Social Security Tips and TrapsSocial Security Tips and TrapsSocial Security Tips and Traps

No matter what age you are now, you probably think about Social Security benefits as they relate to your retirement planning. If you are younger, you may choose to run retirement projections with reduced or no benefits. For those of you who are middle-age to retirement-age, Social Security will probably be a piece of your retirement picture.

Lots of questions arise about Social Security as individuals go through many of life’s changes including divorce, phasing into retirement, or dealing with the death of a spouse. Use these tips and traps to educate yourself about your options.
Tips

–When you get your annual estimate of Social Security benefits, check to make sure your earnings history is accurate. Everyone age 25 and older should be receiving an annual statement. If you suspect something is wrong, contact your local Social Security office to correct any inaccuracies.

–If both spouses work, each is entitled to a benefit based on his or her own earnings history. However, the spouse with lower benefits is entitled to the greater of 50% of his or her spouse’s benefit or his or her own benefit.

–If you did an analysis showing that taking lower benefits at age 62 broke even with waiting to take higher benefits at age 65, that break-even age would be approximately 78. So, if you think you’ll live past age 78, you may want to wait until full retirement age to start taking benefits. Of course, no one knows just how long they’ll live, so look at your family health history and your own health situation to make a realistic guess.

–You can choose direct deposits at your bank for your Social Security benefits and never have to worry about a check getting lost in the mail.

–If your spouse has a pension from his or her former employer that will pay over his or her life only, delay taking Social Security so you’ll get the maximum benefit for your own lifetime.

–If you are divorced and your ex-spouse has remarried, both you and the new spouse can collect benefits based on the ex-spouse’s earnings history provided you were married at least 10 years and you apply for benefits after age 62.

–If you are still working late in life, delay taking benefits until age 70. Social Security will pay a premium above the full benefit if you wait until age 70 to take benefits. Click here to see “The Impact of When You Start Taking Benefits.”

–If you are a widow or widower, you can start taking Social Security benefits as early as age 60. But you may want to consider starting them later so that you’ll get a larger benefit.
Traps

–Even though Medicare starts at age 65 (assuming you’re eligible), full Social Security benefits start later for those people born after 1938. Click here to see “Age Requirements for Full Benefits.”

–If you choose to wait to take benefits until after age 65, don’t forget to apply for Medicare about three months before you turn age 65.

–Not everyone is eligible for Social Security benefits. You need to have 40 credits. You can earn four credits a year, so basically you have to have your own earnings history for 10 years, although it doesn’t have to be consecutive years.

–If your income is more than $25,000 single (or $32,000 married filing jointly) and you’re receiving Social Security benefits, you’ll pay income tax on 50% of your Social Security benefits. However, if your income is more than $34,000 (single) or $44,000 (married filing jointly), you may have to pay income tax on 85% of your benefit. See IRS Publication 915 for more on how to calculate the tax on your benefits.

–If you take Social Security early at age 62, you’ll not only limit your own benefit, but those of your spouse, too (assuming both of you are eligible using one spouse’s earnings history).

–If you are working, are younger than full retirement age, are earning more than $12,480 (2006), and are taking Social Security benefits, you’ll actually lose $1 for every $2 you earn above $12,480. In the year when you reach your full retirement age, you’ll lose $1 for every $3 you earn above $33,240 (2006). At full retirement age, you can work and not lose any of your benefits (although if you keep working to age 70, you’ll get even higher benefits).

–If you are divorced and receiving benefits based on your ex-spouse’s earnings history, your benefits stop if you remarry.

–If you go to prison, your benefits stop (although your dependents can collect their benefits).

–You can continue to collect Social Security benefits even if you retire abroad unless you live in Cuba or North Korea. You may also not be able to receive benefits if you are in Cambodia, Vietnam, or countries from the former Soviet Union (although some exceptions may apply).

Social Security was never intended to cover all of your retirement needs. But it can play an important role in your retirement income, and it’s to your benefit to understand the rules.

Reduce Your Home Reapair Costs

Stop leaks before they start, and eight other ways to outwit the handyman

You’re rushing through your morning coffee when you hear an unfamiliar dripping noise. You poke around a bit, checking the faucets, looking under the sink, and *&@#! You’ve got Lake Erie under there. After muttering a few more choice words, you flip open the phone book and call a plumber to come this afternoon.

This is the way most repair decisions are made - in a panic, 10 minutes after the item in question breaks. But this last-minute thinking comes at a cost.

Affluent homeowners typically spend more than $4,000 a year on home repair and maintenance, according to research by the Harvard Joint Center for Housing Studies. With a bit of forethought, however, you can ratchet down that number in a big way. Just follow this plan.

