July 16, 2013 By

Is moving in with Mom unfair?

Dear Liz: I just read your reply to the woman who was struggling to make ends meet with her part-time job. She was wondering whether she should sell her house and move in with her mother. I couldn’t get to my computer fast enough to ask you how on Earth you can recommend with a clear conscience that someone move back in with a parent because she can’t pay her bills.

Why should she be able to mooch off Mom and expect her to take her Social Security check to pick up the slack? I was in basically the same situation when I was 39, except that I had three kids and my ex passed away within a week of our divorce, so I got no child support. I still managed to find a full-time job, maybe not the job of my dreams, but it paid well and allowed me to keep the house and continue to raise the kids. I built up a good retirement, which I felt I had earned and was enjoying very much, until my adult son went through a bad divorce and “temporarily” moved himself back into my home.

I’ve tried to help him get back on his feet and moving again, but so far all that has happened is my credit cards are getting out of control, my home equity line of credit is maxed out, my property has been damaged, and my life is now miserable, as I share my once-lovely home with an ungrateful jerk, his girlfriend and three cats. I can’t figure out how to get him out, and I can see no end in sight. I’m not saying this woman would do the same, but it’s still not fair to expect her mom’s life to be disrupted, no matter how nice the lady is.

Answer: The other reader was considering going back to school to get training that would qualify her for a full-time job. Selling her home and moving in with her mother would allow her to keep her current part-time job while she went to school. There was no suggestion that Mom would pick up her bills — only that she would share her home for a finite period.

So the other reader’s situation probably isn’t like yours. But perhaps it’s easier to get mad at a stranger than to acknowledge that you helped create this mess and you’re the only one who can fix it.

Schedule a meeting with an attorney familiar with landlord-tenant laws in your state so you’ll understand the best way to evict your freeloader. Then do.

Perhaps your parents did a better job of setting boundaries with you than you did with your son, but it’s not too late to reclaim your retirement, your house and your life.

Filed Under: Q&A, Saving Money Tagged With: , , ,
July 9, 2013 By

Co-signing card leads to collectors’ calls

Dear Liz: I co-signed a credit card for someone and the person defaulted on payment. I started making payments but could not continue because I became unemployed. The debt started at $15,631.23 but has gone up to $17,088.08 because of interest and fees. I previously had to go to court because my bank account was frozen. I recently got a notice about this again. Should I file for bankruptcy or try contacting the attorneys who are seeking payment? I am working part-time and have a tight budget. I don’t have anything saved and am living from paycheck to paycheck.

Answer: You should have gone to a bankruptcy attorney the first time you got sued.

Many people try to ignore their debts or hope that collection agencies will be lenient. That’s not a good strategy at a time when collectors are increasingly willing to file lawsuits to get paid, said Gerri Detweiler, director of consumer education for Credit.com. Once collectors have a judgment against you, they can freeze your bank accounts or garnishee your paycheck.

If you don’t have anything saved and can’t come up with any money for payments, you have little leverage in dealing with a collection agency. Bankruptcy may be your only recourse to get these collection efforts to stop.

A bankruptcy attorney can let you know whether you are “judgment proof,” which basically means that you have and make too little for a creditor to collect on any judgments. If you are judgment proof, you may not need to file for bankruptcy, but you may have to deal with frozen accounts and regular trips to court when a collector oversteps.

You can get a referral from the National Assn. of Consumer Bankruptcy Attorneys at http://www.nacba.org.

The only silver lining of this situation is that you’ve provided other people with a clear lesson in why they shouldn’t co-sign a credit card or any other loan for someone else.

Filed Under: Bankruptcy, Credit & Debt, Credit Cards, Q&A Tagged With: , , , , ,
July 9, 2013 By

How much should you spend on rent?

Dear Liz: I am wondering about what percentage of your income should your rent be. Ours at the moment is 35% just for rent, not including utilities or anything else.

Answer: In high-cost areas, people regularly pay 40% or more of their income on housing. That doesn’t mean it’s a good idea.

When you spend a big chunk of your income on rent or mortgage payments, there’s often too little left over to save for the future, pay off the debt of your past and live for today.

There are no hard-and-fast rules for what’s affordable, but limiting your housing costs to about 25% of your gross pay or 30% of your after-tax pay will help ensure that you have money left over for other goals. “Housing costs” include rent, utilities and renter’s insurance if you don’t own, or mortgage, property taxes, property insurance and utilities if you do.

