Ask Liz Weston

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Q&A

Q&A: Social Security benefits for children

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Dear Liz: My husband was 51 when our last child was born, meaning that our son was only 15 when my husband turned 66. Because I was working full time and we had sufficient income, we adhered to the traditional advice of delaying my husband’s Social Security payment. However, when he filed this past year at age 69, we learned that our son is eligible to receive a considerable monthly amount. Fortunately, the Social Security office was able to backdate my husband’s application for six months, but nevertheless we lost out on several thousand dollars by not filing when my husband was 66. Although his monthly payout would have been lower, the accumulated difference would have been considerable with our son’s payment. Therefore, although most retiring people do not have minor children, I believe that all financial advisors should be aware of this option and that those parents should plan carefully to maximize their payout.

Answer: More than 4 million children receive Social Security benefits because their parents are disabled or deceased or have reached retirement age. A child can receive up to half the parent’s disability or retirement check. If the parent dies, a child’s survivor benefit can be up to 75% of the parent’s basic benefit. (There’s a limit to how much a family can receive, though, which ranges from 150% to 180% of the parent’s check.) Benefits typically stop at age 18, although they can continue until two months past the child’s 19th birthday if the child is still in high school. Benefits can continue indefinitely if the child is disabled.

Children’s benefits can be subject to the same earnings test that reduces Social Security retirement checks if the parent claims early and continues working. So it often makes sense to wait to start benefits until the parent is full retirement age, currently 66, when the earnings test no longer applies. You’re right that delaying beyond that age may not make sense when the child is young enough to receive benefits, since they can considerably boost a family’s total benefit.

Having minor children at retirement age definitely complicates the calculation of when to take benefits. Many free Social Security claiming calculators don’t let you include minor children in your calculation, so if you’re in this situation it can be worth paying $40 to get a customized claiming strategy from calculators such as MaximizeMySocialSecurity.com.

Q&A: Changing the executor of a will

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Dear Liz: You recently wrote about a stepmom who dismissed her deceased husband’s son as an executor. Sometimes a will provides that someone such as the surviving spouse can alter the executor pattern. This is done to keep the children in line.

Answer: That’s certainly a possibility. But if that’s the case, the stepmother could simply show at least that portion of the will to the other children to allay their fears. The fact that she hasn’t shared the will, which should be a public record at some point, is reason for concern.

Q&A: Why surviving spouses aren’t always entitled to Social Security benefits

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Dear Liz: I am confused. I thought all wives were entitled to Social Security if the husband’s earnings qualified. My husband is deceased and he received a larger Social Security benefit than I because he worked longer in a qualified system. We were married almost 49 years. Most of my earnings are from a job that didn’t pay into Social Security. I was told because I had a high retirement income, I could not qualify for a percentage of my husband’s benefit. I didn’t know there was an income basis for Social Security. My income was severely reduced when he died. I appreciate any resource in understanding Social Security you could provide.

Answer: It sounds like your survivor’s benefits were eliminated by something known as the “government pension offset,” or GPO. While this sounds draconian, the GPO is actually meant to ensure that people in your situation don’t wind up getting a bigger benefit than people who paid into the Social Security system.

If you had paid into Social Security, you would get the larger of either your own benefit or your husband’s after his death. You wouldn’t be able to continue receiving both checks. Since you’re receiving a government pension from outside the Social Security system, you would be receiving much more than a typical survivor if you could keep that pension AND get your husband’s check. The GPO reduces your survivor benefit by two-thirds of your government pension to compensate. If your pension is big enough to completely eliminate your survivor’s benefit, that means you’re still better off than you would have been just receiving your husband’s check.

Q&A: Effects of closing credit card accounts

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Dear Liz: I would like to know how to close credit card accounts and not get a bad credit rating for doing so. We are trying to improve our credit after filing for bankruptcy seven years ago.

Answer: If you’re trying to improve your credit, then avoid closing credit accounts. Doing so can’t help your scores and may hurt them. Credit-scoring formulas are sensitive to how much of your available credit you’re using. The formulas like to see a wide gap between your credit limits and the amount you charge, both on individual cards and in the aggregate. When you close an account, you reduce your available credit, which narrows that gap and can ding your scores.

If you want to speed up your recovery from the bankruptcy, continue using the cards lightly but regularly and paying the balances in full every month. Make sure to pay all your bills on time so that a skipped payment doesn’t undo all the progress you’ve made. Review your credit reports and dispute any errors, including accounts that were included in the bankruptcy but are still showing up as active debts.

That doesn’t mean you can never close unwanted credit accounts. You just don’t want to do so now, or when you’re in the market for a major loan. You can close an account or two once your scores are in the high 700s on the 300-to-850 FICO scale and you don’t plan to apply for credit in the near future.

Q&A: Stepmom alters terms of dad’s will

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Dear Liz: My father recently passed away and his will named my stepmom’s daughter as executor along with my brother. My stepmother just informed my brother that she removed him from that role, telling him it’s easier to just leave her daughter as the executor as she lives much closer. Is this legal to remove him after my father’s death? The rest of his five children have not been able to see that will.

Answer: Your stepmother doesn’t get to alter the terms of your dad’s will after his death. As mentioned in a previous column, a probate case should be opened in the county where your dad died and the will is among the paperwork that should be included in that case. It would become public record at that point so you would all be able to read it.

Your stepmother’s unwillingness to play by the rules indicates that you may need some legal help to make sure your dad’s wishes are carried out. The five of you should consult a probate attorney.

Q&A: How to avoid hiring a Madoff-like financial advisor

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Dear Liz: What is the best way to pick a financial advisor to make sure they don’t make off with all your retirement money? I don’t want Bernie Madoff handling my retirement savings.

Answer: Even if you turn over day-to-day investment decisions to an advisor, you should make sure your money is invested at an independent custodian such as a nationally known brokerage or mutual fund company. That won’t immunize you from fraud, but Ponzi schemes are a lot harder to pull off when there’s third-party oversight.

Returns that are too good to be true, investments that you don’t understand or pressure from an advisor to invest are other red flags for fraud.

Protecting yourself from fraud is important, but so is protecting yourself from bad or conflicted advice. You need to check out any advisor thoroughly. Ask about experience, credentials and other qualifications. Find out how they get paid. Fee-only advisors are compensated only by the fees their clients pay and don’t accept any commissions for recommending products. Fee-based advisors, by contrast, may accept fees and commissions.

Your advisor should be willing to sign a fiduciary oath to put your interests first. That’s not currently required. Advisors can put you in expensive or underperforming investments just because those options pay them higher commissions and there’s little legal recourse for investors unless they can prove that the investments were clearly unsuitable for their situation.

Starting next year, advisors will be held to a fiduciary standard when counseling clients about retirement funds. There’s no reason you should wait for that rule to kick in, though. You can download a copy of a fiduciary oath for your advisor to sign at www.thefiduciarystandard.org.