Ask Liz Weston

Get smart with your money

Retirement

Q&A: Don’t need your RMD? Consider a QCD

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Dear Liz: When you’re writing about required minimum distributions from retirement accounts, please make sure people know about qualified charitable distributions. Those of us lucky enough not to need the money can donate it directly from an IRA to the nonprofits of our choice. That way, we don’t even have it in our income column, and there are no taxes. I am looking forward to making many qualified charitable distributions to my favorite nonprofits when I turn 73.

Answer: You don’t have to wait. Qualified charitable distributions from IRAs can start as early as age 70½. The distribution limit for 2025 is $108,000 per individual. If you’re considering this option, please familiarize with the IRS rules for such distributions and consider consulting a tax pro.

Q&A: Timing a Social Security application

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Dear Liz: I know you work to maximize people’s money. I had a thought about the quality of life with Social Security. I took it at 65, which was then full retirement age. I was fully employed and did not need it to live. However, the extra money allowed us the opportunity to travel to all seven continents, help our kids with debts and down payments, and generally enjoy things with the extra cash. Now the full retirement age is 67, so there are fewer years between full retirement age and when benefits max out at 70. But the difference could still be enough for that motor home or world cruise.

Answer: All financial planning requires a balance between current and future spending. If you spend too much in the early years, you may not have enough to make it through the later ones. Retirement planning is further complicated by the fact that we don’t know how long we’ll live or how our health will hold up. We can delay spending so long that we’re no longer able to do the things we want to do, such as travel.

Still, the fact remains that when one spouse dies, one Social Security check goes away. That can lead to a devastating drop in income for the survivor. Because the survivor receives the larger of the two benefits, and may have to live on that amount for years, it almost always makes sense for the higher earner to delay filing as long as possible.

Q&A: Retirement planning for late starters

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Dear Liz: I am in my late 50s, married and woefully unprepared financially for my later years. I was a stay-at-home mom for many years. I now work almost full time but my employer has no 401(k) or profit sharing or really any benefits at all. I just started putting $8,000 (the catch-up amount) into my Roth IRA. What else can I do now to make up for lost time?

Answer: You can’t really make up for the decades of compounded returns you missed by not investing earlier. But you can make some smart decisions now for a more comfortable retirement.

Your most important decision likely will be how you and your spouse claim Social Security. Your spouse almost certainly should wait to claim until age 70 to maximize their lifetime benefit and to lock in the highest possible survivor benefit. If you outlive your spouse, this benefit could comprise the bulk of your income. Consider reading “Get What’s Yours,” a book about Social Security claiming strategies by Laurence J. Kotlikoff and Philip Moeller. Just make sure to get the updated version that was published in 2016, since earlier versions refer to strategies that Congress eliminated.

Delaying retirement is another powerful way to compensate for a late start, since you’ll have more years to work and save. Consider finding an employer who will help you secure your future by providing a 401(k) with a generous match. You’ll be able to contribute substantially more to a workplace retirement plan than you would to a Roth.

You and your spouse should consider hiring a fee-only financial planner to review your situation and offer customized advice.

Q&A: Maxing out retirement contributions? Beware of future tax issues

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Dear Liz: I work for a local government and am trying to decide when to retire. I will receive a pension and have put away as much money as I could afford in my 457 deferred compensation plan. I invested it in a Standard & Poor’s 500 index fund that has performed well and is now worth $1.3 million. I also have a non-sheltered brokerage account of seven figures and no debt. Last year, I contributed vacation time and money to maximize my 457 contribution of $46,000. This year (and next unless I retire), I am likewise maximizing my contribution and contributing $46,000 each year. But periodically our monthly expenditures have exceeded my monthly income after the contribution and I have had to dip into the brokerage account to make up the difference. Does that make financial sense to do if needed or should I consider scaling back my contribution?

Answer: When you’re behind on saving for retirement, maximizing your contributions to tax-deferred plans in your final working years can be a smart move.

You, however, have a large amount of savings as well as a pension, so you may face a different problem: higher future taxes. Diligent savers can find themselves pushed into a higher tax bracket when required minimum distributions (RMDs) kick in. RMDs used to begin at age 70-½, but now start at age 73 for those born between 1951 through 1959 and will rise to 75 for those born in 1960 and later.

Many people with large tax-deferred retirement accounts can reduce their lifetime tax bills by converting at least some of the funds to a Roth IRA. Conversions are taxable, but Roths don’t have required minimum distributions and future withdrawals from Roths can be tax free. Conversions can affect other aspects of your retirement, such as Medicare premiums, so you’ll want sound tax advice before moving forward. You also may want to consult a fee-only financial planner who can review your overall financial situation and help you shape your retirement income plan.

Q&A: Planning for retirement in a volatile market

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Dear Liz: I have a retirement account at work and a stock portfolio. Both are down significantly this year and I’m tired of losing money. What are the safest options now?

Answer: Before the “what” you need to think about the “why” and the “when.” Why are you investing in the first place? And when will you need this money?

If you’re investing for retirement, you may not need the money for years or decades. Even when you’re retired, you’ll likely need to keep a portion of your money in stocks if you want to keep ahead of inflation. The price for that inflation-beating power is suffering through occasional downturns.

You won’t suffer those downturns in “safer” investments such as U.S. Treasuries or FDIC-insured savings accounts, but you also won’t achieve the growth you likely need to meet your retirement goals. In fact, you may be losing money after inflation and taxes are factored in.

Also keep in mind that if you sell during downturns, you’ve locked in your losses. Any money that’s not invested won’t be able to participate in the inevitable rebounds after downturns. Plus, you may be generating a tax bill, since a stock that’s down for the year may still be worth more than when you bought it. (You don’t have to worry about taxes with most retirement accounts until you withdraw the money, but selling stocks in other accounts can generate capital gains.)

The exception to all this is if you have money in stocks that you’re likely to need within five years. If that’s the case, the money should be moved to investments that preserve principal so the cash will be there when you need it.

Q&A: No more windfall elimination provision and government pension offset

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Dear Liz: My husband worked for the postal service for over 30 years and retired with a pension. He does not have enough years working in the private sector to qualify for Social Security. Since we now have the Social Security Fairness Act, is he eligible to receive a percentage of my Social Security? I know spouses who never worked and never contributed are able to receive Social Security payments based on their spouse’s earnings.

Answer: If you’ve already started Social Security and he’s at least 62, he should now be able to claim a spousal benefit based on your work record.

The Social Security Fairness Act ended the windfall elimination provision and the government pension offset. These two provisions had reduced or eliminated benefits for over 3 million people who received pensions from jobs that didn’t pay into Social Security. Those affected will see their benefits increase or receive benefits for the first time, plus they’ll receive a one-time retroactive payment reflecting the increase dating back to January 2024.

Social Security started adjusting benefits and making retroactive payments at the end of February. The agency says most affected people will see their adjusted payments starting in April, since benefits are paid one month behind.

If your husband never applied for spousal benefits, he can do so now. If he applied in the past and was denied, he could get his first payment next month as long as the agency has his current bank deposit information on file.