How do you choose an executor when you have a blended family? Previously, we made wills and named executors of our wills and healthcare. How do we assign someone to be executor and not offend the other family. Any tips on how to be fair?
I think you’re looking at this situation the wrong way — I don’t think you want to consider how to be fair. You want to pick the best person for the job. This is a heavy responsibility. It’s complex and time-consuming, and family politics shouldn’t come into play.
So I would start by simply making a list. I find it’s the best way to sort out any difficult decision. Write down the names of people you might choose, then list the qualities that would make each person a good executor. List negatives, as well — you’re essentially making a pros and cons list about each candidate. You’re looking for someone who is organized — there is a lot of paperwork involved — honest, and understands your intentions. You want to select only one person, which as you noted, can be difficult for parents who are selecting among children. But it may be easier than you think — parents often assume that everyone is going to fight over this role, but you’d be surprised by how many people would rather avoid the pressure altogether. In the end, you want to settle on one executor and a couple alternates, then ask those people to take on the job. You don’t have to explain the reasoning behind your decision.
Finally, I want to point out that you don’t even have to select a family member. You can select a close friend you trust, who may be able to act as an outsider in this situation. And if you can’t find someone within your circle, you can name an accountant or attorney to the job, though it will cost you a few hundred or thousand dollars, depending on the complexities of the will.
I’m 64. Is it true that you can’t draw Social Security if you make over $14,000 a year?
It’s not true that you can’t take Social Security benefits if you earn over $14,000 a year, but it is true that working (and in particular, earning an income from that work) can reduce your benefit amount if you haven’t reached full retirement age.
Here’s how that works: Once you hit full retirement age — find out what yours is here — you can earn as much income as you want without compromising your benefits. But if you want to take benefits prior to that and continue to work, you may temporarily give up a portion of your monthly benefit.
Why do I say temporarily? Because this isn’t money lost forever. If your benefit is reduced because of work income, it will be increased once you hit full retirement age to account for the amount that was withheld. So as the end result, you’ll break even, but you’ll have to wait longer to receive some of your benefits.
As for how much you’ll lose, that changes every year. But in 2013, if you are younger than full retirement age and take benefits, Social Security will deduct $1 from your benefits for every $2 you earn above $15,120. And if you turn full retirement age during 2013? This doesn’t apply to you because you’re 64, but if it did, the deduction is less severe: Social Security will deduct $1 for every $3 you earn above $40,080 until the month you reach full retirement age.
To read more about this, and see a few examples, visit this Social Security Administration publication.
We are empty nesters and considering upgrading to our first luxury car. But we don’t know if it’s better to buy or lease. We expect to put about 20,000 miles a year on the car, but we also want to use it as the primary vehicle for my real estate business.
Thanks for the question, Susan. Here’s the deal: leasing is often the best choice for a business vehicle because when you lease, you’ll generally be able to take a greater tax deduction for the business use of your car. Plus, businesses often put fewer miles on their cars, keep them in good condition, prefer to avoid maintenance, and frequently get new cars. That’s why many businesses lease, rather than buy, their cars.
But at your estimate of 20,000 miles a year, you’re driving significantly more miles than you’ll generally see in a lease contract. Most car leases allow for only about 12,000 to 15,000 miles a year. Go over, and you’ll pay for those additional miles — at a premium. At twenty cents for each additional mile — about standard — you could pay $1,000 if you use 5,000 extra. That significantly adds to the cost of the lease and could mean it makes more financial sense to buy.
That said, if you’re set on leasing, you’ll want to negotiate those extra miles into your contract at the start at a lower rate. Ask the dealer for a rate of ten cents a mile instead, which will only be $500 more, before you sign the deal. Then compare what you’ll likely pay for those additional miles to the tax write-off you expect to receive by using it as the primary vehicle for your real estate business. The IRS has information on its website about how to calculate that tax deduction.
I was wondering if you have a list by month of the deals that are generally available. It would be nice to have a list of the full year at once so that I know whether I should buy an item now or wait because it will be cheaper later.