BEFORE ANYTHING BREAKS

Create a call list. “In the repair business, there are a lot of lazy people who want to make money doing nothing,” says John Burgia, president of American Elite Contractors in Jacksonville.

You’re more likely to get stuck with one of them if you pick a random name out of the phone book mid-crisis. Instead, get referrals from friends and neighbors now, while your home is healthy.

Start your roster with a general handyman - someone who has basic knowledge on a broad range of repairs. Besides local operators, there are a few national firms that can hook you up, Mr. Handyman and Handyman Matters among them (mrhandyman.com; handymanmatters.com).

You’ll also need an electrician, a plumber, a carpenter, a painter and possibly people who specialize in repairing heating and cooling systems, appliances, sewer or septic systems, masonry and driveways. (Note that sometimes repair people also go by the more generic title “contractor.”)

Write down names and numbers, and save your list for a leaky day.

Do a quarterly home inspection. You can save big on repair costs by detecting a problem before it becomes an emergency. “It comes down to being proactive,” says Chris Seman, director of operations for Mr. Handyman. “Your house is like your car. When you first hear the noise, the repair will be less expensive than when it becomes a massive shriek.”

Walk your house top to bottom, looking for loose nails, holes, cracks, sags, soft spots and bulges in the walls. Run your finger around the caulk and grout in your bathroom and kitchen to see if it’s chalky; if it is, it needs to be redone.

Also, be attuned to early signs of water damage, including bubbling paint, mold or drips at visible plumbing connections. Outside, look for dampness on the roof, gutters, siding, windows and doors. While you’re at it, check furnace and air-conditioner filters.

Don’t want to do it yourself? Hire a handyman to do a walk-through; this relatively new service runs from $100 to $500. But your seasonal savings could exceed that.
Consider entering into a maintenance contract. This is another recent industry development. You pay a set amount for a walk-through, a handful of service visits and priority scheduling status. Prices vary, but because fix-it companies tend to be small local enterprises, they are often open to negotiation.

It’s a good deal if the cost is less than what you’d pay for a walk-through plus two or three visits.

ONCE SOMETHING NEEDS FIXING

Check the warranty. No need to pay for something you can get for free. Most appliance warranties are oh too short - six months to a year - but home-security systems are often covered longer. Read the documentation that came with the now-broken appliance.

Also, go to the company’s Web site and run an Internet search to see if your break is common. If so, call customer service and explain that though the warranty has run out, your problem is a known defect. Ask if they can fix the item for free, replace it or, at the very least, give you a discount on a new one.

Determine whether the item is worth repairing. Handyman Matters’ most common requests are to fix ceiling fans, garbage disposals, doorbells and blinds - all relatively inexpensive items.

Consider replacing rather than repairing. It may be more cost-effective (so long as you can install the item yourself!), especially given that the base charge for a repair visit is often $50 to $100.

Figure out if you can fix it yourself. Someone once said that you only need two things in a tool kit: duct tape and WD-40. If it’s moving and it shouldn’t be, use duct tape; if it’s not moving and it should be, use WD-40.

The theory isn’t far off. With the exception of problems involving electricity, gas, smoke or flowing water, most repairs are a matter of attaching, detaching, propping or lubricating. “We get a lot of calls on things people can fix themselves,” says Mark Douglass, vice president of Handyman Matters. Stop by a hardware store with a photo or the broken parts; the staff should be able to tell you if your project is suitable for self-service.

If it is, they can show you how to do the job and what you’ll need. The following Web sites are also fairly reliable: BobVila.com, DoItYourself.com and RepairClinic.com.

Consult your call list. If you discover that the job demands a pro, reach for that contact list you made. But before dialing, sign up for a free trial at CostEstimator.com, a Web site used by many contractors to estimate project fees, to get a ball-park figure for how much you’ll be charged. (See the sidebar at right for other essential info to bring up in your initial call.)

Bundle your repairs. Let’s say that a plumber comes to fix that pipe. Chances are, you forgot to mention that there’s a hole in your gutter and a clog in your disposal. Well, you missed out on an opportunity to save $100 to $200 on base visit charges.

“Typically, your base charge is a service call for the contractor to go out,” says Douglass. “If you consolidate it to a single trip, then there’s a direct connection to savings.” Keep a running list of problems, and read it before calling for an appointment.

Buy your own supplies. Repair pros mark up their supplies by at least 20%, and often charge hourly for shopping time besides. “The best thing people can do to save money is purchase their own materials,” says Douglass, who adds that his staffers are usually amenable to this. If your handyman is too, ask what he’ll need - brands and sizes. You’ll feel really in the know when you request “two-inch metal foil tape” at Home Depot.

