Ask Liz Weston

Get smart with your money

Retirement

Q&A: Social Security benefits

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Dear Liz: My husband and I will be retiring at the end of 2016. He will be 70 and will start taking his Social Security; I will be 65 soon after.

Thanks to your advice, I plan to sign up to get 50% of his Social Security benefit when I’m 66 (my full retirement age) and switch to my own benefit later.

But will my own Social Security be less because I won’t be earning any money between age 66 and 70? If so, would I be just as well off taking my own benefit at 66 or should I still wait until I’m 70? Money needs will not be an issue.

Answer: Your benefit will grow 8% every year you put off filing for your own retirement checks between age 66 and age 70. That’s a powerful incentive to delay, especially when you can get spousal benefits in the meantime.

If you did work after age 66, your benefit might increase a bit more depending on how much you earned.

Your Social Security benefit is based on your 35 highest-earning years, so a higher-earning year late in life could replace a lower-earning year earlier in life.

Your continued employment would have the biggest effect if those lower-earning years showed no or very little income.

Q&A: Homeowners association fees

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Dear Liz: I am a single woman 10 to 15 years away from retirement. My town home will be paid off next month. Does it make better financial sense to sell my town home to avoid significant monthly homeowners association fees and invest in a single-family home?

Answer: It depends. Many single-family homes, particularly in newer developments, also have sizable HOA fees. Even when that’s not the case, you can face significantly higher repair and maintenance costs with a single-family home compared to a town home.

You also need to factor in the costs of selling your home and moving. Real estate commissions can eat up 5% to 7% of the value of your home, and moving expenses can add thousands of dollars to your costs.

Now would be an excellent time to consult a fee-only financial planner who can review your plans for retirement and discuss your alternatives.

Mistakes you make in the years immediately before and after retirement can be particularly devastating, so make sure you have an objective second opinion.

Q&A: How to get millennials to save for retirement

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Dear Liz: We have 90 employees, many of them millennials, and only about 30% take advantage of our retirement plan. What resources and advice can I use to get our employees to take control of their retirement future?

Answer: The youngest generation of adults and near-adults vividly remembers the stock market crash and financial turmoil of 2008-09. So they’re understandably wary of investing, plus more of them are dealing with student loan debt than previous generations. Getting them to focus on investing in their futures can be difficult.

That said, employers have discovered that one of the most effective ways of getting this and other generations into retirement plans is to enroll them automatically. Status quo bias — the human tendency to accept the current situation rather than struggle to change — pays off in this case, since once in the plan few people decide to opt out. You can take further advantage of this inertia by offering an auto-escalation feature that increases employees’ contributions 1% or so each year.

Company matches, simpler investment choices such as target-date funds and access to advice (human or computerized) also can increase participation. If your plan provider isn’t offering you suggestions for increasing enrollment, it may be time to look for a new one that can.

Q&A: Social Security eligibility

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Dear Liz: I have a few Social Security credits but not enough for full Social Security benefits. My husband receives a check monthly. He is 79 and I am 75. Am I eligible for any benefits at this time?

Answer: You’ve been eligible for full spousal benefits since you turned 65. You could have gotten a reduced amount as early as age 62. You’ve missed out on thousands of dollars of benefits that were yours to claim.

People need 40 credits with Social Security to apply for their own retirement benefits. Typically that means working a minimum of 10 years. But you didn’t have to work at all to receive spousal benefits based on your husband’s employment record. At your own full retirement age (which is now 66, but was 65 until recently), you could have received a monthly check equal to 50% of your husband’s benefit.

Once you file, you only can get six months of retroactive benefits. There’s nothing that can be done about the rest of the benefits you’ve missed, but perhaps this letter will alert other spouses that they may qualify for Social Security even if they haven’t worked much outside the home.

Q&A: Thrift Savings Plan

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Dear Liz: I am a federal government retiree with a very small retirement account in the Thrift Savings Plan. Where can I invest my small savings so it can safely grow? The balance has not changed for over six months now. If I keep it in the Thrift Savings Plan, what fund is the safest?

Answer: “Safe growth” is an oxymoron. If your balance isn’t changing, then you’re probably in the safest option — which means you won’t see much if any growth in the future, either.

You probably chose TSP’s G Fund, which invests in Treasury securities. You won’t lose money, but you probably won’t earn enough to offset inflation. If you want your money to grow, you need to have at least some of your retirement account in stocks.

Fortunately, the plan offers several “L” or lifestyle funds geared to when you expect to begin withdrawals. L funds offer professional management and a mix of investments that grow more conservative as that date approaches. Retirees who are tapping their accounts typically invest in the L Income fund, which has about 20% of its balance in stocks. If you are five years or more away from using the funds, the next most conservative lifestyle option is L 2020, which has half of its total invested in stocks.

Q&A: Understanding Social Security survivor benefits

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Dear Liz: I need a clarification because I’m getting conflicting answers from Social Security.

I know if you start Social Security benefits early, you get them at a reduced rate. When your spouse dies, is your survivor benefit reduced as well? My friend’s mother never worked, but started collecting spousal benefits at 62. Does she get reduced or full benefit when her husband dies?

Answer: Her survivor’s benefit is not reduced because she started spousal benefits early. It may be reduced, however, if her husband started retirement benefits early or if she starts survivor’s benefits before her own full retirement age.

Survivor’s checks are based on what the husband either was receiving or had earned. If the husband starts retirement benefits before his own full retirement age (currently 66), his checks are reduced, which also reduces what his widow could receive as a survivor.

If he delays retirement past 66, he earns 8% annual “delayed retirement credits” — an increase both would get.

If he dies before full retirement age without starting benefits, the survivor benefit would be based on what he would have received at full retirement age. If he dies after full retirement age without starting benefits, the survivor check is based on the larger amount he had earned (in other words, his benefit at full retirement age, plus any delayed retirement credits).

How much of the husband’s benefit his widow would get depends on when she starts claiming her survivor’s benefit.

If she starts at the earliest possible age of 60 (or 50 if she’s disabled, or any age if there are children under 16), her survivor’s benefit will be reduced to reflect the early start.

If she waits until her full retirement age, by contrast, the survivor’s benefit would be equal to what her husband was receiving or had earned. Waiting to start survivor benefits until after her full retirement age doesn’t increase her check, however.