Q&A: Social Security minors’ benefits

Dear Liz: One thing I rarely see mentioned in discussions of when to take Social Security is the benefit for minors who are still in school. I took my benefit at 62. Social Security called me and told me that my daughter was eligible as well. We collected over $60,000 by the time she graduated high school.

Answer: Child benefits can indeed change the math of Social Security claiming strategies.

To get a child benefit, the parent must be receiving Social Security retirement or disability benefits. The child must be unmarried and benefits stop at age 18, unless she is still in high school — in which case checks stop at graduation or two months after she turns 19, whichever comes first. Child benefits are available for those 18 or older with a disability that began before age 22.

The child can receive up to half the parent’s benefit, although both benefits are subject to the earnings test if the parent started Social Security before his or her full retirement age. The earnings test reduces checks by $1 for every $2 the parent earns over a certain amount, which in 2019 was $17,640. Also, there’s a limit to how much a family can get based on one person’s work record. The family limit is 150% to 180% of the parent’s full benefit amount.

Many free Social Security claiming calculators don’t include child benefits as one of the variables they include, so if your child would be eligible it can make sense to pay $40 for a customized strategy from a more sophisticated calculator, such as the one at Maximize My Social Security.

Q&A: Don’t fall for Social Security phone scams

Dear Liz: I have just received a phone call advising me that my Social Security number “is about to be suspended” and that for help, I should call a certain number. Is this legitimate?

Answer: No. Your Social Security number can’t be locked or suspended or any of the other dire-sounding consequences these robo-callers threaten. If you did call the number, the scam artist on the other end would try to trick you into revealing personal information or convince you to wire money or buy gift cards, which they can quickly exchange (or “wash”) to erase their trails. People lost $10 million to these Social Security scams last year, according to the Federal Trade Commission.

Q&A: When family balks at paying their fair share

Dear Liz: I inherited half a duplex from my parents. They were partners with my aunt and uncle. When alive, all parties shared expenses for the common areas. I rent out my half of the duplex while my aunt still lives in the other half. My cousins now control my aunt’s finances (she is 94 and in poor health). They refuse to reimburse me for common-area expenses such as painting the exterior (the paint was peeling, exposing the wood, and hadn’t been painted in more than 10 years) and repairing and updating the electrical panel, which had frayed and exposed wires that posed a fire hazard. The panel is on their half of the duplex but serves both units. These costs were about $15,000. What can I do? It’s not fair that I pay for everything when both owners benefit from the necessary repairs.

Answer: Your best hope may be to change your approach. Did you ask your cousins to help you pay for the repairs before you had them done, or only afterward? If they had no input into what was done or how, it’s understandable that they would balk when presented with half the bill.

Of course, they might have balked anyway, and that’s why owning property with other people can get tricky: They often don’t share your opinions about what needs to be done and how much to spend. Some prefer to defer maintenance and repairs indefinitely rather than shell out money to protect their investment. Others understand how important maintenance and repairs are but might want to do some of the work themselves to save money (although do-it-yourselfers shouldn’t attempt an electrical panel upgrade, obviously.)

So your frustration is understandable, but your options may be limited. If you can’t work something out with your cousins, your alternative may be to sell your half of the duplex, but that could require going to court to force a “partition” of the property. You should talk to an attorney familiar with the property laws in your state so you can get an idea of your options and their cost.

Q&A: Working after retirement

Dear Liz: My profession was one of the hardest hit by the Great Recession. I retired by default when I turned 62 in 2012. My Social Security payment was reduced because I started it early. I’ve found it necessary to return to the workforce part time to move beyond just surviving and have some discretionary funds. What does my employment mean for future Social Security payments?

Answer: You’re past your “full retirement age” of 66, so you no longer face the earnings test that can reduce your Social Security benefit by $1 for every $2 you earn over a certain limit ($17,640 in 2019).

Sometimes returning to work — or continuing to work after you start receiving Social Security — can increase your benefit if you had some low- or no-wage years in your work history. Social Security uses your 35 highest-earning years to calculate your checks. The amounts are adjusted to reflect changes in average wages, which is somewhat similar to an inflation adjustment. If you should earn more this year than you did in one of those previous years, your current earnings would replace that year’s earnings in the calculation and could increase your check.

Another way to boost your benefit if you’ve reached full retirement age but are not yet 70 is to suspend it. That means going without checks for a while, but your benefit earns delayed retirement credits that can increase the amount by 2/3 of 1% each month, or 8% a year. It may not be practical for you to do this: You probably need the money, and you could be too close to 70 to get much benefit. But perhaps that’s not the case for someone else reading this.