Peggy, it sounds like you’ve been reading our Frugal Friday posts — at the beginning of every month, we list the best things to buy over the next few weeks. In my experience, the items generally don’t change a great deal year-to-year, so that’s a good reference. But we started that series mid-year, so it isn’t complete. I reached out to my friends at dealnews to see if they could give us some general guidelines about the best things to buy each month, and here’s what they came up with:
My ex-husband and I were divorced via a mediated settlement agreement in June. Our daughter is a sophomore in college and our son is now in his first year of medical school; he got his own loan to help pay for school and most of his living expenses. I’m a 52-year-old woman who has been a stay-at-home mom for about 22 years. I have health issues, and even though I have a master’s degree, my employability remains an unknown. I will receive a lump sum/alimony buyout when our house sells, and for the time being I am living off of savings which were augmented through the settlement agreement. My ex continues to receive his $300,000 a year salary. We have been splitting the costs for our kids and mutual dog in half, but I wonder if there is a more equitable way to split these costs until I can hopefully have some kind of salary or income. Do you have any suggestions?
I would place my aim on getting back into the workforce, as hard as that may seem. Start working on your resume, maybe meet with a career counselor, brush up on your skills with a few classes if need be. While you do that, speak with your ex-husband and your children about how you are going to share costs. Yes, that means your children should be footing some of their college expenses — the freshman, in particular, should be taking out loans and working at a part-time job on the side.
Then I would have a rational conversation with your ex, separate from the kids, about how you might do this fairly until you get a job. Explain what you’re doing to work toward that goal, and point out that you’re in this position, in part, because you stepped away from the workforce to be a stay-at-home mother to your children. Perhaps he can shoulder more of the burden now, and you can make up for your share later when your income increases. Or take my advice for married couples with disparate salaries: Get a handle on the amount of expenses you’re going to assist with, and then figure out what percentage of each of your income will need to be contributed to cover those costs. This is instead of simply splitting 50/50. So maybe you each contribute 5% of your income, but his chunk is larger because he earns more.
How can I calculate how much I can draw from my retirement savings, to ensure that I have enough for both myself and my wife? Are there any calculators you can recommend?
David, this is a great question. Everyone should be doing these calculations, yet many people aren’t — I know that because of anecdotal evidence from surveying participants during Money School, but there is also a great deal of formal research on the subject: According to EBRI’s 2013 Retirement Confidence Survey, only 46% of workers have tried to calculate how much they need to save to live comfortably in retirement.
I recommend that everyone do two things: First, calculate how much you need to save for retirement. There are many calculators out there, including one on this very website. That’s a good thing, because I think you should use several and compare the results. I like the Ballpark E$timate from ChoosetoSave.org, and many brokerage firms have calculators on their own websites.
Once you have a good handle on how much you need to be putting away, you can look into how much you can pull out during retirement, and for that, I like the Retirement Income Calculator from T. Rowe Price (again, there are many in this space and you should play around with several). BlackRock’s CoRI calculator has been getting a lot of good press lately as well, and you can give that a test run here. These calculators will tell you, based on what you already have saved, what you plan to save in the future, and what you expect from Social Security and any other sources of income in retirement, how long your savings might last and how much you can afford to spend each month.
Finally, if you’d like to dig deeper — and making the transition to retirement is a time when you probably should — you might want to talk to a financial advisor for really specific, tailored advice and planning.
This is my second marriage. My husband is financially secure and retired. I am not and must keep working. He wants me to retire, but how do we rectify the financial differences? Should he set aside an amount of money for me or should I keep working?
Lynn, my first question for you has nothing to do with money: Do you want to keep working? A lot of people continue to work past what might be considered a “traditional” retirement age for reasons beyond the financial: They enjoy their jobs, they like having somewhere to be everyday, they want to keep their skills and their minds sharp.
If you’re one of those people, I think you need to sit down with your husband and explain that, money aside, you’re just not ready to pull back. You could compromise, by lightening your work load or talking to your employer about working part-time or giving up one day a week so you can spend more time with your husband.
On the other hand, if it’s strictly about the money, I assume your husband is aware of your financial situation and he’s planning to offer support if you retire before you’re financially ready. I think that’s very generous. But I also think you have to consider the worst-case scenario: In other words, if you pulled out of the workforce at the request of your husband, and then your marriage fell apart and you were left with no job and little retirement savings of your own (assuming you don’t live in a community property state). I think it’s important to be financially independent, especially if that independence helps you sleep at night. At the same time, many married couples plan their retirement jointly, based on shared assets, and there isn’t anything wrong with that approach.
