Ask Liz Weston

Get smart with your money

q&a

Q&A: The benefits of delaying Social Security

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Dear Liz: I retired and started collecting Social Security at 62. My husband is currently 68 and plans to retire next year. I called Social Security before I retired and they told me that I could collect Social Security at 62 and when my husband retired, I could collect my own Social Security or half of my husband’s, whichever was greater. Is this accurate? I should have done more research before taking my benefit as I’m not sure this is true.

Answer: It’s true. There’s a substantial penalty for starting early, and most people are stuck with a permanently reduced payment, but your situation is one of the potential exceptions.

You weren’t eligible for a spousal benefit at 62 because your husband hadn’t started his benefit. When your husband does start, the spousal benefit will be half of what he would have received had he applied at his full retirement age of 66. If you’re younger than your own full retirement age, the spousal benefit will be reduced to reflect the early start. If all those calculations result in an amount that’s more than what you collect, you’ll get the larger amount.

By waiting to start benefits, your husband gets delayed retirement credits equal to 8% for each year he has waited past his full retirement age. Spousal benefits don’t qualify to share those credits, but survivor benefits do. When one of you dies, the smaller of the two checks you receive as a couple goes away and the survivor receives the larger of the two benefits. The survivor’s check will be larger because your husband waited to apply.

This is why it’s so important for the larger earner in a married couple to delay filing for as long as possible. The higher earner’s benefit determines what the survivor will have to live on, often for years and sometimes for decades, after the first spouse dies.

Q&A: Taking out a reverse mortgage may help if coronavirus wipes out your job

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Dear Liz: I read with interest the letter from the person who was a tour guide and lost their job due to the virus. I kept reading, expecting you to suggest a reverse mortgage. Are these a bad idea?

Answer: Not necessarily. The person in question owned the home with a sibling, and the sibling did not live in the home, which could complicate the process of getting a reverse mortgage.

If there was substantial equity in the home, however, a reverse mortgage could pay off the existing mortgage and might be worth the effort. One way to investigate this option is to talk to a HUD-approved housing counseling agency.

Q&A: Balancing disability and survivor benefits

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Dear Liz: My 70-year-old husband is retiring at the end of the month. I’m 64 and collecting Social Security disability. If he should pass away before me, which is not likely considering my medical conditions, will I still get at least half of his Social Security income instead of my own, if it’s more than what I’m already collecting? I do understand that my disability benefit will stop at 65. I will then be collecting a regular Social Security benefit at my retirement age of 67. We are totally confused and trying to decide whether to forgo getting a retirement annuity benefit for me from his employer pension if he should pass before me.

Answer: Your disability benefit doesn’t stop at 65. It continues until you reach your full retirement age of 67, and then converts to a retirement benefit. The name for the benefit changes but the amount doesn’t.

If the amount you’re receiving is less than what your husband gets, and your husband dies first, you will get a survivor’s benefit equal to what he was getting. Survivors don’t get their own benefit plus their spouse’s; they just get the larger of the two benefits.

With pensions, it would be smart to get expert advice before you sign away your right to a survivor benefit. The default payout option for a married person is typically “joint and survivor,” which means the survivor would continue to receive the checks after the person dies. Opting for a “single life” payout instead increases the monthly check, but the money stops when he dies. While it may seem more likely you’ll die first, there are no guarantees and waiving your right to a survivor benefit could lead to a steep drop in your income.

The pension may offer different joint and survivor options, such as 100%, 75% and 50%. With the 100% option, the payments continue to be the same if he dies first. The 75% and 50% options reduce the payment after his death to 75% or 50% of the previous amount. Choosing 75% or 50% could be a decent compromise that allows you to get more money now but still get payments should he die first.