Q&A: Investing books for beginners

Dear Liz: What are the best books for a beginning adult investor?

Answer:The Little Book of Common Sense Investing,” by the late John Bogle, is a terrific explanation of why low-cost index funds are the best choice for most people (a sentiment shared by legendary investor Warren Buffett, who also endorsed the book). If you want to venture beyond index funds, or even if you don’t, “Investing for Dummies” by Eric Tyson, “Investing 101” by Kathy Kristof and “Broke Millennial Takes on Investing” by Erin Lowry are other good reads.

Q&A: How to boost your credit score before you buy a house

Dear Liz: I am trying to purchase my first home. I have a 20% down payment for the price range that I am looking for. The issue I am running into is that I have relatively new credit and my credit score is not great at all. I had to go to the emergency room two years back with no insurance and have medical expenses that went into collections. I am now in a financial spot to pay them off. These are the only negatives on my credit report that are unresolved. Will paying these off get my credit to the point that I can buy a home? I am lost as to how to get my score where it needs to be.

Answer: Unfortunately, paying collection accounts typically doesn’t help your credit scores, especially the scores used by most mortgage lenders.

Since you’re new to credit, you may not realize that you don’t have just one credit score. You have many. The two major types are FICO and VantageScore. The latest versions of each (FICO 9 and VantageScore 3.0 and 4.0), ignore paid collections. In addition, FICO 9 and VantageScore 4.0 count unpaid medical collections less heavily against you than other unpaid debts.

But mortgage lenders typically use much older versions of the FICO score, which count all collections against you even if they’re paid.

That said, it would be tough to get a mortgage with unpaid collections on your credit report. Since you have the cash, you may be able to negotiate discounts so that you can resolve these debts at a somewhat lower cost. (Collectors typically would much rather get a lump-sum settlement than wait to be paid over time.)

You’ll also want to get some positive information reported to the credit bureaus to help offset the negative information. The fastest way to do that would be to persuade someone you know who has good credit to add you as an authorized user to one of his or her credit cards. This person doesn’t have to give you the card or any access to the account. Typically, the account history will be “imported” to your credit reports, which can help your scores as long as the person continues to use the card responsibly.

Another way to add positive information is with a credit-builder loan, offered by many credit unions and Self Lender, an online loan site. Usually, credit-builder loans put the money you borrow into a savings account or certificate of deposit that you can claim after you’ve made 12 on-time payments. This helps you build savings at the same time you’re building your credit.

Secured credit cards also can help. With a secured card, you make a deposit with the issuing bank of $200 or more. You get a credit limit that’s typically equal to that deposit. Making small charges on the account and paying it off in full every month can help you build credit without paying interest. You’ll want a card that reports to all three credit bureaus, because mortgage lenders typically pull FICO scores from all three bureaus and use the middle of the three scores to determine your rate and terms.

Q&A: Finding a financial planner

Dear Liz: Your column on delaying Social Security suggests using a certified financial planner on an hourly basis to review one’s retirement plans. I have struggled to find one who charges this way. They almost all want to control your money for a fee. The one I found after some effort charges $500 to $600 an hour. Please make some recommendations. I don’t mind if the CFP is not local. I just want someone who is certified, reputable, with a reasonable hourly fee.

Answer: There are a growing number of options for people who want “advice only” financial planning from a fee-only, fiduciary advisor:

XY Planning Network is a network of planners who offer flat monthly fees in addition to any other options, including hourly or assets-under-management fees. Monthly fees are typically $100 to $200, with some planners requiring an initial or setup fee of $1,000 to $2,000.

Garrett Planning Network represents planners willing to charge by the hour, although many also manage assets for a fee. Members are either certified financial planners, on track to get the designation or certified public accountants who have the personal financial specialist credential, which is similar to the CFP. Hourly fees typically range from $150 to $300, with a consultation on one topic such as Social Security-claiming strategies or a portfolio typically taking two or three hours. A comprehensive financial plan may require 20 hours or more.

Advice-Only Financial is a service started by financial blogger Harry Sit to connect people with fee-only advisors who just charge for advice and don’t accept asset management fees. Sit charges $200 to help people find fiduciary CFPs who are either local or willing to work remotely. The planners typically charge $100 to $400 an hour.

Another option for those who don’t have complex needs would be an accredited financial counselor or financial fitness coach. Those in private practice typically charge $100 to $150 an hour, although many work on a sliding scale, said Rebecca Wiggins, executive director of the Assn. for Financial Counseling & Planning Education.

