Ask Liz Weston

Get smart with your money

Liz Weston

Daily money managers can help pay the bills

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Dear Liz: I read with interest your answers about older people who need a trusted gatekeeper to keep others from taking financial advantage. I want to let you know there’s great help out there for seniors: the American Assn. of Daily Money Managers. We daily money managers provide assistance to people who have difficulty managing their personal bill-paying responsibilities and associated personal paperwork. This service offers a cost-effective way for clients to get assistance with organizing, bill paying, balancing checkbooks and reviewing statements from a trusted source. A daily money manager does not replace the services of other professionals — such as CPAs, banks, financial planners and attorneys — but assists clients with daily affairs and helps maintain records and information that is essential for these professionals. People can find more information at the association’s website, http://www.aadmm.com.

Answer: Thanks for pointing out this resource. Many older Americans have trouble with household money management. They may forget to pay bills or keep track of their account balances, leading to bounced checks. Organizing their paperwork and collecting information for tax returns can become an ordeal. Some people have trusted family members who have the time to take over. For others, daily money managers can be the answer.

Daily money managers are distinct from conservators or guardians, however. They aren’t supervised by the courts, so potential clients need to take care in hiring one. In addition to the AADMM’s website, people may be able to get referrals from financial professionals such as a lawyer, financial planner or accountant. The daily money manager should be insured and willing to work with those professionals.

Daily money managers aren’t limited to helping only seniors. They also can help busy executives, travelers and people with attention deficit disorders who have trouble keeping up with daily financial details.

Helping an indigent parent navigate “the system”

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Dear Liz: Our mother just turned 64, and our father is divorcing her. She hasn’t worked in years because of significant physical and mental health issues. My sister and I have been trying to figure out how she’s going to survive on $750 a month, which is the equivalent of half his Social Security. She has always had serious issues with money management, which is why there are no retirement savings or a house. We are now about to embark on the maze of social service benefits that an older woman below the poverty line can receive, partly so we can decide whether she’s better off staying put where she is in Arkansas, moving to my sister’s in Texas, moving to be near me in Maryland, or moving to her childhood home of Chicago, where most of her friends are. For a lot of complicated reasons (mostly related to the mental health issues), we are trying to avoid having her live with either of us full time, and she expresses no desire to do so. So we have to figure out the ins and outs of Medicaid, food stamps, subsidized senior housing and anything else in four different states and then try to explain it to her. If you have any hints about helping an indigent and somewhat incapacitated mother access services, we would love to hear them. We feel a little overwhelmed at the moment and aren’t even sure whom to call in each place.

Answer: It’s understandable that you feel overwhelmed. You have a huge task in front of you.

You can start with the Eldercare Locator, a free service offered by the U.S. Administration on Aging that can connect you to services for older adults and their families. You’ll find it at http://www.eldercare.gov, or you can call (800) 677-1116.

Another resource you might want to consider is a geriatric care manager. These are professionals who help family members care for elderly relatives. The care manager can evaluate your mom, review her options and make recommendations. Their services aren’t cheap, but they can be especially helpful in managing a long-distance situation. You can find referrals at the National Assn. of Geriatric Care Managers’ site, http://www.caregiver.org. And speaking of distance: It might be easier to help your mom if she lives closer to one of you, or to a trustworthy friend who can check in on her and let you know how things are going.

You also should check with an Arkansas family law attorney, since your mother may be eligible for some kind of spousal support and possibly a property division that could help her financially.

Finally, if your father dies before your mother, she still will be eligible for survivor benefits that could bump her Social Security check up to 100% of what your father was receiving. Many people don’t realize that ex-spouses can qualify for survivors’ benefits as long as the marriage lasted 10 years and the person applying for benefits didn’t remarry until after age 60.

Don’t count on plastic to cover big expenses

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Dear Liz: I’m 27 and have no consumer debt, a decent salary and a boatload of student loans. I use my credit cards for most of my expenses to earn rewards points and generally pay off my cards each month. I also take advantage of the 0% introductory rate offered by many credit card companies. This grace period gives me a security blanket so that I can spread large expenses such as insurance or car repairs over several months without derailing my saving plans. Can I apply for these offers without wrecking my excellent scores?

Answer: Occasionally applying for a new card won’t affect your scores much. Typically such applications ding your scores by five points or less.

