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Liz Weston

Are Roths safer than other IRAs?

July 29, 2013 By Liz Weston

Dear Liz: I found your recent discussion of Roth IRAs informative. But I’ve been told that one of the main advantages of a Roth vs. a traditional IRA is that a Roth is a safer investment when it comes to creditors trying to attack it. How can that be? Is one type of IRA safer than another?

Answer: The short answer is no.

Employer-sponsored retirement plans, including 401(k)s and 403(b)s, typically have unlimited protection from creditors in Bankruptcy Court. The exceptions: The IRS and former spouses can make claims on such plans.

Individual retirement accounts, including IRAs and Roth IRAs, lack the protection afforded by the Employee Retirement Income Security Act, or ERISA. But the bankruptcy reform law that went into effect in 2005 protects IRAs of all kinds up to a certain limit (which in April rose to $1,245,475).

Short of bankruptcy, the amount of your IRAs or Roth IRAs that creditors can access depends on state law.

If there’s any chance you’ll be filing for bankruptcy or the target of a creditor lawsuit, you should talk to an experienced bankruptcy attorney about your options.

Filed Under: Q&A, Retirement Tagged With: 401(k), Bankruptcy, Roth IRA

How much do you really need to retire?

July 29, 2013 By Liz Weston

Dear Liz: None of the Web-based tools I’ve seen really get at the heart of the problem of how much I really need in retirement. For example, if I am diligent and save 20% of my income (I earn over $150,000), why would I need to replace 95% or even 80% of my income to maintain my standard of living in retirement? If I subtract the 20% going to savings, another 10% for the costs of working (clothes, lunches, gas) and reduce my income tax 5%, shouldn’t I be living the same lifestyle at 65% of my current income? Now, if I have a pension that will replace 10% of my pay, and if Social Security benefits for my spouse and me replace 30%, don’t my investments have to produce only the remaining 25%? Or am I missing something?

Answer: The further you are from retirement, the harder it can be to predict how much you’ll need when you get there.

Financial planners often use an income replacement rate of 70% to 80% as a starting point. It’s just that, though. Planners will tell you some of their clients’ spending actually increases in the early years of retirement as they travel and indulge in other expensive hobbies. Those who are frugal or used to living well below their means are often able to retire comfortably with a much lower income replacement rate.

A big wild card is the cost of medical and nursing care in your later years. The U.S. Bureau of Labor Statistics’ Consumer Expenditure Survey shows average overall spending tends to drop after retirement and continues to decline as people age. Serious illness or a nursing home bill can cause spending to surge late in life, however, leading to a U-shaped spending pattern for many.

Taxes also are hard to predict. While most people drop into a lower tax bracket once they stop working, those with substantial retirement incomes and investments may not. Tax rates themselves could rise in the future, even if your income doesn’t.

Social Security benefits may change, as well. Although it’s highly unlikely the program will disappear, some proposals for changing Social Security reduce checks for higher earners.

Once you’re within a decade or so of retirement, you should have a better handle on what you’ll spend once you quit work. Before that point, err on the side of caution. Assuming a higher income replacement rate gives you wiggle room once you’ve retired — or the option to retire earlier if it turns out you need less.

Filed Under: Q&A, Retirement Tagged With: income replacement, Retirement, retirement spending, spending in retirement

Monday’s need-to-know money news

July 29, 2013 By Liz Weston

Education savingsHow to avoid credit card rejection, getting your kids and their money ready college, and how to keep identity thieves out of your mail.

How Not to Get Rejected For a Credit Card
Tips on how to avoid the pain of rejection.

How to Keep Telemarketers at Bay

Ways to finally stop those annoying phone calls.

Four Money Conversations Parents Need to Have with Freshmen

Preparing your kids for their first real taste of freedom.

Junk Mail Poses Identity Theft Risks
Think twice before tossing away that solicitation.

5 Reasons You’re Earning More Money and You’re Still Miserable
Discover the science behind money and emotions.

Filed Under: Liz's Blog Tagged With: behavioral economics, Credit Cards, Identity Theft, kids and money

Friday’s need-to-know money news

July 26, 2013 By Liz Weston

Wire cutterWhy would should wait to go school shopping, avoiding overdraft fees, how to prepare yourself for the joys of homeowning and reasons why you’ll drop cable soon.

Hold Off on Back-to-School Shopping
Those great deals could be even greater in August.

Four Ways to Avoid Hefty Overdraft Fees
Don’t let a $10 check become a $35 fee.

How to Protect Yourself Against Credit Card Discrimination
What to do when your rejection has nothing to do with your credit score.

So You Wanna Be a First-Time Homebuyer?
Mistakes to avoid when taking the leap.

5 More Reasons You’ll Be Cutting Your Cable TV Cord Next Year
Dropping your cable company is becoming easier.

Filed Under: Liz's Blog Tagged With: back to school, banking, cable, cable television, Credit Cards, cutting the cord, first-time homebuyer, home buying, homeownership, overdrafts, renting

Thursday’s need-to-know money news

July 25, 2013 By Liz Weston

Credit card backgroundHidden credit card charges, moving on from Grandpa’s investment strategy, and why everyone should plan to retire early.

Hidden Credit Card Charges: Are You At Risk?
Be on the lookout for “grey charges”.

How to Improve Your Credit History
Credit mistakes don’t have to follow you forever.

Four Ways Not to Invest Like Your Grandfather
An ever-changing economy may require a different portfolio strategy.

Why Everyone Should Aspire to Early Retirement
How planning ahead for retirement keeps you financially focused

10 Dumb Things You Do With Credit Cards
Small mistakes could have big consequences.

Filed Under: Liz's Blog Tagged With: Credit Cards, Investing, Retirement

Wednesday’s need-to-know money news

July 24, 2013 By Liz Weston

HomeInheriting Grandma’s frequent-flier miles, how to pay less for homeowner’s insurance, and what you need to know about rising interest rates.

How Student Loans Can Hurt Your Mortgage Application
Those pesky student loans can reduce your ability to borrow money.

Can You Inherit or Transfer Your Frequent-Flier Miles?
What happens to Grandma’s miles after she takes her final flight?

How to Reduce Your Home Insurance Costs
Home insurance doesn’t have to break the bank.

The Best Children’s Books for Money Lessons
It’s never too early to start teaching kids how to manage their money.

5 Things to Know About Rising Interest Rates
How to navigate the new lending environment.

Filed Under: Liz's Blog Tagged With: frequent flier, homeowners insurance, kids and money, mortgages, Student Loans, travel

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