q&a Archives - Page 37 of 106

October 21, 2019 By Liz Weston

Q&A: Living trust viewing restrictions

Dear Liz: How in the world do I find out the details of my parents’ trust? My father recently died and my mother, who is 89, is not familiar with the details. My older sister is not responsive when I ask questions. She and I are the only children. My husband recently became disabled and it would be a comfort to know if we had any money coming from my parents. Can you give me any advice?

Answer: Presumably you’re asking about a living trust, which is designed to avoid probate, the court process that otherwise follows death. Unlike wills, living trusts don’t have to be filed with the courts so you can’t go down to the county courthouse to look up the details.

Living trusts are revocable trusts, which means they can be changed. People other than the trust creators don’t typically have a right to see the trust until it becomes irrevocable.

In the past, part of a living trust often became irrevocable when one spouse died. Today, it’s more common for trusts to remain revocable until the surviving spouse dies.

To some extent, state law determines who gets to see a copy of the trust once it’s irrevocable. Typically beneficiaries have a right to see the trust, and in some states (including California) so do “heirs at law” — people who aren’t beneficiaries but who would have inherited under state law if there had been no trust or will.

Filed Under: Elder Care, Estate planning, Q&A Tagged With: living trust, q&a

October 15, 2019 By Liz Weston

Q&A: Weighing investment choices

Dear Liz: I felt your advice about using an inherited IRA to pay off a mortgage was spot on, but I would add one suggestion. The person could use their required minimum distribution (or a little extra) from the inherited IRA each year to pay down the principal on the mortgage. Then they could see what the remaining loan balance is when they are approaching retirement in 10 years.

Answer: That could be a good alternative if being debt free is more important than maximizing their returns. Using just the distributions to pay down the mortgage would allow the bulk of the money to continue earning tax-free returns as long as possible, while reducing the mortgage balance over time.

The letter writer might do better financially by investing the distributions, but using them to pay down the mortgage could get them closer to their desired goal of being mortgage free.

Filed Under: Investing, Q&A Tagged With: Investing, q&a

October 15, 2019 By Liz Weston

Q&A: Inherited Roth IRA distributions

Dear Liz: You recently answered a question about whether someone should use a Roth IRA to pay off a mortgage. In your answer, you mentioned the requirement to take minimum distributions from the account. One of the huge advantages of a Roth, besides tax-free distributions, is that there are no required minimum withdrawals. Did I miss something?

Answer: You did. You missed the word “inherited.”

The letter writer was asking whether to use an inherited Roth IRA to pay off the mortgage. (Specifically, an inherited non-spousal Roth IRA.) Although the original Roth IRA owner was not required to take distributions, the heirs must. Money can’t be kept in tax-deferred retirement accounts indefinitely.

Filed Under: Investing, Q&A, Retirement Tagged With: q&a, Roth IRA distribution

October 15, 2019 By Liz Weston

Q&A: Why this widow can’t get her late husband’s Social Security benefit

Dear Liz: My husband passed away 10 years ago at age 66. I called then to see if I could collect Social Security, because he was receiving benefits when he died. Our daughter was still a minor, so she was able to collect survivor benefits until she turned 18. I was told I couldn’t collect benefits as I made too much money. (I asked what too much money was and they said around $14,000 annually.)

I am now thinking about retiring at age 66 or 67. I am a mid-career public school teacher, so I’ve been told the “windfall elimination provision” will wipe out my Social Security benefit. I had my own business and worked previously but am told I can’t receive the Social Security benefits that my husband earned, nor will I most likely receive much, if anything, from the Social Security contributions I made. My friends tell me this can’t possibly be right.

Answer: The information you received about Social Security was generally entirely correct.

Let’s start with the windfall elimination provision. If you receive a pension from a job that didn’t pay into Social Security, any Social Security benefit you get may be reduced but not eliminated. You can read more about how the windfall elimination provision works and why it was created at the Social Security Administration website, www.ssa.gov.

A related provision, the government pension offset, can wipe out any spousal or survivor benefit you might have otherwise received.

Before those provisions were enacted, people who had generous government pensions from jobs that didn’t pay into Social Security could get the same or larger benefits than people who had paid into the system throughout their lives. Critics of the provisions, however, say they can leave some low-wage government workers worse off.

Another provision that can reduce or wipe out Social Security benefits is called the earnings test. Before full retirement age, which is currently 66, any Social Security check you receive would be reduced by $1 for every $2 you earn over a certain amount ($17,640 in 2019). The amount was $14,100 from 2009 to 2011 and $14,640 in 2012, so that may have been why you remember the number $14,000.

