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Social Security

You may be held responsible for a parent who fails to save

November 12, 2013 By Liz Weston

Dear Liz: My mother is 65 and refuses to plan for retirement. She has worked for the same organization for almost 20 years and, despite my begging her over the last decade, has not contributed a dime to her 403(b).

I am an only child in my late 30s and received no financial help from her from the age of 18. In addition, my father died when I was very young, leaving us fairly destitute with no life insurance. I feel that both of these legacies have contributed to my less-than-optimal financial situation.

I have had to work very hard on my own for everything, with very little support from anyone. I am now trying to catch up financially but am afraid that all of my efforts will be futile as I will be required to take care of my mother.

She says she expects to be able to live on Social Security and the $70,000 her company contributed to her 403(b) over the years. I’ve been advised by friends that I have no legal obligations to provide for her. I certainly have social ones though. What are her options once she becomes too old to work and doesn’t have enough money to cover her expenses?

Answer: Your friends may be wrong about your legal obligations, because 29 states — including California — have what are called “filial responsibility” laws. These laws create a legal duty for adult children to support indigent parents.

Most states don’t enforce these laws currently, but that doesn’t mean they won’t in the future, said elder-law attorney Michael Amoruso, a past president of the New York chapter of the National Academy of Elder Law Attorneys. States struggling with money issues may be tempted to step up enforcement, he said.

According to Katherine Pearson of Penn State‘s Dickinson School of Law, who has studied such statutes, the states with filial-responsibility laws are Alaska, Arkansas, California, Connecticut, Delaware, Georgia, Indiana, Iowa, Kentucky, Louisiana, Maryland, Massachusetts, Mississippi, Montana, Nevada, New Hampshire, New Jersey, North Carolina, North Dakota, Ohio, Oregon, Pennsylvania, Rhode Island, South Dakota, Tennessee, Utah, Vermont, Virginia and West Virginia.

Your mother isn’t indigent yet, but she may be soon if she thinks Social Security and a five-figure retirement account will sustain her.

The good news is that you may still have time to influence her decision-making, because she hasn’t quit work yet. You should tell her, gently, that you can’t afford to support her if she runs out of money, and suggest that together you consult a fee-only financial planner about her future.

The planner can review your mother’s financial situation and offer suggestions — which are likely to include delaying retirement and considering part-time work in retirement. The planner also can explain that her $70,000 nest egg will provide only about $200 a month if she withdraws 4% initially. Four percent is considered a sustainable withdrawal rate by many financial planners.

You can tell her that consulting a planner is a good idea for anyone considering retirement — since that’s quite true. If you like the planner, you can book a session for yourself and learn some concrete strategies for getting your own finances on track. This may require an attitude adjustment.

You’re still blaming your parents for your financial situation, but your father’s been dead for decades and you’ve been on your own since age 18. In other words, the statute of limitations on blaming your folks has long since expired.

Your finances are the result of the choices you’ve made, just as your mother’s situation reflects the choices she’s made. Let’s hope you both make better choices in the future.

Filed Under: Q&A, Retirement Tagged With: filial responsibility, Retirement, retirement savings, Social Security

Thursday’s need-to-know money news

October 24, 2013 By Liz Weston

RelationshipToday’s top story: Why Millennials may not be able to retire until their 70s. Also in the news:How to avoid cell phone bill surprises, the pros and cons of taking social security early, and how to calculate if you can refinance your home.

Millennials May Not Be Able To Retire Until Age 73
Crippling student debt could force Millennials to work an extra decade.

How to Avoid Cellphone Gotchas
Don’t let your cellphone become a money pit.

What age is best to start taking Social Security?
The pros and cons of taking social security early.

End-of-Year Tax Planning Tips
It’s never too early to start getting your taxes in order.

How to Figure Out If You Can Refinance Your Home
Two simple ways to calculate refinancing options.

Filed Under: Liz's Blog Tagged With: cell phone bills, millennials, mortgage, refinancing, Retirement, Social Security, tax tips

Monday’s need-to-know money news

October 14, 2013 By Liz Weston

Zemanta Related Posts ThumbnailSaving money after Fido eats another sock, is good credit required for student loans, and what car shopping and college shopping have in common.

Saving Money When Caring for Sick Pets
How to save money when man’s best friend gets sick.

Poll: Half of Older Workers Delay Retirement Plans
Uncertainty over the financial markets have older workers considering working well past retirement age.

Do I Need a Good Credit Score to Get Student Loans?
Depending on what kind of loan you’re applying for, the answer could be no.

What you don’t know about Social Security can hurt you
The importance of understanding Social Security’s complexities.

Why Choosing a College Should Be Like Buying a Car
The difference in quality between a luxury university and a four-door state school could be less than you think.

