Get smart with your money
By Liz Weston
Dear Liz: If someone is currently receiving Social Security disability payments, does the monthly dollar benefit change when they reach age 62 or at full retirement age?
Answer: Social Security disability payments convert to a retirement benefit when the recipient reaches their full retirement age, which is currently 67. The dollar amount doesn’t change, although recipients continue to get cost-of-living adjustments.
By Liz Weston
Dear Liz: I have my homeowners and auto insurance with the auto club. For the past few years, I have called them about their $59 yearly membership fee. I advised them that I did not need any of their services, as my last three new cars have their own roadside service. I was shocked to find out that if I do not pay the $59 membership fee, my home and auto insurance will be canceled.
How is this legal, and why must I buy something I do not need to be covered for home and auto insurance? Also, I cannot pay my home and auto insurance by credit card so I can get my points. Again, is this legal?
Answer: Yes and yes.
The answer to your first question is embedded in the phrase “membership fee.” The regional auto clubs that make up the American Automobile Assn. are mutual-benefit membership organizations created to provide products and services directly to their (wait for it) members.
In addition to roadside assistance and insurance, clubs typically offer travel planning, DMV services such as vehicle registration renewals, proprietary financial products and discounts on hotels, theme parks and movie tickets.
If you don’t want any of those things, then you don’t have to be a member. If you want access to your club’s insurance coverage, though, you’ll need to pony up.
As to your second question, businesses and organizations in the U.S. are typically free to determine which payment methods they’ll accept. If they don’t want to take credit cards, they don’t have to.
By Liz Weston
Dear Liz: I’ve been retired for 17 years due to illness. My wife has passed away. I know nothing about finances. She did it all. I have an IRA with my wife. I want to withdraw from it but not be penalized on taxes. I know there is a way, but I don’t know the proper way.
Answer: Please find a good tax professional to help you. Retirement accounts have a lot of rules and some stiff penalties if you get things wrong. Even people who know a lot about finances can get confused and make costly mistakes. Since you’re starting from zero, you’ll definitely want expert advice to guide you.
Let’s start with the fact that withdrawals from traditional retirement accounts are typically taxable. That’s only fair, since people usually get a tax break for putting money into the account and the balances grow tax-deferred for many years. At some point, Uncle Sam wants his due. Withdrawals from IRAs usually must start by a certain age (currently 73) and are added to your taxable income. You can face penalties if you don’t make these withdrawals on time. You’ll also face penalties if you try to tap retirement accounts too early (typically before age 59½).
Roth IRAs are the exception to these rules. You don’t get a tax break on contributions to a Roth, but withdrawals in retirement are typically tax free and there’s no requirement to make withdrawals by a certain age. Also, you can withdraw the money you contributed directly to a Roth IRA at any time without facing taxes or penalties.
You mentioned that you have this account “with” your late wife, but you can’t own an IRA with another person. If you’ve inherited your wife’s IRA, the rules about when you have to start taking withdrawals can vary. Again, you’ll want to consult a tax pro who can give you individualized guidance.
By Liz Weston
Dear Liz: I’m a widow about to go into independent living which means I will be selling my home. I need to find the best place to park my money to have payments to me but still earning on the balance. What would you suggest?
Answer: FDIC-insured savings accounts at online banks can earn a higher interest rate than typical brick-and-mortar banks while still giving you instant access to your money. Currently such banks are offering 3% to 4% annual percentage yields, compared to traditional banks which offer as little as .01%.
By Liz Weston
Dear Liz: Lately, I’ve encountered businesses charging a fee to use a credit card either online or at the point of service. This practice seems to be steadily increasing, as I have been hit with fees to use my credit card at my car repair shop, gym and restaurants. Gas stations have been doing this for years. The IRS also has a fee to pay taxes online with a credit card. Is there a federal or state law that prohibits this? Is it the banks that are reaping these fees from the consumers who use their credit cards to pay for goods and services? The fees are 1.5% to 3% of the total amount paid, but it is starting to add up.
Answer: Federal law doesn’t prohibit credit card surcharges. Some states do, including California, but California’s law was found to be unconstitutional and so is not enforced.
(Visa and MasterCard used to ban surcharges in their merchant agreements, but the card networks dropped that restriction in 2013 as part of a lawsuit settlement.)
These fees aren’t a profit grab by the banks but a way for merchants to recoup the costs of accepting credit cards. Merchants have to pay interchange fees to the bank that issued the card as well as payments to the credit card network and the company processing the transaction. Those costs typically equal 1.5% to 3.5% of the transaction.
Federal law does prohibit surcharges on cash, prepaid and debit card transactions, however. If you want to avoid the fees, you can opt for one of those methods or look for businesses that don’t add such surcharges.
By Liz Weston
Dear Liz: I was married 37 years. I claimed Social Security at 62 because I needed the monthly income. I learned too late that if I had waited a few more years, my payment would have been much better. They did tell me that if my ex died before me, I would be entitled to have my amount increased to what he was collecting. He probably will die before me due to some serious health problems. He has since remarried to a widow who is receiving Social Security. Does she become the one who collects my ex’s monthly amount if he dies before her, which would mean she would be collecting two checks a month? And I would lose my ability to have my amount increased? I just want to be prepared for what I can expect when/if he departs before me.
Answer: When people qualify for multiple benefits from Social Security, they get the largest of the amounts available to them. So if your ex’s wife is currently receiving her own or a survivor’s benefit and your ex’s benefit is bigger, she would get this larger check as her survivor’s benefit after his death. She wouldn’t be able to collect on two husbands’ earnings records at the same time.
And what she gets doesn’t affect what you get. Since your marriage lasted at least 10 years, you should be eligible for a divorced survivor benefit of up to 100% of your ex’s benefit. Your survivor benefit would only be reduced if you started it before your own full retirement age.
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