You should be budgeting and saving for large expenses, however, rather than leaning on your cards. (Car repairs, in particular, aren’t really “emergency” costs — if you have a car, you know they’re coming, and calculators like Edmunds.com’s “True Cost to Own” feature can give you a good idea of what they’re likely to be.) Those 0% offers often come with balance transfer fees or other charges that make the deals a lot less attractive than they seem at first glance.

Also, you should be in the habit of always paying your cards in full — always. “Generally” isn’t good enough, since you could easily be enticed into spending beyond your means, especially as you chase rewards points. Rewards cards are a good deal only if you don’t carry a balance. Otherwise, you can pay frighteningly high interest rates that offset any benefit you may earn.

5 things I’m glad we bought in Italy, and three I wish we hadn’t

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One of the reasons we travel is to learn, and our latest trip to Italy taught us a lot. We learned about the country’s culture, cuisine and history. We also learned how quickly the euros can fly out of your wallet if you’re not careful (and sometimes even when you are). Here are some of the best purchases we made, along with a few I regret. Let’s start with the expenditures, big and small, that made it a better trip:

A Vivaldi concert in Venice. We heard the opera is pretty wonderful, but we weren’t sure our nine year old was quite up it—and the total ticket cost of over $300 was daunting. We looked for an alternative cultural event, and found it with Intrepreti Venezi, an outstanding string orchestra that gives concerts at Chiesa San Vidal (the lovely San Vidal church). The musicians were amazing, and where better to hear Vivaldi than in his home town? Tickets for the three of us were 75 euros (about $100), and well worth it.

“Paint your own” masks. Venice has a long tradition of mask-making and –wearing. I thought the “paint your own” places were kind of gimmicky, but it turns out they’re a great way for a kid to connect with Venetian history and culture. All three of us had a blast picking out blank masks (each shape has a different meaning and history) and painting up a storm. The masks aren’t cheap—30 to 40 euros each, including an hour of painting time—but they were a great activity for a family and a wonderful souvenir. (A tip: when they’re dry, have the shop wrap them for shipping even if you’re going to bring them home in a suitcase, as we did. They arrived safe and sound.)

A family museum pass. Lines to get into Florence’s most famous museum can be hours long, even in the off season. You can skip the line with reservations if you plan ahead, which we didn’t. So we “bought” our way in by buying a “Friends of the Uffizi” family pass. For 100 euros (about $130), this pass gets two adults and two children into not only the Uffizi but about two dozen other local museums, including the Academy (home of Michaelangelo’s David sculpture) and the Pitti Palace. The pass quickly pays for itself in entrance fees alone, but skipping the awful lines? That’s priceless. You need to bring your passports to an office near entrance #2 of the Uffizi and fill out a short application

A “Get Art Smart” book in Florence. This spiral-bound sticker book for kids turned the Uffizi museum into a scavenger hunt. Each page showed a small portion of a painting one of the galleries. Once our daughter located the painting, she could put the corresponding picture on that page. The book asked her a few questions about its composition that highlighted interesting developments in Florentine art and culture. Actually, this book for kids did a far better job of explaining the transition from Gothic to Renaissance art than any of the placards or other information available to adults. We found the book for less than 5 euros at a small bookstore near the Uffizi’s entrance, but I’m guessing you can find it at other museums in Florence, as well.

Gelato. Even mediocre gelato is pretty darned good, but for the most amazing varieties we learned to look for places slightly off the beaten path that had a line out the door.

What we should have skipped:

The water taxi from the airport. Venice is best approached by water, our guidebook told us. What it didn’t tell us was that the tiny windows in the water taxi wouldn’t allow us to see much…or that the schedule was a bit, shall we say, casual on Sunday nights. Our taxi took off almost an hour after it was scheduled to depart, so we missed the sunset and instead arrived in the dark. Next time, we’ll take the clean, comfortable bus into Venice and then the water taxi from the bus stop. We would have saved about 10 euros, and gotten to our destination a lot faster.

Audioguides at the Doge’s Palace. Audioguides really enhanced our experiences at other museums, both abroad and in the U.S. The best ones provide context for the exhibits and help you understand the time period in which they were created. The audioguides at the Doge didn’t do that—instead they droned on about which doge commissioned which artist to do what. By the third segment, we’d stopped listening, so that was $15 euros down the drain.

