Their poll found that most people nearing retirement are confident that they can make smart Social Security claiming decisions–but that most do poorly on a test that measures their understanding of basic Social Security claiming concepts. You can read more about it in my column this week for Bankrate, “Are you Social Security smart? Guess again.”

My best advice is that before you claim Social Security, use some of the software tools that are available to help you evaluate your options. The AARP has a good calculator here. If you want to play with the numbers and assumptions a bit more, MaximizeMySocialSecurity.com has software that will really let you get your geek on; a one-year license is $40. You also can talk to a fee-only financial planner who is savvy about claiming strategies.

Here are two things you should know:

1. If you’re married (and that includes you same-sex couples, if you file in a state that legally recognizes your marriage), you have unique opportunities to maximize your lifetime benefits and protect your surviving spouse from poverty. The difference between the best claiming strategies and the worst can be $250,000. No, that’s not a typo.

2. Social Security is not going to disappear. The program is simply too popular and its problems, though real, are not insurmountable. Even if Congress does nothing, the system can still pay out 75% of the benefits promised just from the taxes it will collect. If Congress does do something, the changes almost certainly won’t affect near-retirees but will instead change benefits for younger taxpayers. Signing up for benefits as soon as you’re eligible in order to “lock in” your checks will just lock you in to a much lower payment, for life.

If you’re one of those people who likes to dive into the academic research surrounding claiming strategies, here are a few articles to check out:

“Recent Changes in the Gains from Delaying Social Security.” This article in the Journal of Financial Planning demonstrates how changes in interest rates, longevity and the benefit formula have dramatically improved the benefits from delaying Social Security claims.

“How the Social Security Claiming Decision Affects Portfolio Longevity.” Researchers William Meyer and William Reichenstein have done a lot of research on Social Security claiming strategies, and in this Journal of Financial Planning article they use a sophisticated model that factors in taxes to weigh how delaying Social Security can help retirees make their savings last longer.

“Should You Buy an Annuity from Social Security?” This brief from Boston College’s Center for Retirement Research explains why it often makes sense to tap retirement savings so that you can delay the start of Social Security benefits.

“When Should Married Men Claim Social Security?” This article, also from the Center for Retirement Research, should be required reading for any married couple thinking of starting benefits early. It does a great job of summarizing potential spousal and survivor benefits–and of making the point that starting too early can leave your surviving spouse in a world of hurt.

Thursday’s need-to-know money news

March 13, 2014 By Liz Weston

Today’s top story: Finding the best tax software. Also in the news: The cost of the marriage tax penalty, how to convince your spouse to stop spending, and the hidden costs of buying a home.

Which Tax Software Is Best for You?
Which program best serves your tax needs?

How Much the Marriage Tax Penalty Will Cost You
Your spouse’s higher income could bump you into a new tax bracket.

How to Persuade Your Spouse to Stop Spending Money
Compromise could make all the difference.

The Hidden Costs of Buying a Home
Fees, fees, everywhere fees.

Should You Put Your Tax Refund On A Prepaid Card?
Faster access to your money could mean less of it.

Wednesday’s need-to-know money news

March 12, 2014 By Liz Weston

Today’s top story: How to build credit at any age. Also in the news: The best length of time for car loans, getting the most from store reward programs, and what heirs need to know about reverse mortgages.

Am I Too Old to Build Credit?
No. Never.

Should you take on a six-year car loan?
Probably not.

How to Get the Maximum Value Out of Coupons and Loyalty Cards
Getting the most from that annoying loyalty card.

What Heirs Need to Know About Reverse Mortgages
How much will you have to pay back and when?

Whether to Wed: 5 Tax Issues Facing Same-Sex Couples
Come tax time, marriage equality doesn’t necessarily mean financial equality.

Advisors to women: Don’t quit

March 11, 2014 By Liz Weston

Women with young children often discover that child care costs eat up much of what they earn. If they’re married to a big earner in a high tax bracket, they could lose most of the rest of their wages to high marginal tax rates.

But advising them to quit working is short sighted, two Certified Financial Planners suggest in the most recent issue of the Journal of Financial Planning.

Jerry A. Miccolis and Marina Goodman note in “Advising Married Women on Investing–in Themselves” (may be restricted to FPA member access only) that child care costs usually drop when the kids enter school while the mother’s income typically rises over time. Stopping out, meanwhile, often leads to lower lifetime earnings. The authors suggest women view those early years, when they’re working for not much financial gain, as an investment in their future–sort of an extended internship, if you will. They write:

“[W]ork experience leads to career advancement, which could have a quantum-level impact on her financial future. Say a woman spends five years working while getting no financial benefit due to taxes and child care costs. Her youngest then enters school and suddenly child care costs plummet. After five years of experience, she may get promoted and now her income may be $75,000. If, instead, she was just starting out at that point, she would be earning $50,000. (We’re ignoring inflation in this simple example—it would, of course, merely magnify the effects.) The difference is not $25,000. It is more like being an entire professional level higher for the next 30 years. Over the course of a career it can be the difference between middle management and eventually being in the C-suite.”

The authors note that “A woman’s ability to earn a decent salary is the most comprehensive insurance policy she can have.” Staying employed, even part time, and keeping up any professional credentials can help her family if her partner loses a job, becomes disabled or suffers a business setback. It can also be an insurance policy for her in the far greater risk of divorce:

“Even among upper-income families, many women would still experience a significant decline in lifestyle upon divorce, especially if they have no means of supporting themselves. The risk that a woman will get divorced is greater than the sum of the risks of her husband’s premature death, disability, or just about any other financial catastrophe all put together.”

This information may be most relevant for the kinds of women financial planners are most likely to advise: college-educated women with careers, rather than jobs. The price for stopping out may be less if you’re in a low-wage, low-skilled job rather than one where significant financial advances are possible. But any parent contemplating time away from work should be looking at the longer term financial picture, and those who choose to stay home should make sure they have significant savings to help offset their greater financial vulnerability.