Ask Liz Weston

Get smart with your money

Q&A

Q&A: How Social Security child benefits work

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Dear Liz: I am drawing Social Security and my daughter just turned 18. Will she lose her Social Security and can I claim my wife in her place?

Answer: Child benefits, which is what your daughter receives, are designed to help the dependent minor children of Social Security recipients who are retired, disabled or deceased.

If your daughter is still a full-time high school student, then her child benefit can continue until she graduates or turns 19, whichever comes first. Otherwise the benefit typically ends at 18. (A child 18 and over with a disability can continue to get child benefits, as long as the disability started before age 22.)

Child benefits are only for the unmarried children of Social Security recipients, so obviously your wife doesn’t qualify. She may be eligible for her own Social Security benefit if she’s at least 62, or a spousal benefit based on your work record if that’s larger than her own benefit. AARP has a free Social Security claiming calculator that could help her sort through her options.

Q&A: Plan for taxes after mortgage payoff

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Dear Liz: In a recent column, you answered a question from a couple who just paid off their mortgage. You suggested increasing retirement or emergency savings or possibly charitable contributions. All good, but you should have pointed out that the mortgage lender will not be responsible for paying the property tax and fire insurance going forward. I would suggest the couple open a separate account and build up a fund to pay those expenses or they could be facing financial hardship when the tax and insurance bills come.

Answer: Good point. Many homeowners are accustomed to paying their homeowners insurance and property taxes through escrow accounts set up by their mortgage lenders. Once the loan is paid off, these bills become the homeowners’ responsibility to pay.

Q&A: Social Security is insurance

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Dear Liz: My wife died in March 2020. I receive nothing from her Social Security (other than $255) and will receive only a portion of mine due to the windfall elimination provision. Is there anything I can do since I am receiving none of what she paid into Social Security and only a fraction of mine?

Answer: In a word, no. If you’re receiving a pension from a job that didn’t pay into Social Security, the government pension offset reduces any Social Security survivor or spousal benefit by two-thirds of the amount of your pension. If two-thirds of the amount of your pension is greater than your survivor benefit, you don’t get a survivor benefit.

Is that an outrage? Perhaps, if you think that Social Security should act like a retirement account. In reality, it’s insurance. (The formal name for Social Security is Old Age, Survivors and Disability Insurance.)

With a retirement account, what you take out usually bears some relationship to what you put in. With insurance, that’s not necessarily the case. You may take out more than you put in, less or nothing at all.

Many people pay Social Security taxes for decades but ultimately get more from a spousal or survivor benefit than from their own work record. Then there are those, like you, who have their retirement benefit reduced, or a survivor benefit eliminated, because they have a generous pension from a government job that didn’t pay into the Social Security system. In these cases, it can feel like the Social Security taxes paid — the “premiums,” if you will — have been wasted even if financially you’ve come out ahead.

Q&A: Trusts and wills aren’t the same thing. Here’s how they work

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Dear Liz: I understand what happens with a living trust when both spouses die at once. But what happens when just one dies? Is the trust tossed out, since the surviving spouse is usually the trustee? What about the stuff that the deceased wanted to go to his or her kids? And what about the wills? When does that get disbursed? Please explain how trusts and wills work, especially for blended families. I’m sure I’m not the only one with questions.

Answer: A complete answer would take many, many more words than this column allows, which is why you should consult a knowledgeable estate planning attorney who can give you personalized advice.

But in a nutshell, wills and living trusts are both documents that allow people to name who they want to get their property. The main difference is that living trusts avoid probate, the court process that otherwise follows death.

Living trusts are considered revocable, which means the creators can make changes during their lifetimes. At some point, though, the trust usually becomes irrevocable, which means changes no longer can be made.

If a single person makes a living trust, then the trust would become irrevocable when that person dies. With a married couple, part of the trust often becomes irrevocable when the first spouse dies, with the rest becoming irrevocable at the second spouse’s death.

Such a setup allows you to bequeath money and property to your kids if you’re the first to die, rather than hoping your surviving spouse — and potentially your surviving spouse’s future spouse — will do so later.

Q&A: Here’s a strategy to avoid going broke in retirement

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Dear Liz: A lot has been written about how much can safely be withdrawn from a balanced investment portfolio so that it will last a lifetime. A popular strategy is to withdraw a percentage, say 4%, in the first year and then increase that withdrawal each subsequent year by the rate of inflation.

What are your thoughts on an alternate strategy of withdrawing a fixed percentage, say 4%, at the beginning of each year? This has the disadvantage of providing a more variable income stream year to year but has the advantages of simplicity and it can never deplete the portfolio to zero.

Answer: Many retirees would find it hard to cope with incomes that swing wildly from one year to the next. One way to address that volatility is to ensure that retirees have enough guaranteed income — through Social Security, pensions and annuities — to cover their basic, must-have expenses. Retirement plan withdrawals then would provide for their “wants,” such as travel, meals out and so on.

Cutting back on the nice-to-haves isn’t easy, but it’s better than not having enough money to pay the mortgage or buy groceries.

This approach is the core of the “Spend Safely in Retirement Strategy,” created by retirement researchers Wade Pfau, Joe Tomlinson and Steve Vernon with the help of the Society of Actuaries and the Stanford Center on Longevity.

The strategy suggests maximizing Social Security and basing withdrawals on the IRS’ required minimum distribution percentages. Reports detailing the strategy and the research behind it are available on both organizations’ websites, and Vernon’s book “Don’t Go Broke in Retirement” explains the strategy in detail.

Of course, trying to eliminate any possibility of running short means that you may die with a whole lot of unspent money. That may be great news for your heirs, but sad for you if you denied yourself excessively while you were alive. Finding the right balance between security and spending is tough, to say the least.

Q&A: Don’t bother with max credit score

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Dear Liz: I am seeking your advice on how to maximize my credit score. Recently one of my cards was canceled for non-use, which reduced my available credit to $75,000. I use three other cards in rotation, never use more than 3% of my credit limits and always pay the balances off. I have made a few requests to have my credit limits increased in order to elevate my current 835 FICO score, only to be denied. I want to maintain as high a FICO score as possible (850). In order to do that I need to “play the game” … only I have no idea what the rules are! Could you please help me navigate this?

Answer: There is absolutely no practical benefit to having the highest possible credit score. You’ll get the best rates and terms once your scores are above the mid-700s on a 300-to-850 scale.

Regular readers can recite this next part by heart: Keep in mind that you don’t have one credit score. You have many, and they change all the time.

Even if you did hit 850 with one scoring formula from one credit bureau, you probably wouldn’t keep it for long or achieve the same number with all the other available scores.

You already know the most important credit rules: Use your cards regularly but lightly and pay your balances on time and in full every month. (Credit scoring formulas typically don’t “know” if you’re carrying a balance, so there’s no advantage in doing so.)

If you’re determined to hit 850, however, you could try using even less of your credit limit, applying for a new card to increase your available credit (the initial small ding to your scores would be short-lived) or simply waiting, since often the mere passage of time will add points to your scores.