Ask Liz Weston

Get smart with your money

Q&A

Q&A: Unexpected credit upswing

By

Dear Liz: I know there are different factors involved, but I find a recent upsurge in my FICO score inexplicable. My score went from about 740 to 815, according to a note in my most recent credit card statement. Yet I’ve done virtually nothing in the way of major credit activity — no purchases, no change in my already-low credit card use. I transferred about $800 from one card to another, and that’s it. If such small matters can affect the FICO score, it makes that score seem ridiculous. Can you offer any possible explanations?

Answer: Credit scoring formulas are a bit of a black box, but they are sensitive to how much of your available credit you’re using.

If you transferred the balance from a card with a very low credit limit to one with a higher limit, your scores typically would improve — although perhaps not as dramatically as the increase you’re describing.

Your scores might also improve if your balances dropped on other accounts or something that was negatively impacting your credit “fell off” or stopped being reported. The simple passage of time can improve your scores, as well, increasing the age of your credit accounts and the time since your last application for credit.

It’s impossible to say exactly what combination of factors may have affected the score you saw, but at least it moved in the right direction.

Q&A: Lenders were supposed to tell you about pandemic debt relief. What if yours didn’t?

By

Dear Liz: I had a problem last year and had no income so I couldn’t pay my bills for three months. I explained the situation to my creditors, but they still put the late payments on my credit reports. I called and sent letters, but it was no good: My credit score dropped to the mid-500s. How can I get the late payments taken off?

Answer: Last year, many lenders offered various kinds of hardship programs because of the pandemic. If you were approved for forbearance, the payments you missed should not have been reported as late. You could dispute the errors at the three credit bureaus (start at www.annualcreditreport.com) and ask the lenders to correct the record.

Unfortunately, lenders don’t always tell customers that forbearance or other hardship programs are available. If you weren’t given the option to enroll when you called to explain your problem, contact your lenders again, in writing, to point that out and request that the late payments be removed from your credit reports.

If a lender refuses to cooperate, consider making a complaint to the Consumer Financial Protection Bureau.

Q&A: Where should you keep your estate planning documents?

By

Dear Liz: What do you do with your will or living trust once it’s created? Do you put the document in your home safe or a safe deposit box at the bank? Leave it with a friend or relative? What’s to prevent someone who has access to your property from destroying that document? I heard of such a case where the will was never found and the wrong relative took everything.

I imagine you could leave it with your attorney with instructions to ensure it is abided by upon your death. But who will contact the attorney after your death to ensure your wishes are abided by? I know the coroner won’t do it, nor a funeral home.

Answer: Definitely don’t put the original document in a safe deposit box. Once notified of your death, your bank will typically seal the box until your executor can prove they have the legal right to retrieve it — and that will be complicated if the document naming them as executor is in the box.

Keeping the original in your own safe is better than leaving it at the bank, but still not ideal if you fear someone with bad intent could access it. For most people, the best option is to leave the original with their attorney. You can provide copies to your executor and other trusted people and give them your attorney’s contact information.

Q&A: Be wary of advisor motives

By

Dear Liz: In a recent column, you discussed the difference between fee-only vs fee-based financial planners. Most of my retirement dollars are in an IRA with one of the better-known investment companies. One of the advisors with that firm has advocated for an annuity with a well-known insurance company as a component of my portfolio. So, does this affect the advisor’s status of fee-only vs fee-based, or is this person to be only on the fee-based side of the equation? Or am I just confused?

Answer: You’re confused because it’s confusing — deliberately so. Many investment companies, including the better known ones, don’t make it clear that their advisors do not have to put your best interests first. Most are held to a lower “suitability” standard that allows them to recommend an investment that isn’t as good as the alternatives, simply because it pays them a higher commission.

If you want an advisor that puts your interests ahead of their own, seek out a fee-only financial planner — one who only accepts fees paid by clients rather than commissions and other incentives. This advisor should be a fiduciary, meaning the advisor is required to put your best interests first. The advisor must be willing to state, in writing, that they will put your interests ahead of their own.

It’s especially important to check with such a fiduciary advisor before purchasing an annuity, since these are complex products with potentially significant downsides that could be glossed over by someone who’s being paid to sell you one. An annuity could be the right fit for you, or it could be an expensive mistake. Get an objective review from a fiduciary before you buy one.

Q&A: Windfall elimination provision explained

By

Dear Liz: I understand your explanation of the windfall elimination provision that reduces Social Security benefits if someone is receiving a pension from a job that didn’t pay into Social Security. I am a teacher with such a pension who also worked more than 10 years in the private sector. I’d accept the explanation and the reduction if the WEP were applied in all 50 states. As you know, it is not. How is this reduction justifiable in any way?

Answer: The idea that WEP doesn’t apply in all states is a myth. WEP applies regardless of where you live. What matters is whether you’re getting a pension from a job that didn’t pay into Social Security. Some states provide such pensions while others don’t.

“If a state doesn’t provide its workers with their own pension and instead has them join Social Security, then exempting them from the windfall elimination provision is fully appropriate,” says economist Laurence Kotlikoff, president of Economic Security Planning Inc., which offers Social Security claiming software at MaximizeMySocialSecurity.com.

As mentioned earlier, WEP is not designed to take away from you a benefit that others get. Rather, the provision is designed to keep those who receive pensions from jobs that didn’t pay into Social Security from getting significantly higher benefits than workers who paid into the system their entire working lives.

That can happen because of the progressive nature of Social Security benefits, which are meant to replace a higher percentage of a lower-earner’s income than that of a higher earner.

People who don’t pay into the system for many years can appear to be much lower earners than they actually are. Without adjustments, they would get bigger benefit checks than people in the private sector with the same income who paid much more in Social Security taxes.

Q&A: Windfall elimination provision

By

Dear Liz: I just read your answer regarding the windfall elimination provision question. I receive a pension after having retired from law enforcement. I was fortunate to be able to retire at 46. Then I landed a great job with excellent pay. I expect to pay into Social Security for a total of 17 years and I’ve been contributing the maximum for the last six. How will this affect my benefits? Will I still be penalized?

Answer: The only way the windfall elimination provision wouldn’t affect you is if you paid into Social Security for 30 years or more. If you pay Social Security taxes for 20 years or less, you’ll face the full impact of this provision, which affects those who get pensions from jobs that didn’t pay into Social Security. Starting at year 21, the effect begins to lessen until it disappears at year 30.

You can learn more about what to expect on Social Security’s site. Some of the paid Social Security claiming strategy sites, including Maximize My Social Security and Social Security Solutions, can incorporate the windfall elimination provision into their calculations if you want to model how different retirement dates might affect your benefits.