Ask Liz Weston

Get smart with your money

Q&A

Q&A: Different approaches to marital finances

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Dear Liz: Thank you for mentioning that many couples like to keep their finances entirely or mostly separate. Our solution was to create a joint bank account just for paying joint expenses, such as rent, food, entertainment together, vacations and so on. We each funded this account proportionately, based on our income (for example, the person earning 65% of the total income contributed 65% of the funds). Expenses, such as gifts to our separate children, entertainment on our own, car payments and all personal expenses were paid out of our own separate accounts. Each year at tax time, we’d revise the proportion of the joint account, if necessary, based on our separate tax return figures. It was so simple and tension-free. This was a second marriage for both of us, and we never had disagreements about money.

Answer: Congratulations for finding an approach that worked so well for both of you. As you demonstrate, there’s no one right way for couples to handle their money. Some prefer to have everything in joint accounts, others keep everything separate, and most are somewhere in between.

Q&A: To build credit, try this set-it-and-forget-it trick

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Dear Liz: I have little credit history and my Experian credit score is about 620. My wife has no credit history. We are in the process of increasing our creditworthiness. I have an unsecured credit card from my credit union. She will be getting a secured credit card. We will use these lightly and regularly, paying them off each month. Does using my credit card to pay a utility bill each month work for building credit?

Answer: Absolutely. As long as your credit cards report to all three credit bureaus, your on-time payments will build your scores.

To make things easier, you could set up a recurring charge and automatic payment. Utilities typically allow customers to pay their bills automatically with credit cards, and credit cards usually offer the option of paying automatically each month. You’re normally given three options: paying only the minimum, paying in full or paying a set dollar amount.

Recurring charges ensure your card shows regular activity, while automatic payment should eliminate the risk of missing a payment. A single skipped payment could be a significant blow to your credit scores.

Another option to consider is a credit builder loan, which many credit unions and community banks offer. Typically, the amount you borrow is placed into a savings account or certificate of deposit while you make payments.

When you’ve paid the loan in full, usually after 12 months, you claim the cash. The payments help build your credit, and the cash could be the start of an emergency fund.

Q&A: Delaying Social Security benefits

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Dear Liz: My wife is a retired schoolteacher who has a pension. Because she is subject to the government pension offset, she will not be eligible for my Social Security benefit when I pass. My plan was to wait until 70 to file to maximize my benefit. This usually has the advantage of also increasing the survivor benefit that a spouse would receive.

Considering the government pension offset would eliminate any benefit to her, is waiting until 70 still the best strategy? Do I view it as longevity insurance with the understanding that I, or my wife, may never receive a nickel from Social Security if I die before claiming?

Answer: As you know, it’s usually advisable for the higher earner in a couple to delay starting Social Security as long as possible, because that increases the survivor benefit one spouse will get after the other dies.

Waiting until 70, when your benefit maxes out, can still make sense. Most people will live past the “break even” age when the larger checks more than offset the forgone benefits. The average life expectancy for a 65-year-old male is another 18 years. If you’re well educated, higher income or have longevity in your family, your life expectancy is probably even longer.

Delaying Social Security also can help minimize the “tax torpedo.” This is a surge in marginal tax rates that affects middle-income households caused by the unique way Social Security benefits are taxed. Drawing from retirement accounts first and then starting Social Security at 70 can result in considerable tax savings.

Also, in today’s low-rate environment, there’s no other investment that promises a guaranteed 8% annual return, which is what you get by delaying Social Security after your full retirement age.

To see which claiming strategy makes sense, consider using a Social Security claiming calculator that can include government pension offset situations such as Maximize My Social Security or Social Security Solutions.

Q&A: An emergency kit document hack

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Dear Liz: Thanks for answering my question about storing hard copies of financial services records for emergency preparedness. My wife and I finally reached a compromise: We printed out our account numbers, but we attached code names to them that only we would recognize. Now both of us are comfortable that even though someone might have our account numbers, they’ll never know which financial institution to contact.

Answer: That’s a terrific compromise that keeps your important financial information accessible to you but not to an identity thief.

Q&A: Handling money after marriage can be complicated. Mom and Dad should butt out

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Dear Liz: My son just married. He and his wife are keeping totally separate finances, though he makes much more than she does. She is spending way more than she should on household items and services. Is this the new norm for relationships? What kind of professional do we contact that could help them with merging their finances?

Answer: You don’t contact any kind of professional. Your son and his wife can find help on their own. If your son starts complaining about his wife’s spending again, you might gently suggest that before changing the subject.

In answer to your first question, though, separate accounts aren’t the norm but they’re quite common. A 2018 Bank of America study found 28% of millennial couples kept their finances separate. Many prefer the sense of control and privacy that separate accounts offer.

But of course it’s still important for couples to work out budgets and joint goals together. That can take time, a lot of discussion and the willingness to compromise. It wouldn’t be fair for your son to dictate what they spend just because he makes more, just as it wouldn’t be fair for your daughter-in-law to purchase whatever she wants and assume he’ll chip in.

Again, however: It’s not your business, it’s theirs, and it will be better for all concerned if you keep out of it.

Q&A: IRMAA is not your friend

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Dear Liz: My wife and I retired in 2019 and ran into IRMAA — Medicare’s income-related monthly adjustment amount, which increased our monthly premiums. I thought I’d done such a good job budgeting for retirement but missed this. A lot of couples have their best income years at the end of their career and then get blindsided by the cost of Medicare and the adjustment based on their previous income. I will say that the folks at the local Social Security office were very helpful, and they supplied us with forms for an exception based on our new income.

Answer: IRMAA can boost premiums substantially for singles with yearly income above $87,000 and married couples with incomes above $174,000. The increases for Medicare Part B, which covers doctor’s visits, range from $57.80 to $347 a person per month. The surcharges for Part D, which pays for prescription drugs, start at $12.20 and top out at $76.40 a person per month.

The adjustments are based on your income two years prior (so 2018 income determines 2020 premiums). You can appeal the increase if you’ve experienced a life-changing event. Retirement with a subsequent drop in income can be one such event. So can other work stoppages or reductions, marriage or divorce, the death of a spouse, loss of income-producing property or loss of pension income.

Even without IRMAA, healthcare costs can catch many newly retired people by surprise, especially if they previously had generous employer-subsidized coverage. Medicare doesn’t cover everything; it has deductibles and co-pays in addition to premiums, and excludes most vision, hearing and dental expenses.

How much you pay out of pocket depends on your health, where you live and what supplemental coverage you buy. A study by Vanguard and Mercer Health and Benefits estimated that a typical 65-year-old woman in 2018 could expect to pay $5,200, but her costs could range from $3,000 to $26,200. (The researchers say a 65-year-old man’s costs are typically about 3% lower.)