So technically, you may have been eligible for a survivor’s benefit. Widows and widowers are eligible for survivor’s benefits starting at age 60, or age 50 if they’re disabled, or at any age if they’re caring for the dead person’s child who is under 16 or disabled. But it sounds as if any benefit you received would have been wiped out because of the earnings test.

Your situation is a perfect example of how complicated Social Security can get and how hard it can be to navigate the system without expert help. But even people with more straightforward situations can benefit from advice about how and when to file for benefits. Two of the better do-it-yourself options include Maximize My Social Security ($40) and Social Security Solutions ($19.95 for a basic version or $49.95 for one that allows you to compare scenarios). Or you can consult with a fee-only financial planner who has access to similar software and who can give you personalized advice.

Filed Under: Q&A, Social Security Tagged With: q&a, Social Security, Social Security survivor benefits

October 7, 2019 By Liz Weston

Q&A: Don’t keep a mortgage just for the tax deduction

Dear Liz: Does the new tax law, with its increased standard deduction, change the calculus of maintaining my mortgage? I owe about $250,000 at 3.25% on a 30-year mortgage. I no longer itemize, so I don’t get the benefit of the tax deduction for the interest. My payments are about $1,500 a month, but I could easily pay it off.

Answer: It never made much sense to keep a mortgage just for the tax deduction. The tax savings offset only a portion of the interest you pay. (If you’re in a 33% combined state and federal tax bracket, for example, you’d get at most 33 cents back for every $1 in mortgage interest you paid.)

A more compelling reason to keep a mortgage would be if you were able to get a better return on your money by investing it, or if you didn’t want to have a big chunk of your wealth tied up in a single, illiquid asset.

Filed Under: Mortgages, Q&A, Taxes Tagged With: mortgage, q&a, tax deduction, Taxes

October 7, 2019 By Liz Weston

Q&A: If long-term care insurance costs too much, you have a choice to make

Dear Liz: We were told to buy long-term care insurance early because waiting too long would make it more expensive and perhaps unavailable. I bought mine when I was 55. At the time, it was $2,400 a year. Unfortunately, the premiums just kept going up. I am now 77, and the premium this year was $4,470. The letter informing me of this increase said that next year it will go up 6% to $4,738, and 6% again the following year to $5,022. It’s very clear to me that buying the insurance early was definitely not an advantage. The insurer will obviously keep raising the premium at will. Since I am, like most people my age, on a fixed income, the time will come when I simply cannot afford these premiums. I will then lose the insurance plus all I have paid into it all these years. People should be told that the premiums will continue to rise, and that the time may come when the cost is beyond what anyone on a fixed income can afford.

Answer: Many people are in the same unfortunate situation. They purchased policies because they thought it was the prudent thing to do, only to face the possibility of losing coverage as premiums continued to rise.

Companies that offered long-term care insurance starting in the 1980s and 1990s discovered they didn’t price the coverage accurately. Far fewer people dropped their policies than expected, while the costs of long-term care increased more than anticipated. Many insurers stopped offering the coverage, and massive premium increases were the norm for a while.

Insurers can’t raise premiums “at will,” by the way. The increases must be approved by regulators, who weigh the effects on customers against the possibility an insurer might go under and be unable to pay anyone.

The companies still selling long-term care coverage now offer less generous policies that probably won’t require huge premium increases. Still, many financial planners advise their clients who are buying coverage now to expect their premiums to increase 50% to 100% over their lifetimes.

It’s important to keep in mind that insurance is not like an investment or a savings account. You don’t buy homeowners insurance hoping your house will burn down someday so that you can get your money back. You buy it to protect your finances against catastrophic loss. So it’s not as if you received nothing in return for your long-term care premiums: You were protected against a potentially catastrophic cost that — fortunately — didn’t happen.

That doesn’t mean you were wrong to expect your premiums to remain affordable. Given your current reality, though, you’ll need to decide if you want to risk dropping coverage entirely or if reducing coverage might be an option. Many people in your situation have opted for longer waiting periods, lower inflation adjustments or a reduced benefit period to keep premiums affordable.

Filed Under: Health Insurance, Q&A Tagged With: long-term care insurance, q&a

September 30, 2019 By Liz Weston

Q&A: Should you pay off student loans or save for retirement? Both, and here’s why

Dear Liz: What are your recommendations for a recent dental school graduate, now practicing in California, who has about $250,000 of dental school loans to pay off but who also knows the importance of starting to save for retirement?

