Ask Liz Weston

Get smart with your money

Q&A

Q&A: Investing a windfall

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Dear Liz: My husband and I are retired and recently inherited a large sum of money. We already have money of our own invested and have a good income. Would a whole-life insurance policy based on an index account be a good place to put this money?

Answer: The insurance agent trying to sell you that policy certainly thinks so, because it’s an expensive product that would generate a substantial commission. You’d be smart to get a second opinion from a fee-only financial planner that doesn’t profit from the investments they recommend.

Q&A: Refinancing in your golden years

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Dear Liz: I just wanted to comment on a recent question about refinancing a mortgage in retirement. The writer wrote: “… at 67 and 72 years old, it’s unlikely that both of us will survive for another 15 years to pay off this loan.” This seems an old way of thinking about age. The obituaries in my paper are full of people who have lived into their 90s and even past 100 years old!

Answer: Good point. People often misjudge life expectancies, which over time have lengthened considerably. At 67, a typical female could expect to live nearly 19 more years, according to Social Security’s life expectancy tables, while a male at 72 has a 13-year life expectancy. People with higher incomes, good health and good habits (nonsmokers, for example) could add many years to those estimates.

Q&A: Medicare and Social Security

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Dear Liz: If my wife and I wait until we are 70 to collect Social Security but retired at our full retirement age of 66 and 2 months, would we still be able to get Medicare for those 3 years and 10 months before we reach 70?

Answer: You’re eligible for Medicare at age 65, which is typically when you should sign up. Delaying can incur penalties you’d have to pay for the rest of your life.

People receiving Social Security benefits at 65 are signed up automatically for Part A (hospital coverage) and Part B (which pays for doctor visits), with the Part B premiums deducted from their benefits. If you’re not already receiving Social Security, you’ll need to contact the Social Security office, which manages Medicare enrollment, to sign up and pay the Part B premiums.

Q&A: Saving after retirement

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Dear Liz: I’m retired, age 67. I have a SEP that requires me to pay taxes on any withdrawals. I also have standard savings and checking accounts. The SEP has been earning 13% to 14% annually, and of course the savings account earns very little. Where does it make sense for me to place savings each month — in the bank or the SEP?

Answer: Well, not the SEP. A SEP is a simplified employee pension plan that only allowed contributions as long as you were employed by the company that offered it.

Besides, the reason for the difference in returns is what’s in the account, not the account itself. The SEP probably is invested in stocks, while the savings account is just cash earning the current low interest rates. On the other hand, the money in your savings account is FDIC insured so that you won’t lose your principal.

Money in the stock market is at risk because stocks don’t always rise in value. (Over time, a diversified mix of stocks typically will earn better returns than other types of investments, but you can’t count on the money being there if you need it in a hurry.)

If you’re retired and don’t have earned income, you can’t put money into other retirement accounts such as IRAs or Roth IRAs. You can, however, open a brokerage account and invest money through that. You’ll still pay taxes on any withdrawals, but if you hold the investments for at least a year you can benefit from lower capital gains tax rates.

Q&A: Your accounts are likely to outlive you. How to safely store that information

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Dear Liz: I’m attempting to become as paperless as possible while also organizing all of our financial information into one place so if one of us dies, the other (or our child) will be able to access everything in one concise source. My current system is downloading all bank and investment accounts and medical payments onto memory sticks. One is kept in the safe deposit box, the other hidden. Is there a better, safer system out there that would not involve a third party?

Answer: If you’re unwilling to use a secure online storage site, then your system is a reasonable if somewhat laborious option. You should be sure, however, that your trusted person will have access to your computer for the most up-to-date information. The person also probably will need access to your phone, since identity authentication codes are often sent by text.

You’ll need to record passwords for your devices and consider creating a list of logins and passwords for all the sites you regularly use. If you use a password manager, you often can set up emergency access for trusted people.

Going paperless is usually the most convenient, safe and ecologically friendly option, but your trusted person won’t be able to rummage through your desk to find clues about where your assets are, what bills need to be paid and what services should be shut down. Otherwise, as one friend put it, your frequent flier miles could disappear while your Netflix subscription continues indefinitely.

If you want a system that doesn’t involve frequent trips to your safe deposit box, consider sites such as Everplans that allow you to store important information and to name people who can be given access if you’re incapacitated or dead. Your accountant or attorney may be able to recommend other sites that perform similar functions.

Q&A: Who inherits when estranged spouse dies?

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Dear Liz: I lost my husband a year ago. We had been married since 1997 but separated 10 years ago. Does the house belong to me or my 22-year-old son? Also, how do I find out if he had life insurance without being charged a lot? His girlfriend said he did.

Answer: The two most important factors here are whether you were legally separated and whether your husband made a will. If you were legally separated, there may have been an agreement approved by a judge that could affect how assets are divided. If the separation was informal, then the law typically treats you as if you were still married.

If your husband had a will, that would dictate who gets what. If he died without a will, then state law determines how to divide what’s left after his final expenses and creditors have been paid. When someone is married and has children with the current spouse, typically the entire estate would go to that spouse. Otherwise, half usually goes to the spouse and the rest is split among other heirs, such as children from another union.

This assumes the house wasn’t jointly owned with someone else, such as your son or the girlfriend. Property held in joint tenancy, tenancy by the entirety, or community property with right of survivorship will automatically pass to the other owner at death.

“Consulting with an attorney or trusted CPA, checking title to the real property and reviewing mortgage statements should be done to help determine their rights and how to proceed,” said estate planning attorney Jennifer Sawday of Long Beach.

If you would be the beneficiary and probate hasn’t been started, consider hiring a probate attorney to put that process in motion. The person settling his estate can look through his bills and other paperwork for evidence of life insurance, or you can try the life insurance policy locator maintained by the National Assn. of Insurance Commissioners.