Ask Liz Weston

Get smart with your money

Liz Weston

Wednesday’s need-to-know money news

By

collegeHere are some of the top money stories around the Web:

How to Pay Student Loans You Can’t Afford

With interest rates on federal Stafford Loans set to double on July 1st, Credit.com’s Gerri Detweiler breaks down the four main income-based repayment programs.

The Surprising Downside of Cutting Up Your Credit Cards

While it may curb your spending, cutting those credit cards in half could hurt your credit score.

Banks Lag on Consumer-Friendly Checking Practices

After surveying 36 of 50 of the country’s largest banks, the Pew Charitable Trusts’ Safe Checking in the Electronic Age project discovered that not a single one met all of the recommended practices.

Are You Paying the iTunes Tax?

The days of tax free internet purchases could soon be over.

“Permanent” employment? No such animal

By

Dear Liz: My spouse has tenure at a university. Given that one of us will always be employed, should we change the way we look at the amount of money we keep in an emergency fund or our risk tolerance for investments?

Answer: Even tenured professors can get fired or laid off. Tenure was designed to protect academic freedom, but professors can lose their jobs because of serious misconduct, incompetence or economic cutbacks, such as when a department is eliminated or a whole university is closed. About 2% of tenured faculty are dismissed in a typical year, according to the National Education Assn.’s Higher Education Department.

That’s more job security than in most occupations, of course. Your spouse also may have access to a defined benefit pension, which would give him or her a guaranteed income stream in retirement. Those factors mean you reasonably can take more risk with your other investments.

As for your emergency fund, you may be fine with savings equal to three months of expenses. But consider that if your spouse were to be dismissed, he or she probably would have a tough time finding an equivalent position. If the institution starts having financial difficulties or if there is any reason to suspect that he or she could be dismissed, a fatter fund could come in handy.

How couples can maximize Social Security

By

Dear Liz: I will be 68 this summer and plan on working two more years. My wife retired in 2011 after turning 60. We would like to maximize our Social Security and are planning on having her take spousal benefits when I retire. When she turns 70, she can switch to her own benefit. How much of my benefit will she receive if she starts receiving it when she is 64 and I’m 70?

Answer: If your goal is to maximize your Social Security benefits as a couple, you should rethink having her apply before her full retirement age.

If she applies before she turns 66, she won’t have the choice of switching benefits later. The Social Security Administration will compare the benefit she has earned with her spousal benefit (basically half of your benefit, reduced by the fact that she is applying early). If her spousal benefit is larger, she will get her own benefit plus an amount of money to make up the difference between the two. What she won’t get is the option to let her benefit continue to grow so that she can switch to that larger check later. The option to switch is available only if she waits until her full retirement age to apply.

There are several good online calculators to help you compare your Social Security options, including ones at AARP and T. Rowe Price.

Don’t sweat the small (FICO) stuff

By

Dear Liz: Over the last couple of years I have managed to pay off my credit cards. I know that closing those accounts will hurt my credit so I kept them open. When I checked my credit report, I found that my rating had gone down and was told that I had to actually use the credit cards and pay them off to keep my score up. I’ve been doing that over the last year or so and my credit score responded well. This past month my credit score went down again by a few points and I learned that it was because the credit card companies had rewarded my diligence by raising my credit limit. This apparently hurt my score. What’s up with this? Is there any way not to get dinged by the reporting agencies?

Answer: Higher credit limits would reduce the percentage of available credit you are using, and that should help your credit scores, rather than hurt them. So the score you’re seeing either isn’t a FICO score, which is the score used by most lenders, or you are being given questionable information about what affects your scores. Many score monitoring systems are set up to give you explanations for any change in your numbers, but those explanations might be vague or might not accurately depict what’s truly influencing your scores.

Your FICO credit scores change all the time, based on the ever-changing information in your credit reports. Variations of a few points shouldn’t be a cause of concern. Continue to use your cards lightly but regularly, paying the balances off in full each month. Over time, the variations will smooth out into higher scores.

Catch me on CNBC today

By

DWYD cover2013I’ll be discussing how 10 years of savings can be worth more than 30 years of savings on today’s “Closing Bell” with Kelly Evans and Scott Wapner.

Today’s 20-somethings have a unique–and easily blown–opportunity to set themselves up for their future. Because of the power of compounding, the money they save now for retirement is worth far more than if they start even a few years later. The idea that you can put it off and “catch up” when you’re older? Basically, it’s a myth, since it’s so very, very hard to make up for missing that early start.

NBC News columnist Bob Sullivan outlines how this works in “When $30k is worth more than $90k.”

The takeaway? Paying off debt is important, but not as important as saving for your future. Opportunities to save for retirement really are “use it or lose it,” and blowing them off could make your future self the real loser.

Please join us around 4:50 p.m. Eastern/1:50 p.m. Pacific for the discussion.

 

How to avoid moving scams

By

Unhappy MoverThe last time we moved, our stuff was held hostage.

The mover had a variety of entirely bogus reasons for hanging onto our stuff while trying to exceed the written, “not to exceed” estimate. Among the excuses: We didn’t tell him there were steps at the new house (there were two) or it was at the fringes of Los Angeles (we’re actually quite close to the geographic center of the city).

At the time, I didn’t know that reputable movers were being bought up by bad guys who pulled these stunts, or that moving in many areas is so lightly regulated that they can get away with this crap.

If you’ve got a move planned this summer, take the time to check out Consumer Report’s tips for avoiding scams.

One of the best tips I know isn’t included: Ask your employer, or another major company in the area, which companies they use to move their executives. These movers won’t be the cheapest, but since they rely on repeat business, they’re far less likely to be scamsters.

In the end, I paid a couple hundred dollars more than we agreed to ransom our stuff–much less than the $1,000 or so the mover demanded, but still too much. If we ever have to move again, I’ll be a lot more diligent in choosing a mover.