Ask Liz Weston

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Liz Weston

Q&A: What a bear market really means for your 401(k)

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Dear Liz: With the stock market tanking and no rebound likely in the near future, should I decrease the amount I am contributing toward my retirement? I earn a high-five-figure salary and currently contribute 25% of my pay to my company’s 401(k). The current balance is $450,000 with about two-thirds held in a 2030 target date fund and the remainder in a 2035 target date fund. I hope to retire at the end of 2030 at age 64. I have no other retirement accounts, but I am married and my husband collects Social Security and a pension.

It’s hard putting hundreds of dollars into my 401(k) every two weeks only to watch it seemingly disappear. Would it be smart to decrease the percentage I contribute by 5% to 7% and then use that extra money to pay down a $40,000 home equity line of credit? Or should I just stay the course, keep my percentage the same and ride out this bear market?

Answer: Since you’re within 10 years of retirement, it’s time to hire a fee-only financial planner to get specific, individualized advice about your situation. The decisions you make in the years immediately before and after retirement can have a huge impact on how long your money lasts. Mistakes made in this time frame can be difficult if not impossible to reverse.

Take, for example, this impulse to reduce your contribution rate. Your money isn’t disappearing; it’s being used to buy stocks at a discount. When the market rebounds, as it inevitably will, those shares you bought on sale will benefit from the growth.

A planner would tell you not to cut retirement contributions simply because stocks had entered a bear market. The logical response to a bear market is to invest more, not less.

That said, variable rate debt is getting more expensive thanks to Federal Reserve Bank rate hikes. Reducing your 401(k) contributions a few percentage points to pay off that debt faster could make sense, especially if you’re not giving up free money in the form of a company match and your reduced savings rate will still allow you to retire on time.

Again, a fee-only financial planner could help you weigh your options and recommend the best path.

This week’s money news

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This week’s top story: Smart Money podcast on what the Fed news means for you, and choosing a new bank. In other news: October mortgage rates that will continue to rise, 3 common types o f life insurance fraud and how to stay savvy, and Medicare Part B 2023 premiums dip, bucking inflation trends.

Smart Money Podcast: What the Fed News Means for You, and Choosing a New Bank
This week’s episode starts with a discussion about the Fed’s most recent interest rate hike.

October Mortgage Rates Will Continue to Rise, Haunting Home Buyers
Mortgage interest rates will likely rise in October as lenders contend with the Federal Reserve’s more aggressive stance.

3 Common Types of Life Insurance Fraud — and How to Stay Savvy
Misleading a life insurance company might mean your loved ones never see the money you intended for them.

Medicare Part B 2023 Premiums Dip, Bucking Inflation Trends
Medicare beneficiaries will save a little over $5 per month on Medicare Part B compared to the previous year.

How to cultivate a happier retirement

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Researchers have identified several factors besides money that contribute to a happier retirement, including good health, strong relationships and a sense of purpose.

But setbacks are inevitable, in life and in retirement. Not everyone enjoys good health — and no one enjoys it forever. Loved ones die or move away. The pursuits you thought would give your life meaning may not, or may not be possible: Think of all the activities and plans canceled because of the pandemic.

Yet many retirees continue to be happy despite difficulties. In my latest for the Associated Press, learn how to cultivate a happier retirement.

Monday’s need-to-know money news

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Today’s top story: Smart Money Podcast on beating money procrastination, and when to unfreeze credit. In other news: 5 ways small businesses can offset high gas prices, how to shop on TikTok without overpaying, and the cost difference between using LED and incandescent lightbulbs.

Smart Money Podcast: Beating Money Procrastination, and When to Unfreeze Credit
This week’s episode starts with a discussion about how to stop putting off financial decisions.

5 Ways Small Businesses Can Offset High Gas Prices
Financial forecasting and energy efficiency improvements can help small businesses save money, regardless of how gas prices change.

How to Shop on TikTok Without Overpaying
Not everything for sale on the app is a good deal.

The Cost Difference Between Using LED and Incandescent Lightbulbs
What to know in order to save on your energy bills.

Q&A: Can someone who has remarried claim survivor benefits from a deceased former husband?

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Dear Liz: Can someone who has remarried claim survivor benefits from a deceased former husband?

Answer: Possibly, if the marriage lasted at least 10 years, the divorce occurred at least two years ago and she remarried at age 60 or later.

Divorced survivor benefits can be up to 100% of the former husband’s benefit. The amount would be reduced if the ex-wife applies before her own full retirement age, which is currently between 66 and 67. (Survivor benefits could be further reduced or even eliminated if the ex-wife receives a pension from a job that didn’t pay into Social Security, under the “government pension offset” rules.) If the ex-wife has earned a Social Security benefit of her own, she would get the larger of the two checks rather than both amounts.

The rules for divorced survivor benefits are different from those for divorced spousal benefits. Divorced spousal benefits may be available while the ex-husband is still alive, but only if the ex-wife hasn’t remarried. Also, divorced spousal benefits max out at 50% of the ex-husband’s benefit.

Q&A: An online bank didn’t want this reader’s deposit. Now what?

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Dear Liz: I recently tried to open a high-yield, one-year certificate of deposit at an online bank. I already have one CD with this bank, but when I went to submit the form for the new account, I got a message on the screen that the bank had denied my request. I called the bank’s customer service line, but the rep said she could not give me any reasons as to why they denied my application.

I checked my three credit reports and everything is in order. The only thing I can think of was that I recently had a balance on one credit card that went slightly over 30% of my credit availability, but I paid that off in full. I did some research online and another reason might be that withdrawals from other bank accounts are appearing on my credit report. I have made some regular withdrawals recently from one of my money market accounts.

Why would a bank deny a customer giving them a large amount of money, so they could loan it out at the higher interest rates and make money? If I knew the reason for the denial, I could fix it. Is there a federal banking rights organization where I can dispute this denial?

Answer: You can file a complaint with the Consumer Financial Protection Bureau, which promises to work with your bank to resolve your issue. You also could file a complaint with the bank’s regulator, but there’s no guarantee you’ll get a response.

The denial probably wasn’t due to the information in your credit reports. A bank may check your credit before allowing you to open a new account, but you wouldn’t be denied because you used more than 30% of your credit limit. Bank transactions typically aren’t recorded in your credit reports, so that wouldn’t be a reason for denial, either.

The bank is required to send you an “adverse action” notice if it used your credit report or another consumer database to deny your application. That notice should explain the reason why, and the database it used.

It’s possible you encountered a technical glitch, or were trying to deposit more than the bank allowed for that account. Another possibility is that there were typos or errors in your online application. Whatever the case, the CFPB complaint should prompt a clearer response from the bank about what happened and what you can do to resolve the problem.