Answer: If you’re the graduate, congratulations. Your debt load is obviously significant, but so is your earning potential. The Bureau of Labor Statistics reports that the median pay for dentists nationwide is more than $150,000 a year. The range in California is typically $154,712 to $202,602, according to Salary.com.

Ideally, you wouldn’t have borrowed more in total than you expected to earn your first year on the job. That would have made it possible to pay off the debt within 10 years without stinting on other goals. A more realistic plan now is to repay your loans over 20 years or so. That will lower your monthly payment to a more manageable level, although it will increase the total interest you pay. If you can’t afford to make the payments right now on a 20-year plan, investigate income-based repayment plans, such as Pay As You Earn (PAYE) or Revised Pay As You Earn (REPAYE), for your federal student loans.

Like other graduates, you’d be wise to start saving for retirement now rather than waiting until your debt is gone. The longer you wait to start, the harder it is to catch up, and you’ll have missed all the tax breaks, company matches and tax-deferred compounding you could have earned.

Also be sure to buy long-term disability insurance, even though it may be expensive. Losing your livelihood would be catastrophic, since you would still owe the education debt, which typically can’t be erased in bankruptcy.

Filed Under: Q&A, Retirement, Student Loans Tagged With: q&a, Retirement, retirement savings, Student Loans

September 30, 2019 By Liz Weston

Q&A: Medicare has a prerequisite

Dear Liz: In a recent column, you mentioned that Medicare Part A is free, but that requires 40 quarters (or 10 years) of U.S. employment to qualify. There are, unfortunately, many of us with offshore employment who have found this out too late. Even if one has worked in a country with a tax treaty with the U.S. that allows you to transfer pension credits to Social Security, that will not allow you to qualify for Medicare. I think it would have been very helpful if I had known this about 10 years ago!

Answer: Medicare is typically premium-free, because the vast majority of people who get Medicare Part A either worked long enough to accrue the necessary quarters or have a spouse or ex-spouse who did. (Similar to Social Security, the marriage must have lasted at least 10 years for divorced spouses to have access to Medicare based on an ex-spouse’s record.)

But of course there are exceptions, and you’re one of them. People who don’t accrue the necessary quarters typically can pay premiums to get Part A coverage if they are age 65 or older and a citizen or permanent resident of the United States. The standard monthly premium for Part A is $437 for people who paid Medicare taxes for less than 30 quarters and $240 for those with 30 to 39 quarters.

Filed Under: Medicare, Q&A Tagged With: Medicare, q&a, work quarters

September 23, 2019 By Liz Weston

Q&A: Social Security spousal benefits

Dear Liz: My wife plans to file for her Social Security benefit when she turns 66 in April 2020. I plan to file for my benefit at age 70 in July 2022. Can I file for a spousal benefit when my wife files in 2020? Can my wife claim a spousal benefit in 2022 when I file for my own benefit, assuming it is more than her own benefit? Will my wife’s spousal benefit increase like my benefit does between my ages of 66 to 70, or does it max out at my age 66?

Answer: Because you’ve reached your full retirement age of 66 and you were born before Jan. 2, 1954, you are still allowed to file a restricted application for spousal benefits once your wife applies for her own benefit. When your benefit maxes out at age 70, you would switch to your own because there’s no incentive to further delay.

Restricted applications are no longer available to people born later. Instead, when they apply for benefits they are deemed to be applying for both their own and any spousal benefit to which they might be entitled. They’re given the larger amount and typically can’t switch later.

One of the exceptions could apply in your case, however. Your wife won’t be able to take a spousal benefit when she applies because you won’t have started your benefit. Once you start, if her spousal benefit based on your work record is larger than what she’s receiving based on hers, she could switch.

Because only one spousal benefit is allowed per couple, you’ll want to investigate which could result in more money before you apply.

As for your last question: Spousal benefits don’t earn the delayed retirement credits that can increase a worker’s retirement benefits by 8% annually between full retirement age and 70. If your wife had started spousal benefits before her own full retirement age of 66, the amount would have been permanently reduced — she would receive less than 50% of the benefit you’d earned at your full retirement age. But she won’t get more than 50% if she starts them after her full retirement age.

Filed Under: Q&A, Social Security Tagged With: q&a, Social Security, spousal benefits

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