Ask Liz Weston

Get smart with your money

Q&A

Q&A: Get help claiming Social Security

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Dear Liz: I read your column about the disabled woman who was asking about survivor benefits. I am 60 and my husband died when he was 65, but he was not receiving Social Security. We both paid into Social Security for our entire working careers and maxed out every year. I have been told that I can receive his benefits when I am 65. I wonder why I cannot collect his benefits now.

Answer: You can, but you may not want to if you’re still working and earning the kind of six-figure income needed to “max out” your Social Security taxes.

People who start Social Security benefits early are subject to an earnings test that withholds $1 in benefits for every $2 they earn above a certain amount, which in 2019 is $17,640. Social Security has a calculator to help you determine the effect on your benefit at https://www.ssa.gov/oact/cola/RTeffect.html. Your survivor’s benefit also will be reduced if you start it before your own full retirement age, which in your case is either 66 years and 8 months (if you were born in 1958) or 66 years and 10 months (if you were born in 1959).

Once you’ve reached full retirement age, however, the earnings test goes away, as does the reduction for starting benefits early. At that point, you could apply for full survivor benefits and leave your own retirement benefit alone to grow 8% each year until it maxes out at age 70. You can continue to work and receive benefits without facing any reductions.

Social Security can be astoundingly complex, and claiming decisions can be affected by a number of factors. AARP has a free Social Security claiming calculator, but it can’t deal with some situations such as survivor’s benefits, child benefits (for retirement-age people who have minor children) or the offsets associated with pensions that don’t pay into Social Security. For those, you would need to pay about $40 to use a more sophisticated calculator such as the one at MaximizeMySocialSecurity.com, or to consult a fee-only financial planner with experience in this area.

Q&A: Separated spouse is entitled to survivor benefits

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Dear Liz: I am a 57-year-old disabled woman whose only income is $500 a month in Supplemental Security Income. I was legally separated from my husband when he died at age 59. Can I collect Social Security from his account?

Answer: Most likely, yes.

To generate a survivor’s benefit, your husband would have had to pay into the Social Security system for a certain number of years. Younger people need to have worked fewer years than older ones to provide benefits for survivors, but no one needs to have paid in for more than 10 years.

Because your husband died before reaching retirement age, your survivor benefit would be based on what his retirement check would have been at his full retirement age (which would be 67, if he was born in 1960).

You could get 100% of that benefit if you wait until your own full retirement age to collect. Reduced benefits are typically available when a widow or widower turns 60. Survivors who are disabled can start benefits as early as age 50, if the disability started before the death or within seven years.

If your marriage had ended in divorce, you could still have qualified for survivor’s benefits as long as the marriage lasted at least 10 years. (If a marriage lasted that long and the ex is still alive, a divorced spouse can qualify for spousal benefits, which are up to half the ex’s benefit.)

With survivor benefits, you have the option of switching to your own retirement benefit later, if it’s larger, or of switching from your own benefit to a survivor’s benefit, should that be the better deal.

Q&A: When is it time to take the money and run to a new investment advisor?

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Dear Liz: My wife and I are in our early 30s. She has a stock portfolio that has positions in 20 blue chip stocks purchased primarily in the last 20 years. It was set up by her family and managed by a family friend at a large brokerage. Recently, the family friend retired and transitioned the portfolio to a new team at this brokerage. They basically told us that our portfolio underperformed and only saw an average of 3% growth per year over the last 20 years.

The new brokerage team is recommending we gradually transition our 20 positions into a portfolio of 300 stocks that will mirror an index. They would harvest any tax losses to offset the capital gains tax that would otherwise be due. They will charge a 1% fee, and after several years, we will probably have a portfolio that is entirely small positions in a huge number of companies.

My gut reaction was that if they want to mirror an index, why not just buy an index fund with cash freed up from tax-loss harvesting? My wife really feels most comfortable doing whatever her parents recommend and is overwhelmed by what I call advanced investing but wants us to make this decision together.

Answer: If your wife is being charged a 1% annual fee, she should be getting a heck of a lot more than investment management. One percent is the typical fee charged by comprehensive financial planners who offer a wide array of services including retirement, tax, investment, insurance and estate planning. If her portfolio is more than $1 million, the fee probably would be even lower.

Another, larger problem is that the new team of stockbrokers probably does not have a fiduciary duty to your wife. In other words, they’re allowed to recommend a course of action that is more profitable for them, even if there are better-performing and less-expensive options available. That, more than anything else, should be motivating her to find a new advisor who is willing to be a fiduciary.

You can help in a number of ways, starting with the advisor search. The National Assn. of Personal Financial Advisors, the XY Planning Network and the Garrett Planning Network all represent fee-only planners and can offer referrals.

You also can encourage your wife to educate herself about investing, since (as you know) it’s not rocket science and she needs to know the basics to responsibly handle her money. Relying on her family’s influence has left her with an undiversified, underperforming portfolio — and delivered her into the hands of people who probably don’t have her best interests at heart. It’s time to grow up and take charge.

Finally, you can stop referring to it as “our” portfolio. It’s lovely that she wants to share it with you, but the money is hers and she needs to take ownership.

Q&A: Timing spousal benefits

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Dear Liz: My wife, who is 59, lost her job and has been unable to find a new one. Can she file for Social Security spousal benefits at 62? I plan to continue working.

Answer: For her to receive spousal benefits, you need to be receiving your own benefits. If you’re not yet 62, the youngest age at which you can claim retirement benefits, then her only option would be to file for her own benefit.

That may be the right course in any case. If you’re the bigger earner, it often makes sense for you to put off filing as long as possible to maximize not just your own check but the survivor’s benefit that one of you will have to live on once the other dies.

