Ask Liz Weston

Get smart with your money

Retirement

Q&A: Looking to Medicaid to pay for assisted living

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Dear Liz: I am going to sell my house, pay back my reverse mortgage, spend down and go on Medicaid in order to pay for assisted living that I need. What are some good resources I can contact to help me navigate all this? I have done a lot but am still needing more help.

Answer: Medicaid, the government health insurance program for the poor, typically doesn’t cover the room and board costs of assisted living, but many states offer Medicaid waivers that pay some assisted living expenses. Even if you qualify, though, there are typically a limited number of waivers available and you may be put on a wait list.

You definitely shouldn’t sell your home or spend down your resources before consulting with an expert. You can contact the National Academy of Elder Law Attorneys (NAELA) for a referral to a lawyer who specializes in this complex area or use the American Council on Aging’s free locator tool to find a Medicaid planner.

Q&A: Managing mortgage debt in retirement

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Dear Liz: My husband and I are Gen Xers who are renting. We have enough cash from the sale of our last home to make a small down payment on another. If we moved to a more affordable community, we could manage the payments, but it would still be a stretch. That scenario would not have bothered me 10 years ago, but now I’m close to 50. Is it a good idea to take on a mortgage at this point? What is the best way to ensure I can afford to keep the roof over my head when I can no longer work full time?

Answer: Having a mortgage in retirement used to be uncommon, but that’s no longer the case. The Joint Center for Housing Studies of Harvard University found 41% of homeowners 65 and older had a mortgage in 2022, compared with 24% in 1989. Among homeowners 80 and over, the percentage with mortgages rose from 3% to 31%.

The amounts owed have skyrocketed as well. Median mortgage debt for those 65 and older rose more than 400%, from $21,000 to $110,000 (both figures are in 2022 dollars). Median mortgage debt for those 80 and over increased more than 750%, from $9,000 to $79,000.

Mortgage debt doesn’t have to be a crisis if you can afford the home and the payments don’t cause you to run through your retirement savings too quickly. In fact, some retirees are better off hanging on to their loans. It may not make sense to prepay a 3% mortgage when you can earn 5% on a certificate of deposit, for example. Paying off a mortgage early also could leave you “house rich and cash poor,” with not enough savings to deal with emergencies and later-life expenses.

But the key is affordability. A mortgage that’s a stretch now might become easier to afford if your income rises, which was almost a given when you were younger. Now, however, you’re approaching the “dangerous decade” of your 50s, when many people wind up losing their jobs and failing to ever regain their former pay, according to a study by ProPublica and the Urban Institute.

Renting has its risks as well, of course. You aren’t building equity and you typically have little control over rent increases, other than to move.

For help in sorting through your options, consider talking to a fee-only, fiduciary advisor. Among the most affordable options are accredited financial counselors and accredited financial coaches, who typically are well-versed in the money issues facing middle-class Americans. You can get referrals from the Assn. for Financial Counseling & Planning Education at www.afcpe.org.

Q&A: Waiting to apply for retirement benefit or not

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Dear Liz: I am recently divorced but was married for 20 years. My ex is 12 years older and he waited until 70 to start collecting Social Security benefits. I am 62 and self-employed. My retirement benefit is greater than half of his (but not by much). It is my understanding that after his death I can collect his full benefit, provided I am at least 67 when I apply, even if I start taking my own benefit now at 62. Is that correct?

Answer: Yes, but he could live a long time. Starting your own benefit now means you’ll get much smaller checks for years, perhaps even decades, compared with what you’d get by waiting. Plus, any benefit you take before your full retirement age would be subject to the earnings test, with $1 withheld for every $2 you make over a certain amount ($22,320 in 2024).

You may not have much choice, but if you do, waiting to apply is usually the best option.

Q&A: Social Security versus government pensions

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Dear Liz: I have a dear friend who after 48 years of marriage went through a horrible divorce. She worked for a school district that did not pay into Social Security but her ex was self-employed and did pay into the system. I advised her to apply for spousal benefits but she was told she was not entitled due to her pension. Is this right? Social Security is a federal program. What does it have to do with a state or county pension? I feel she is being cheated out of income she could desperately use.

Answer: It’s unfortunate that your friend is struggling. But she’d be worse off trying to live on a spousal benefit from Social Security than she is now.

People who get pensions from jobs that didn’t pay into Social Security may be subject to two provisions, the windfall elimination provision and the government pension offset. WEP can reduce but not eliminate any Social Security retirement benefit they earned from other jobs that paid into Social Security. Typically, the Social Security benefit at full retirement age won’t be reduced by more than half the pension amount.

GPO, by contrast, reduces a Social Security spousal or survivor benefit by two-thirds of the amount of the pension. That means GPO can entirely eliminate a Social Security benefit based on someone else’s work record. If your friend can’t qualify for a divorced spousal benefit, that means she’s already receiving more from her pension than she would get from Social Security.

Consider helping your friend look for other ways to make ends meet. Benefits Checkup, offered by the National Council on Aging, could help her find programs that could help pay for medical care, groceries, utilities and other necessities.

Q&A: IRA investments and minimum distributions

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Dear Liz: I have an IRA invested in stocks, bonds and Treasury bonds. I’m 60 now and am hoping to retire in a few years. When I stop work and start pulling money from my IRA, can I withdraw a security or Treasury bond? Or must I first sell the security or Treasury bond, and then withdraw cash? I ask because I’ve recently purchased 30-year Treasury bonds (as well as Treasury Inflation-Protected Securities, or TIPS). Once required minimum distributions kick in, I’d prefer not to sell a Treasury bond or TIP, if I don’t have to.

Answer: First, you should know that you have several years before your first required minimum distributions will be due. Because you were born after 1959, the age at which you’re required to start taking minimum distributions from most retirement accounts is 75. (The RMD age used to be 72, but it’s currently 73 for those born between 1951 and 1959 and 75 for those born in 1960 and later.) You can take penalty-free distributions from retirement accounts as early as age 59½, but the increase in RMD age can be advantageous for good savers who don’t need the money and want to allow their tax-deferred retirement funds to continue growing.

Most people take their required distributions in cash, but you’re allowed to take them “in kind” — in other words, you can transfer your stocks and other investments from your retirement account to a taxable brokerage account.

There’s no tax advantage to in-kind transfers and they can be tricky because the value of investments can change day to day, unlike cash, said Mark Luscombe, principal analyst for Wolters Kluwer Tax & Accounting. If the investments’ value on the day of distribution is less than your RMD, you’ll need to make up the difference in cash to avoid penalties.

Q&A: Pensions and Social Security benefits

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Dear Liz: I am a teacher getting ready to retire. I have been collecting a spousal benefit from my husband’s Social Security. My understanding is that once I start collecting my pension, I will be subject to the windfall elimination provision. Is there a way to continue to collect against my husband’s Social Security, which is greater than my own Social Security benefit?

Answer: Because you will be receiving a pension from a job that didn’t pay into Social Security, you’re subject to two provisions: the windfall elimination provision, which can reduce but not eliminate your own Social Security benefit, and the government pension offset, which can reduce or eliminate any spousal or survivor benefit.

If the GPO wipes out your spousal benefit, you may still get at least a portion of your own benefit. Claiming strategy sites such as Maximize My Social Security and Social Security Solutions could help you estimate the effect of those provisions.