If you’re much over these limits, you should look into ways to reduce your costs, earn more income or both. Otherwise, you’re likely to continue to struggle with an unbalanced budget.

Filed Under: Budgeting, Q&A Tagged With: , ,
July 9, 2013 By

Divorced? You may qualify for half of ex’s Social Security

Dear Liz: Many years ago I read about spousal benefits based on an ex-spouse’s Social Security earnings record. Is there a minimum length of time of the marriage to qualify? How do I apply for this benefit? I am within nine months of retirement.

Answer: You can qualify for Social Security spousal benefits based on an ex’s work record as long as:

•The marriage lasted 10 years or more.

•You are 62 or older and unmarried.

•Your ex-spouse is eligible to begin receiving his or her own Social Security benefit (even if he or she hasn’t applied yet).

•Your own benefit is less than the spousal benefit you would get based on his or her work record.

Any benefits you receive based on his or her record won’t affect what your ex receives, or what his or her current or other former spouses receive.

As with regular spousal benefits, the amount you get will be permanently discounted if you apply before you’ve reached your own full retirement age (which is currently 66 and will climb to 67 in a few years).

Filed Under: Q&A, Retirement Tagged With: , , ,
July 2, 2013 By

Tuesday’s need-to-know money news

Champagne glassesFinancial survival tips for before the wedding and after the marriage ends, freedom from credit card debt, and beating the retirement clock.

Engaged? You Might Need Money Therapy
Things you should know before you walk down the aisle.

How Does Divorce Affect Bankruptcy and Mortgage
Things you should know for when the walk down the aisle fails.

Declare Your Independence From Credit Card Debt
Life, liberty and the pursuit of zero debt.

How to Get Help From a Student Loan Mediator
Student loan battles don’t have to be fought alone.
What to Do When You Haven’t Saved Enough for Retirement
How to get by when time isn’t on your side.

Filed Under: Liz's Blog, Saving Money Tagged With: , , , , , ,
July 1, 2013 By

Save or pay debt? Do both

Dear Liz: I am a 67-year-old college instructor who plans to teach full time for at least eight more years. Last year I began collecting spousal benefits based on my ex-husband’s Social Security earnings record. Those benefits give me an extra $1,250 each month above my regular income. I have been using the money to pay down a home equity line of credit that I have on my condo. The credit line now has a balance of $29,000. I have about $200,000 in mutual funds and should have a small pension when I retire. (I went into teaching only a few years ago.) Would it be better for me to split the extra monthly $1,250 into investments as well as paying off my line of credit? The idea of having no loan on my condo appeals to me, but I wonder if I should try to invest in stocks and bonds instead.

Answer: Paying down debt is important, but opportunities to save in tax-advantaged retirement plans are typically more important. Fortunately, you probably have enough money to do both.

First investigate whether your college offers a 403(b) or other retirement program that offers a match. If it does, you should be contributing at least enough to that plan to get the full match.

Your next step is to explore an IRA. Since you’re covered by at least one retirement plan at work (your pension), you would be able to deduct a full IRA contribution only if your modified adjusted gross income as a single taxpayer is $59,000 or less in 2013. The ability to deduct a contribution phases out completely at $69,000.

If you can’t deduct your contribution, consider putting the money into a Roth IRA instead. Roth contributions aren’t deductible, but withdrawals in retirement are tax free. Having a bucket of tax-free money to draw upon in retirement can help you better manage your tax bill, which is why some investors opt to contribute to Roths even when they could get a deduction elsewhere.

People 50 and older can contribute up to $6,500 this year directly to a Roth if their income is under certain limits. (For singles, the limit for a full contribution is a modified adjusted gross income of $112,000 or less.) If your income is over the limit, you can contribute to a traditional IRA and then immediately convert the money into a Roth IRA, since there’s no income limit on conversions. (This is known as a “back door” Roth contribution.)

Since you’re so close to retirement, you don’t want to overdose on stocks, but you still need a significant amount of stock market exposure so that your money has a chance to offset future inflation. You might consider a balanced fund that invests 60% in stocks, 40% in bonds.

Once you’ve taken advantage of your retirement savings options, you can direct the rest of your Social Security benefit to paying off your home equity line. These credit lines typically have low but variable rates. Higher interest rates are likely in our future, so paying this line down over time is a prudent move.