The rental car in Florence. On our last day, Hubby wanted to take a drive in the Tuscan countryside, which sounded lovely. Unfortunately, we hadn’t made a car rental reservation and it was a Sunday. Our hotel concierge made the arrangements for us, but the car cost us over $200 for the day—oh, yeah, and the GPS hadn’t been updated to reflect recent changes in the direction of Florence’s many, many one-way streets. The unit repeatedly instructed us to turn the wrong way onto said one-way streets. Getting out of town was nightmarish, to say the least. Getting back was worse, if anything—we could see our hotel, just blocks away, but we couldn’t get there. We finally hailed a cab to lead us home. We learned a few lessons. One: If you’re going to get a rental car, book it from home—it will be a heck of a lot cheaper. Two: Book it from the airport, which will be far from medieval cities’ byzantine streets.

 

Restoring credit scores after bankruptcy

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Dear Liz: I had credit scores over 800 with no late payments ever. Unfortunately, a medical issue required me to charge $24,500 to a credit card. That led to a bankruptcy, which was discharged in July 2011. My scores dropped to 672, and they’re currently around 680. I’m paying two unsecured credit cards in full each month plus an auto loan that was reaffirmed in bankruptcy. I would like to continue rehabilitating my scores by applying for another loan. When a company requests my credit scores, does it also see my bankruptcy, and would that prevent me from getting credit?

Answer: Some lenders look just at credit scores, while others request credit reports along with your scores. Your bankruptcy or your scores could cause lenders to charge a higher interest rate or refuse to give you credit.

It’s not clear that the scores you’re seeing are FICO scores, however. A bankruptcy would have dropped your FICOs into the 500s, and it’s unlikely they would return to the high 600s in less than a year. What you may be seeing are VantageScores, which have a different score range: 500 to 990, compared with FICO’s 300 to 850.

If you want to see your FICO scores, which are the ones most lenders use, you can buy them for about $20 each at MyFico.com. Scores offered at other sites typically aren’t FICO scores but may be VantageScores or “consumer education scores” that aren’t widely used by lenders.

You’re doing the right things by using a mix of credit (credit cards and an installment loan) and paying your bills on time. You should know, though, that there’s no way to quickly restore your scores to their old levels. It typically takes seven to 10 years for FICOs to recover from a bankruptcy.

But let’s back up a minute. You almost certainly made a mistake by charging your medical care to a credit card. You may have been able to qualify for a discount on your care if you hadn’t. Many medical providers offer charity programs that cut or eliminate the bill for people making up to 400% of the federal poverty line. A single person could make up to $44,680 and still qualify for a break under many providers’ programs.

If you make too much to qualify for financial aid, you could still have negotiated a discount by asking the provider to charge you the same rate that its largest insurer pays. The uninsured are often charged a much higher “sticker price” for medical care than what insurers pay, but if asked, many providers are willing to provide the same discounts.

If nothing else, you probably could have qualified for an interest-free payment program. Once you charged the bill to your card, however, you lost all your leverage to get a discount.

Is a 3% withdrawal rate too conservative?

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Question: In a recent column you repeat advice I have often read that withdrawing about 3% of my investment capital will reduce the chances of my running out of money in retirement. But that doesn’t make sense to me. I have been retired for over 19 years and I have sufficient data now to extrapolate that I could live for 100 more years with so meager a drawdown because, through good and bad times, my earnings after inflation and taxes always exceed 3%. If I am missing something, I must be extraordinarily lucky because it hasn’t hurt me yet, and at age 77 I think it unlikely to do so in my remaining years. Can you explain this discrepancy between my experience and the consequences of your advice?

Answer: Sure. You got extraordinarily lucky.

You retired during a massive bull market, which is the best possible scenario for someone who hopes to live off investments. You were drawing from an expanding pool of money. Your stocks probably were growing at an astonishing clip of 20% or more a year for several years. Although later market downturns probably affected your portfolio, those initial years of good returns kept you comfortably ahead of the game.

Contrast that with someone who retires into a bear market. She’s drawing from a shrinking pool of money as her investments swoon. The money she takes out can’t participate in the inevitable rebound, so she loses out on those gains as well. All that dramatically increases the risks that she’ll run out of money before she runs out of breath.

It’s the first five years of retirement that are crucial, according to analyses by mutual fund company T. Rowe Price, which has done extensive research on sustainable withdrawal rates. Bad markets and losses in the first five years after withdrawals begin significantly increase the chances that a person will run out of money during a 30-year retirement.

Some advisors contend that a 3% initial withdrawal rate, adjusted each subsequent year for inflation, is too conservative. If you retire into a long-lasting bull market, it may well be. But none of us knows what the future holds, which is why so many advisors stick with the 3%-to-4% rule.