You can start your research into the best claiming strategy by using free calculators, such as AARP’s Social Security calculator or Open Social Security. If your situation is at all complicated — you have a minor child or a pension from a job that didn’t pay into Social Security — then consider paying about $40 to use a more sophisticated calculator, such as Maximize My Social Security, or consulting with a fee-only financial planner.

Q&A: Mom’s 94; one son handles her money, another wants more access to it

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Dear Liz: I have two younger brothers, and the youngest was chosen as the executor of our widowed mother’s estate. The problem is that he doesn’t understand financials. Mom is 94. Her entire estate is invested in blue-chip stocks. The portfolio was carefully planned by our uncle and closely tracks the Dow Jones industrial average. With her present holdings, she has enough to live indefinitely in her nursing home.

Her portfolio is up 40% in the last two years, but my brother is worried that the stock market is going to crash. She could give me up to $15,000 a year, but he’s telling her $500 a month for each brother is good. I’m a retired electrical engineer and have managed contracts for the military worth many millions of dollars. Can I challenge my brother’s ability to manage our mother’s finances?

Answer: Sure, if you want to open up an all-out family war at this stage of your life. A better approach might be a collaborative one, in which the three brothers seek outside, expert advice to handle Mom’s affairs.

You might have been terrific at managing military contracts, but that doesn’t give you the background in taxes, estate planning and investment management that’s required in this situation. You may be overestimating how much her portfolio has grown — the Dow is up about 25% in the last two years, not 40% — while underestimating both the risk of a downturn and the effect of larger withdrawals.

Your brother, meanwhile, is understandably concerned about a portfolio that’s 100% invested in stocks. That would be a lot of risk, even if your mom had decades to ride out any downturn (which, obviously, she doesn’t). Remember that the stock market lost roughly half its value a decade ago and lost about 90% during the Great Depression.

If your mom’s portfolio could take such a hit and still produce enough for her to live on, then larger distributions might make sense. Maximizing the annual gift tax exclusion, which allows her to give away $15,000 a person without filing gift tax returns, may be desirable if her estate is worth more than $11 million and could be subject to estate taxes. If she’s not wealthy, though, distributing $45,000 each year to three of you could increase her risk of running out of money.

A fee-only financial planner could analyze that risk and recommend a prudent course of action. The planner also could help arrange the necessary documents that would allow your brother to manage your mom’s financial affairs. Right now, it’s not clear whether those are in place.

Your brother is not yet the executor, because your mother is still alive and executors are in charge of distributing an estate after someone dies. If she wants him to make decisions for her should she become incapacitated, she should give him her power of attorney or name him as the successor trustee of her living trust. Otherwise, he probably would need to go to court to be named conservator.

It may rankle that your mom put him in charge of her estate, rather than you. If he’s trustworthy, though, you should put aside the idea of challenging him for control, especially if your main motivation is to get your inheritance early. Instead, offer to assist him in finding the professional advice he needs to help your mother and work together to make sure her remaining years are as free of family drama as possible.

Q&A: Take a look behind the credit-score numbers game

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Dear Liz: I recently got an email from my credit card issuer stating my credit score had just dropped 21 points. Having a good credit score and not aware of any recent adverse actions, my first reaction was alarm.

Checking with the issuer online, I saw only advertisements for “protect your credit” services, so I phoned. I was informed the numbers came from Equifax credit bureau. I contacted Equifax as well as TransUnion and Experian, which resulted only in more offers of products to protect my credit. I downloaded my free credit reports from AnnualCreditReport.com and found nothing suspicious. I was finally directed to FICO, but an email sent more than a month ago remains unanswered.

Is it legal for these companies to market their products through presumably fictitious or even fraudulent means? What is the best way to find out my true credit score? Can my credit score suffer because I ask these questions in a public forum?

Answer: Knowing a little more about how credit scoring works may put your mind at ease.

There is no one “true” credit score. Lenders and other companies use many different kinds. FICO is the leading credit scoring company and the FICO 8 is the most commonly used score, but many companies use older versions or ones modified for their specific industry (such as the FICO Auto Score 5, for example). Plus, your FICO 8 from Experian may be different from your FICO 8 from TransUnion or Equifax because the scores are based on the information in your credit bureau files and the bureaus are separate, competing businesses that don’t always have the same information.

Then there’s the VantageScore, a rival to the FICO, which is used by some lenders and by many sites that offer people their credit scores for free. The VantageScore formula is different from the FICO formula, so your numbers could be different as well.

All these credit scores, however, are created solely using the information in your credit reports. Your income, gender, address, political opinions, computer operating system and online comments are not included in credit score calculations.

Some people are understandably confused about that. Various start-ups and researchers have suggested that non-credit information — such as information gleaned from someone’s social media postings or online surveys — could replace credit information in loan decisions. But the U.S. has fair credit reporting laws that probably would make such alternatives unworkable. (It would be nice if start-ups checked to see what regulations apply to their industry before sending out press releases, but that doesn’t always happen.)

Given that you didn’t see anything obviously wrong on your credit reports, you don’t need to worry too much. The credit score drop you describe might be because you charged more on a credit card than usual, had a credit limit lowered or applied for a bunch of credit in a short period of time. It probably will reverse itself over time.

Alerting you to credit score changes isn’t an illegal practice, even if the company’s primary purpose in keeping you up to date is to market credit-monitoring services to you. (Credit protection is a misnomer because these services can’t prevent identity theft. They can only alert you if it’s already happened.)

You did exactly what you should have done when you were alerted to the point drop — you went to AnnualCreditReport.com and checked your credit reports. If you want to put your mind further at ease, consider freezing your credit, a process that could prevent identity thieves from opening new accounts in your name.