Filed Under: Credit & Debt, Q&A, Retirement Tagged With: , , , , ,
July 1, 2013 By

Estate taxes no longer a worry for most people

Dear Liz: My father passed away two years ago and my mother recently died as well. I will be getting about $50,000 from the sale of their house. Everyone tells me the tax on this will be very high, so I need advice about how not to give my parents’ money to the government. Their grandchildren should be able to see a legacy of their grandparents.

Answer: You need to stop listening to “everyone,” since these people clearly don’t know what they’re talking about.

You have to be pretty rich to worry about estate taxes these days. The money you inherit wouldn’t be subject to federal estate taxes unless your parents’ estates exceeded the federal exemption limit (which is currently more than $5 million per person). Some states have lower limits and a few have “inheritance taxes,” which base the tax rate on who is inheriting (spouses are typically exempt, and lineal descendants such as children pay a lower rate than others).

The vast majority of inheritors, however, won’t face any of these taxes. You should check with a tax pro, but chances are good your inheritance won’t incur a tax bill and you’ll be able to pass the entire amount along to your children without taxes as well if you wish.

Filed Under: Estate planning, Q&A, Saving Money, Taxes Tagged With: , ,
June 28, 2013 By

Friday’s need-to-know money news

HertzThe best place to rent a car for your summer road trip, six surprises that could ruin your retirement and how baby boomers can keep their identities safe both online and off.

The Best Car Rental Agency in America
Before you hit the road this summer, find out who has the best rental policies.

Insider Shopping Tips From a Grocery Store Cashier
How to get more for your dollar at the supermarket.

Don’t Let These Six Surprises Ruin Your Retirement
Rule No. 1: Expect the Unexpected

Homeowner Tax Breaks Not as Great as You Think
Tax breaks always sound good, but they don’t always pay off.

How Boomers Can Keep Their Identities Safe
Simple tips to protect your identity.

Filed Under: Liz's Blog, Saving Money Tagged With: , , , , , ,
June 24, 2013 By

Monday’s need-to-know money news

The hackerProtecting your finances online, helping your kids build their credit and when to start saving for retirement.

FBI Warns of New ‘Wire Transfer’ Scheme
How to keep your money safe from internet thieves.

How to Dispute a Credit Card Charge
The easiest ways to get your money back.

How Young People Can Begin to Build Credit
Sharing your credit could just be the best way to start.

7 Retirement Decisions that Affect the Rest of Your Life
When you start saving could make the difference forty years down the line.

Filed Under: Liz's Blog, Saving Money Tagged With: , , ,
June 24, 2013 By

How much college savings is enough?

Dear Liz: My husband and I have three children, two in elementary school and one in middle school. Through saving and investing, we have amassed enough money to pay for each of them to go to a four-year college. In addition, we have invested 15% of our income every year toward retirement, have six months’ worth of emergency funds and have no debt aside from our mortgage and one car loan that will be paid off in a year. Considering that we have all the money we will need for college, should we move this money out of an investment fund and into something very low risk or continue to invest it, since we still have five years to go until our oldest goes to college and we can potentially make more money off of it?

Answer: Any time you’re within five years of a goal, you’d be smart to start taking money off the table — in other words, investing it more conservatively so you don’t risk a market downturn wiping you out just when you need the cash. The same is true when you have all the money you need for a goal. Why continue to shoulder risk if it’s not necessary?

You should question, though, whether you actually do have all the money your kids will need for college. College expenses can vary widely, from an average estimated student budget of $22,261 for an in-state, four-year public college to $43,289 for a private four-year institution, according to the College Board. Elite schools can cost even more, with a sticker price of $60,000 a year or more.

Another factor to consider is that it may take your children more than four years to complete their educations, particularly if they attend public schools where cutbacks have made it harder for students to get required courses in less than five years, and sometimes six.

So while you might want to start moving the oldest child’s college money into safer territory and dial back on the risks you’re taking with the younger children’s funds, you probably don’t want to exit the stock market entirely. A 50-50 mix of stocks and short-term bonds or cash could allow the younger children’s money some growth while offering a cushion against stock market swings.

A session with a fee-only financial planner could give you personalized advice for how to deploy this money.

Filed Under: College Savings, Kids & Money, Q&A Tagged With: , , , ,