Q&A:The IRS doesn’t need your worry

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Dear Liz: My mother received a stimulus payment on behalf of my late father in April. Per an IRS directive on May 6, I returned the money to the IRS. As of Aug. 1, the check I sent has not been cashed. I have made two phone calls to the specific IRS phone number that deals with any stimulus payment issues and both times have been told, “Don’t worry about it.” Do you have any suggestions for us?

Answer: Yes. Don’t worry about it. And stop calling.

The IRS is dealing with a tremendous backlog that accumulated while its operations centers were shut down because of the pandemic. Although the centers have reopened, the pandemic is still affecting the agency and probably will do so for some time.

The IRS recently warned that “live assistance on telephones, processing paper tax returns and responding to correspondence continue to be extremely limited.” The IRS will cash the check eventually; your calls won’t speed that up and will unnecessarily tax an already overwhelmed system.

In the future, consider using the IRS’ online payment systems. They’re safer than sending checks in the mail and you’ll get instant confirmation that your payment was received.

Q&A: What to do when coronavirus brings job loss, debt and a housing dilemma

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Dear Liz: I was employed as a tour guide for seniors but because of COVID-19, all our trips are canceled. I depended on the income because I have no other, besides Social Security, which I started at age 62. I now have credit card debt. I also needed a new car (mine was 24 years old and dying) so I’m leasing a car. The lease is up early next year and I would love to keep the car, if possible. My question is what to do with my home, where I have lived for more than 65 years. It was our parents’ home and now it’s owned equally with my brother, although because I live here, I pay everything: mortgage, taxes, insurance and so on. Should I sell my house and get an apartment? Rent it out? Get a roommate? Getting a roommate would not be my first choice, but I really want to stay in my home that I love so much.

Answer: If getting a roommate would give you enough income, then that may be the best solution — particularly since staying in your home is a top priority. Ideally, the rent you could charge would be enough to allow you to make ends meet, pay off your debt and save to buy your car.

If you’d still be running a deficit, however, then consider other solutions. If you can’t rent the home for enough to keep your head above water, then you probably should consider a sale.

One option, if your brother is amenable, is to sell some or all of your equity to him with the understanding that you could remain in the home. Make sure to get a written agreement; a lawyer could help with this. If your brother is not willing or able to buy your equity, you may have to put the house up for sale.

These are difficult changes, but your job isn’t likely to come back anytime soon. Finding a new gig, at your age and in this economy, may not be possible. Selling the house could free up some money for the future and allow you to reduce expenses rather than going deeper into debt.

Q&A: The bottom line on getting your credit scores in better shape

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Dear Liz: I want to write a letter of explanation to be included on my credit reports to explain a negative posting. How much impact will the letter have on my credit scores?

Answer: Credit scoring formulas can’t read, so letters of explanation won’t help your scores.

You do have a federal right to demand the credit bureaus include your explanation, which is also known as a consumer statement, in your credit reports. Theoretically, the statement could help a lender understand why you have the negative mark — but only if a human being actually examines your credit report and uses the information in evaluating your creditworthiness.

Because lending is largely automated, however, there’s no guarantee your statement will be read, let alone factored into a lending decision. Many of the other details of your credit report are converted to standardized codes used to calculate credit scores, but not consumer statements.

If the negative information in your reports isn’t accurate, you can dispute it with the credit bureaus. If the information is accurate, you can work to offset the effect on your scores.

Paying your credit accounts on time, all the time, will help rebuild credit. So will using less than 10% of your limits on credit cards.

If you don’t have a credit card, consider getting a secured card — where the credit limit typically is equal to the amount you deposit with the issuing bank. Credit builder loans, available at many credit unions, also can help add positive information to your credit reports.

Don’t close accounts, because that could hurt your scores and won’t get rid of any associated negative information.

People with only a few credit accounts also can help their scores by being added as an authorized user to a responsible person’s credit card. The responsible person doesn’t need to grant access to the actual card. Before taking this step, though, ask the credit card issuer whether authorized user information will be imported to your credit reports because issuers’ policies vary.