Ask Liz Weston

Get smart with your money

Retirement

Q&A: Don’t miss out on spousal Social Security benefits

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Dear Liz: How far back can Social Security go for someone who did not know to apply for spousal benefits? I’m 69, still working and did not know I was eligible for spousal benefits from my retired wife when I turned 66. Social Security is indicating six months of retroactive benefits is the maximum.

Answer: Unfortunately, that’s correct. You’ve missed out on at least two and a half years’ worth of spousal benefits based on your wife’s work record.

You still can file a restricted application for spousal benefits only and get a lump sum payment for the previous six months. You also still have the option to switch to your own benefits when they max out at age 70. These strategies aren’t available to younger people because Congress changed the rules last year.

Social Security rules can be complex, and the penalty for misunderstanding or missing deadlines can be huge. “Get What’s Yours,” a book about Social Security-claiming strategies that recently was updated, should be required reading for anyone approaching retirement age.

Friday’s need-to-know money news

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Zemanta Related Posts ThumbnailToday’s top story: What Hillary Clinton’s college affordability plan could mean for you. Also in the news: How to enjoy your summer vacation without going broke, what seniors want you to know about managing money, and how to save for retirement without a full-time job.

What Clinton’s College Affordability Plan Could Mean for You
Is this a gamechanger?

Enjoy Your Summer Vacation — Without Maxing out Your Credit Cards
It doesn’t have to cost a fortune.

10 Things Seniors Want You to Know About Managing Money
Speaking from experience.

5 ways to save for retirement without a full-time job or 401k
Every bit helps.

Wednesday’s need-to-know money news

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iStock_000015900242LargeToday’s top story: Critical steps to prepare your finances for divorce. Also in the news: Tips on taking over the family business, getting your credit back on track after moving back to the United States, and how to tell if your 401(k) is helping or hurting your retirement savings.

6 Critical Steps to Prepare Your Finances for Divorce
Protecting your assets during a vulnerable time.

Tips on Taking Over a Family Business
Making a smooth transition.

After Moving Back to U.S. From Overseas, Credit Card Is First Step to Rebuild Credit
Getting your numbers back on track.

Is your 401(k) helping or hurting your retirement savings?
Finding a best-in-class 401(k).

Tuesday’s need-to-know money news

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o-BOOMERANG-KIDS-facebookToday’s top story: Why not all debt is bad. Also in the news: An explanation of benefits from your health coverage, why your boomerang kid may be sabotaging your retirement, and why it’s time to have the talk about estate planning.

Not All Debt Is Bad
Debt is getting a bad rap.

Check Your Health Coverage With an Explanation of Benefits
Understanding what you’re entitled to.

Everybody Dies. It’s Time to Have the Talk
Avoiding financial disaster.

Your boomerang kid may be sabotaging your retirement
The Bank of Mom and Dad.

Think Twice Before Rolling Over a 401(k)

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think-twice-before-401k-rollover-story-570x225-2Wall Street has done a remarkably thorough job of brainwashing investors into rolling their old 401(k) accounts into individual retirement accounts.

IRA rollovers are certainly a better option than cashing out, which is the stupidest thing you can do with a 401(k) account other than not fund it in the first place. But moving money from a workplace retirement plan to an IRA when you switch jobs or retire can be a really lousy idea.

In my latest for Nerdwallet, why you need to think twice before rolling over a 401(k).

Q&A: Tips for divvying up your retirement investments

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Dear Liz: With all the investment options offered in 401(k) plans, how as a contributor do I know where to place my money?

Answer: Too many investment options can confuse contributors and lower participation rates, according to a study by social psychologist Sheena Iyengar of Columbia University in cooperation with the Vanguard Center for Retirement Research. The more options, the more likely participants are to simply divide their money evenly among the choices, according to another study published in the Journal of Marketing Research. That’s a pretty random method of asset allocation and one that may not get people to their retirement goals.

As a participant, you want a low-cost, properly diversified portfolio of investments. For most people, that means a heavy weighting toward stock funds, including at least a dab of international stocks. Your human resources department or the investment company running the plan may be able to help with asset allocation.

Some plans offer free access to sophisticated software from Financial Engines or Morningstar that can help you pick among your available options. Once you have your target asset allocation, you’ll need to rebalance your portfolio, or return it to its original allocation, at least once a year. A good year for stocks could mean your portfolio is too heavily weighted with them, while a bad year means you need to stock up.

If that feels like too much work, you may have simpler options. Many plans provide a balanced fund, typically invested 60% in stocks and 40% in bonds, that provides automatic reallocation. The same is true for target-date funds, which are an increasingly popular choice. Pick the one with the date closest to your expected retirement year. If you’re 35, for example, you might opt for the Retirement 2045 fund.

It’s important, though, that you minimize costs because funds with high fees can leave you with significantly less money at retirement. The average target-date fund charged 0.73% last year. If you’re paying much more than that, and have access in your plan to lower-cost stock and bond funds, choose those instead.