Filed Under: Liz's Blog Tagged With: choosing colleges, good credit, pets, retirement planning, Social Security, Student Loans

Dragging debt? You’re not ready to retire

October 7, 2013 By Liz Weston

Dear Liz: I just turned 65 and had planned to wait until 70 to retire. I love the actual work I do but my boss is very challenging. I’m starting to question whether working here another five years is really how I want to spend my days at this point in my life. I have about $175,000 in my 401(k), about $35,000 in an IRA and $1,500 in a single stock that’s not in a retirement account. I have two years left on my primary mortgage and a $17,000 balance on my second mortgage, plus I owe $3,500 on a line of credit and $2,000 on credit cards. I was starting to take money out of my IRA to pay down my mortgage early but the taxes at the end of the year were so much that I stopped that distribution. (I still owe $500 to the state tax agency.) I have also had trouble keeping up with my property taxes and owe about $3,500. I live in a 900-square-foot home which I love and live a fairly simple life. I’m wondering about cashing in the stock and some of my IRA to pay down my debt, then using my 401(k) for living expenses until I actually draw from Social Security. As I’m typing this out I’m thinking, “Are you crazy?” I’d love your thoughts.

Answer: One definition of insanity is doing the same thing over and over again, expecting different results.

Tapping your IRA incurred a big tax bill that you’ve yet to fully repay. You also lost all the future tax-deferred gains that money could have earned. Why would you consider doing that again?

You may long for retirement, but it’s pretty clear you aren’t ready. You don’t have a lot of savings, given how long retirement can last, and you’re dragging a lot of debt. The type of debt you have — second mortgages, credit lines, credit cards — is an indicator you’re regularly spending beyond your means. If you can’t live within your income now, you’ll have a terrible time when it drops in retirement.

So instead of bailing on work, take retirement for a test drive instead. Figure out how much you’d get from Social Security at your full retirement age next year (you can get an estimate at http://www.ssa.gov.) Add $700 a month to that figure, since that’s what you could withdraw from your current retirement account balances without too great a risk of running out of money. Once you figure out how to live on that amount, you can put the rest of your income toward paying off debt (starting with your overdue taxes), building up your retirement accounts and creating an emergency fund. It’s OK to cash out the stock to pay off debt, since it’s not in a retirement account, but make sure you set aside enough of the proceeds to cover the resulting tax bill.

Don’t forget to budget for medical expenses, including Medicare premiums and out-of-pocket costs. Fidelity estimates a typical couple retiring in 2013 should have $220,000 to pay out-of-pocket medical expenses that aren’t covered by Medicare. That doesn’t include long-term-care costs. Your costs may be lower, but you’ll want to budget conservatively. Spend some time with the Nolo Press book “Social Security, Medicare & Government Pensions: Get the Most out of Your Retirement & Medical Benefits.”

You’ll be ready to retire when you’re debt-free and able to live on your expected income without leaning on credit.

Filed Under: Q&A, Retirement Tagged With: Debts, Retirement, retirement savings, Social Security

Maximizing Social Security benefits requires some patience

August 26, 2013 By Liz Weston

Dear Liz: I am 65 and recently visited our local Social Security office to apply for spousal benefits. (My wife, who is also 65, applied for her own benefit last year.) I wanted to get the spousal benefit, even if the amount is discounted, so I can let my own Social Security benefit grow. The Social Security office manager advised us that I cannot claim spousal benefits until my full retirement age. You said in a recent column that I can. Who is correct?

Answer: You can apply for spousal benefits before your own full retirement age. But doing so means you’re giving up the option of switching later to your own benefit. The office manager gave you correct information, based on your goal. If you want the choice of letting your own benefit grow, you must wait until your full retirement age (66) to apply for spousal benefits.

Filed Under: Q&A, Retirement Tagged With: Social Security, Social Security Administration, Social Security benefits, spousal benefits, timing Social Security benefits

Divorced retiree entitled to spousal Social Security benefits

August 14, 2013 By Liz Weston

Dear Liz: My daughter, 63, has been recently amicably divorced and receives a small alimony ($1,000). Her ex-husband of 30 years is a doctor who just retired. Is she entitled to part of his Social Security? Neither has remarried.

Answer: Because they were married for more than 10 years, your daughter should qualify for spousal benefits, which can equal up to half of her ex’s benefit at his full retirement age. That amount would be permanently discounted if she applies before her own full retirement age (which is 66).

The ex’s marital status doesn’t matter, although your daughter’s does. If she remarries, she will lose access to spousal benefits as a divorced spouse. This is just one of the ways that spousal benefits differ from survivor’s benefits, which are based on 100% of the earner’s benefit and which widows and widowers can receive even if they remarry after age 60.

Filed Under: Q&A, Retirement Tagged With: divorced spousal benefits, divorced spouse benefits, Social Security, Social Security Administration, Social Security benefits, spousal benefits

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