If you don’t see a risk here, and he’s financially secure enough to foot the bill for both of your retirements, and you’re ready to retire, you probably have your decision. But I still might encourage you to ease into this, by taking my suggestion of scaling back first. You can always jump out of the workforce with both feet later.
My 54-year-old husband has a 401(k) account with his previous company with approximately $300,000. It has been doing well, so should he leave it there or transfer it? For tax purposes, should we buy Roth IRAs in each of our names?
Hi Joanne, your husband probably wants to roll that 401(k) over to an IRA, which will give him more control over the money and possibly better — or at least more — investment options. He could roll it into a Roth IRA, but keep in mind you’ll have to pay taxes on any pre-tax assets you roll over, which is likely that entire $300,000 balance. I’d advise that you only do that if you have the money to pay the taxes out-of-pocket — in other words, don’t use funds from the 401(k) to cover the taxes. Once converted, you can pull that money out in retirement tax free, which is a nice perk.
The other option? You could roll the 401(k) into an IRA, then each open a Roth and make contributions there. If you don’t have income of your own, you can contribute as a spouse with your husband’s income. The 2013 contribution limits are $5,500 per person, but you can contribute an extra $1,000 if you are over age 50. That means collectively you could put $13,000 a year into Roth accounts, assuming you are both over age 50. It won’t give you any tax savings now — a Roth’s contributions are made with after tax dollars, so you don’t get a tax deduction — but again, you can pull the funds out in retirement tax free, which can be even better.
You don’t mention if your husband has a 401(k) at his new company, but if he does, he should contribute enough to that account to grab any matching dollars, then contribute to the Roth, then go back to the 401(k) with anything else.
At 54, I am basically starting over financially. Since 2010 I have paid off $47,000 in credit card debt. I received my house in a divorce settlement in August 2012. It’s $60,000 underwater. I have $67,000 in a 401(k). I have less than $1,000 in cash savings. I have a good, secure job that pays well. I can currently pay all my bills and have disposable income available to help me rebuild. My first goal: Build up an emergency reserve fund of $20,000. Where do I put the money so that it is “available” but not so “available” for an emergency?
Good for you for paying off all that debt! And I agree that an emergency fund should be your next goal, particularly because it sounds like you are single now and living on one income — you need a safety net in case something goes wrong.
As for where to stash that emergency fund, the point is that this money is available to you, so you can access it if you need it, without penalty. That means retirement vehicles and other accounts that lock up your savings, like CDs, are out. You also want to preserve principal here, not chase yield, so don’t worry too much about interest rates.
That said, I think an online bank is a good place to toe the line. You’ll earn some interest — around 1%, which is more than you’re likely to find off-line — and your savings will be FDIC insured. But you’ll also have a few barriers to getting at that money. Most of these accounts don’t come with a debit card, so you’ll have to make a transfer to your checking account and that won’t happen by the time the pizza delivery guy shows up at your door — especially if you don’t house your checking account at the same online bank. This, by the way, is Money Rule #11: If you can’t see it and you can’t touch it, you won’t spend it.
And of course, the most important thing about an emergency fund is that it is there when you really need it, so an online bank will keep that cash liquid so you won’t have to pay a penalty if you need to make an early withdrawal.
We’re a retired couple, doing well on our pensions with a small amount of cash and investments to supplement them. I inherited a house with no mortgage in another state when my parents died and I’ve been renting it out for the past twenty-five years or so. I’ve decided it’s time to sell it now and I’m concerned about the best way to deal with the proceeds of the sale.
Dave, do you mean the tax consequences of selling the home, or where to put the proceeds once you’ve sold it? For the former, I would speak to a good tax advisor, because while there are exclusions in place that eliminate taxes on the profits of a home sale — up to a certain amount — they generally will not apply when you have not lived in the home for at least two of the five years prior to the date of sale.
As for what to do with the money, keep in mind that you are eliminating a constant source of income — that rent. Will you need to replace that on a monthly basis to continue your standard of living? If so, one option is to put a portion of this money into an immediate annuity. This will give you a steady stream of income to replace that rent.
If you feel that you are covered as far as income for now and you’d like to invest it for a later date, you can do that in a taxable account. You’ll likely want to invest in tax-efficient investments like index funds or ETFs, and you should be careful about the amount of risk you take, taking into consideration when you think you will need this money.
Finally, I always think that a windfall is a great time to consult a financial advisor, and I generally advise sitting on the money for several months before doing anything, so you don’t make any rash decisions.