Ask Liz Weston

Get smart with your money

Q&A

Q&A: Retirement planning needs expert help

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Dear Liz: I am about to retire and have had to make some very important decisions: How should I receive my company pension, when should we start taking Social Security, should we convert some IRAs to Roths, how to best cover our healthcare needs and what the best ways are to manage our tax bill. I think we are OK and on track, but I worry about people who don’t have a college degree and who have not studied these issues trying to make similar decisions. I think it’s scary and we should do more to help people secure their retirement.

Answer: You’re quite right that retirement involves a number of complex choices, many of which are irreversible. It’s easy to make the wrong decisions, even if you do have a college degree and think you know what you’re doing.

Everyone approaching retirement should realize that they don’t know what they don’t know, and if possible seek out an expert, objective second opinion on their retirement plans to ensure they’re making the best possible choices.

Q&A: Don’t value credit rewards over scores

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Dear Liz: You’ve advised people that “it’s important to keep your credit utilization down, even if you pay in full (as you should).” That may be good advice regarding one’s credit score, but there is another perspective. Although we pay in full every month (and have paid no credit card interest since 1971), charging almost every purchase or expense has earned us three pairs of round-trip frequent flier miles tickets to Paris — one pair first class and the other two business class — in the last 15 years.

Answer: Maximizing rewards shouldn’t come at the cost of your credit scores, particularly if you want to qualify for future cards that offer tempting sign-up bonuses. You can continue to charge away, as long as you either spread the charges across several cards or make two or three payments every month on each card you use to keep the balances from getting too high.

Q&A: Social Security strategies vary by age

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Dear Liz: My husband has been on Social Security disability since he was 61. He’s now 69 and receives $1,700 a month. I will be turning 66 next year. I still work and want to file for spousal benefits, which would be half of his benefit, but I’m not sure what the best option is. I know I would get $850 a month until I turn 70, when I would get my maximum retirement benefit. Or do I file for my retirement benefit now, which is more than half of my husband’s?

Answer: Since you were born before Jan. 1, 1954, you still have the option of filing a restricted application at 66 for spousal benefits only and then switching to your own retirement benefit when it maxes out at age 70. Since it’s still available for you, you’ll probably want to take advantage of it since you’ll almost certainly get more in total from Social Security that way.

People born Jan. 1, 1954, and later won’t be able to file restricted applications for spousal benefits. Instead, when they apply for benefits, their own retirement check will be compared to their spousal benefit and they’ll get the larger of the two amounts. They no longer have the option of applying just for spousal benefits and then switching to their own benefit later.

Since you’re the higher earner, it makes even more sense to put off taking your retirement benefit as long as possible. Not only will you probably maximize the amount you get, but you’ll also be maximizing the spousal benefit that one of you will have to live on when the other dies. (Remember that at death, one Social Security benefit disappears and the survivor must get by on the larger of the two.)

Q&A: Fear of a market meltdown has frozen this retiree’s money decisions

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Dear Liz: I sold my home two years ago and still have not done anything with my gain of $200,000. It’s in a one-year certificate of deposit so at least it’s earning something while I try to figure out what to do with it. I’m 66, retired and have an IRA of $500,000 that’s invested in the market. I get $1,450 from that plus a monthly Social Security check of $1,750.

I know that my hesitation has to do with the crash of 2008. I know that things have recovered nicely but I just don’t want to feel like I did then, watching my money disappear. I don’t know if I’m the only older person who has this fear of riding it out again.

Answer: Few who watched their portfolios plunge in 2008-09 look forward to experiencing that again. But risk is inextricably tied to reward. If you want the reward of inflation-beating returns that stocks offer, you must accept the risk that your portfolio can go down as well as up.

And you probably do want that reward for a big chunk of your investments. Retirees typically need about half of their portfolio in stocks to generate the kinds of returns that will preserve their buying power and help insulate them against running short of money.

That doesn’t mean all your money has to be at risk. You still need to have a good stash of savings sitting in safe, liquid accounts to help you ride out any market downturns or emergencies. Financial planners often recommend that their retired clients keep six months’ worth of expenses in an emergency fund, and some like to see 12 months’ worth. Beyond that, though, your money probably should be working for you, not simply dwindling away to taxes and inflation.

If you find yourself unable to move forward with a plan for this money, consider hiring a fee-only financial planner who can help you review your options.

Q&A: Mysterious bank charge needs investigating

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Dear Liz: The other day I went to my credit union to withdraw $1,000 to pay for my sister’s burial. The bank teller kept $90 and gave me only $910. Is that done when a person withdraws cash from a bank account? I got very angry and complained to the manager of the bank, but to no avail. He did not do anything to try and get my money for me. I am a low-income senior citizen and appreciate any kind of advice you could give me.

Answer: It’s hard to imagine any legitimate bank fee that would take almost 10% of a cash withdrawal. In any case, the manager should have been able to explain why the money was taken. If the teller stole the money from you and the manager simply didn’t believe you, calling the police may have been an option. A count of the teller’s till might have revealed the discrepancy.

Consider returning to the credit union with a friend as a witness and asking the manager to explain why the teller kept $90 from your withdrawal. If the explanation doesn’t satisfy you, you can lodge a complaint with the credit union’s regulator. The National Credit Union Assn. regulates federal credit unions and can be found at NCUA.gov. For a state-chartered credit union, contact your state’s financial services regulator.

Q&A: One auto-pay misstep and her credit score falls off a cliff

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Dear Liz: I recently took a deduction in my Experian FICO score of more than 100 points due to a single late payment to my mortgage. My score of 810 dropped to 704.

The mortgage company notified me several months ago that my impound account would go up $51 a month due to higher homeowners insurance premiums. I believed my auto-pay would adjust automatically as it used to, but that didn’t happen. About 10 days after it was “past due,” I received a letter saying I owed the $51 plus a $53 late fee. I promptly sent the money and asked that the late payment be deleted from my credit reports. The mortgage company refused, saying they would not and could not because of federal regulations.

I am about to get a mortgage loan to buy my daughter’s house, but now the rate will be at least 1 percentage point higher. Why would FICO scores drop over 100 points on one late payment? Anything I can do about this? How long will it be before my FICO scores are above at least 750 if there are no more late payments and my credit utilization stays below 10%?

Answer: “Federal regulations” can be a convenient punching bag for financial services companies, but they don’t prevent a lender or mortgage servicing company from deleting a late-payment notification for a good customer. The company should own up to the fact that this is its policy, not something imposed by the feds.

Your experience does show the potential downside of automatic payments and of impound accounts. (For those who don’t have impound accounts: They’re an arrangement by which the mortgage company collects payments for insurance and property taxes.) They can be enormously helpful when everything goes right, but they’re not “set it and forget it.”

Ideally, you would have made a note on your calendar to check that the larger payment was made on time and been able to quickly correct the error. There’s not much you can do now except ensure that all your bills are paid in full and on time from now on. It may take up to three years of stellar credit-handling behavior for your scores to break 800 again. Credit scores are like mountains — you can fall pretty quickly, but it takes a long time to regain lost ground.

The scores are extremely sensitive to late payments because that’s often the first sign of financial troubles that will end up in defaults, collections and bankruptcy. Credit reports and credit scores make no distinction between a late payment caused by human error versus one caused by lack of funds.