Q&A: Consult a pro when planning elder care

Dear Liz: My parents and I are discussing the best ways to protect their assets if one of them must live in a nursing home. Their home is paid off, and we were wondering if adding my name on the deed will secure the home from a mandatory sale for caregiving expenses. Please note, I am the only child. Also, I may want to live there someday to care for the other parent. Looking for the best options for saving money and avoiding inheritance tax for this asset.

Answer: Please consult an elder law attorney before you take any steps to “protect” assets because the wrong moves could come back to haunt you (and your parents).

It sounds like you’re contemplating the possibility that one of your parents may wind up on Medicaid, the government health program for the poor that covers nursing home costs. Medicaid has a very low asset limit and uses a “look back” period to discourage people from transferring money or property just so they can qualify. In most states, transfers made within 60 months of the application are examined and, if found to be in violation of the rules, used to determine a penalty period to prevent someone from qualifying for Medicaid coverage. In California, the look-back period is 30 months.

The state can attempt to recoup Medicaid costs from people’s estates by putting liens against their homes. You might see that as an “inheritance tax,” but inheritance taxes are taxes imposed in a few states on people who inherit money or property. Although all states try to recoup Medicaid costs, only six — Iowa, Kentucky, Maryland, Nebraska, New Jersey and Pennsylvania — have inheritance taxes, and these either exempt or give favorable rates to children who inherit.

Having your name added to the deed can cause problems, as well. Your creditors could go after the home if you’re sued, and you could lose a portion of the step up in tax basis you would get if you inherited the house instead. If you’re married and get divorced, your portion of your parents’ home could be considered a “marital asset” that has to be divided.

It’s great that you and your parents are trying to plan for long-term care, but you should seek out professional guidance.

Q&A: How to make retirement saving a priority

Dear Liz: One thing I like about saving for retirement with an IRA is that I can wait until April 15 of the following year and then just contribute a lump sum for whatever I can afford to put in that year. Is there anything similar with 401(k)? Or do I have to have the contributions come out piecemeal with payroll deductions? I keep revising the percentages, but then there is a lag time between when I revise and when that money is taken out. It is a hassle. It would be much easier to just make a lump sum contribution at the end of the year to my 401(k).

Answer: Many people have unpredictable incomes and variable expenses that make planning tough. If you have a steady paycheck, though, you’d be smart to pay yourself first by making your retirement contributions a priority.

It’s generally smart to contribute at least enough to get the full company match, even if that means cutting back elsewhere. Matches are free money that you shouldn’t pass up. If you can contribute more, even better. For many people, retirement plan contributions are one of the few available ways they can still reduce their taxable income.

If you discover after the end of the year that you could have put in more, you can still make a lump sum contribution to an IRA. Since you have a plan at work, your contribution would be fully deductible if your modified adjusted gross income is less than $64,000 for singles or $103,000 for married couples filing jointly. The ability to deduct the contribution phases out so that there’s no deduction once income is above $74,000 for singles and $123,000 for couples.

Q&A: Here’s a case where taking retirement funds early might make sense

Dear Liz: My wife and I are both retired and receiving annuity payments. In addition, we have about $1.3 million in traditional IRAs and $350,000 in another annuity that will pay us each about $1,000 per month. We are moving from Texas to Arkansas sometime in the next year. Texas has no state income tax and pretty high property taxes, while Arkansas has lower property taxes but about 6% income tax. We plan to put down about $200,000 on a new home and obtain a mortgage for about $350,000 at about 4% interest.

Does it make sense to withdraw money from the IRA to pay down the amount we need to borrow for the mortgage? I can withdraw about $90,000 without putting us into the next higher federal tax bracket, if that makes any difference, and end up saving $5,400 in Arkansas income tax at the same time.

By my calculations, the return on the $90,000 would be almost $8,000 every year in reduced mortgage payments if we took out a 15-year mortgage. If we did the 30-year loan, that savings would be over $5,000. I don’t think we’ll achieve the same returns on $90,000 leaving those funds invested as they are in bonds or cash.

Answer: It usually doesn’t make sense to tap retirement funds to pay down a mortgage, but your case may be one of the exceptions. You have enough saved that the withdrawal won’t claim a big chunk of your available funds and leave you cash-poor.

We’ll assume you’re over 59½ and won’t face penalties for early withdrawal. If that’s the case, then you’ll also be facing required minimum distributions within a few years. These mandatory withdrawals, which must start after you turn 70½, would subject at least some of this money to taxation. The question is whether you want to pay those taxes now or later, and you’re making a pretty good case for now.

Before you withdraw any money from a retirement fund, however, you should consult with a tax pro or a fee-only financial planner, or both. Mistakes made in early retirement often have irreversible consequences, so you want an objective second opinion before you proceed.