EIGHT THINGS TO SAY TO ANY REPAIR PERSON

Sound too naive and you might as well hand over your checkbook. Here’s everything you need to spell out in that first phone call.

“I was referred by Joe Smith.” Name drop; a company is less likely to rip off the friend of a good customer.

“My hot-water heater is leaking, and I think it needs patching.” Explain what’s broken, using technical terms as much as possible (do an online search to find proper names). Say what needs to be done, if you know. By doing so, you narrow the scope of the repair–in this case, patching the water heater instead of replacing it–and therefore reduce the cost.

“This is the second time this has happened. The first time… “ If there’s a history of problems with the item, say so.

“Is there a way I can fix this myself?” Sometimes he’ll tell you, particularly if he’s busy.

“What are your rates? Will there be a trip fee or minimum?” Be clear on the payment system. Most companies have a base charge of $50 to $100, plus an hourly rate. But remember: Verbal estimates are nonbinding.

“Can I e-mail a photo?” This may save you a wasted visit fee if the repairman is the wrong person for the job.

“Can I buy the supplies myself?” If so, you could save yourself the 20% markup and the hourly rate for shopping time.

“Are you insured?” He should answer yes. He may also need to be licensed, depending on your state’s requirements. Check them first yourself at contractors-license.org. The site also lists the local licensing agencies, which you can call to verify that a contractor is legit.

Important Tips for Balancing Your Bank Account

Many of us open our first checking account by age 20. But just because we’ve had one for years, that doesn’t mean that we manage it properly.
Sure, more than half (almost 57 percent) of us regularly balance our checkbooks, but that still leaves 43 percent of us who charged for insufficient funds or a too-low account balance when we lose track of how much money we have.

But it’s not hard to get a handle on your account. These seven simple steps can help you keep your checking account under control:

1. Keep good records.
The more informed you are about your checking account, the better equipped you’ll be to read and analyze your bank statement.

“You have to have something to compare it to in order to know whether it’s right or wrong,” says Michael Stahl, author of Early to Rise: A Young Person’s Guide to Investing.

That means keeping track of account activity. And you do have choices. You can keep a handwritten record of transactions using the register that comes with your checks. Or use a software program, such as Intuit’s Quicken or an online version of your favorite financial program. The point is to have a record of every check, deposit and electronic fund transfer that’s involved with the account.

2. Open your mail.
When the bank statement arrives, open it and put your record keeping to good use.

“Do it right when you get the statement,” Stahl says. “Don’t wait.”

It’s better to examine your bank statement sooner than later for two reasons.

First, if there are any mistakes, reporting them to your bank quickly will ensure they get corrected. Banks usually will disavow errors if they are reported more than 60 days after you received the statement.


Second, the fewer days that pass between when the bank issues a statement and when you read it, the more in synch your records will be with the bank’s numbers. “It’s less confusing and easier to balance your bank statement if you do it as soon as you get it, not three months later,” Stahl says.

3. Scan first.
If you’re pressed for time, you can get away with examining just the account summary, says Susan Zimmerman of the Zimmerman Financial Group in St. Paul, Minn. It’s usually listed at the top of the page and it recaps the state of your account: previous balance, deposits and credits, checks and debits, service charges, interest paid and current balance.

“At a bare-bones minimum, look over the summary information and see if the figures are in the ball park,” Zimmerman says. For example, you can see if the balance is roughly what you think it should be or whether the amount of withdrawals is way too high. Look for any unusual or unexpected fees.

Keep in mind that bank statements cover a set time period, say from Jan. 18 to Feb. 17, so any checks you’ve written around or after the closing date won’t be on the statement. Ditto any deposits you’ve made in the meantime.

4. Spend quality time with your account.
Scanning’s a good first step, but don’t stop there.

“Go over the deposits and the checks,” says Paula Wegner, vice president of the First Eagle National Bank in Chicago. “Check all checks from your bank statement against your check register. Check off all checks.”

Wegner’s emphasis on scrutinizing your posted checks is intentional. You need to see whether your payment records match what the bank has.

Most bank statements will give you several ways of been posted by including a copy of the check. The advantage: it shows you who the check was written to. Even when canceled checks are part of your statement, your monthly accounting probably will also include a list by check number of your transactions. Here you’ll see the check number, amount and when it posted, but not the payee.

Similar information will be listed on incoming cash to your account. For checks paid and deposits credited, make sure your records jibe with the bank’s books.

5. Call your bank immediately if you find a problem.
You’ll be glad you closely followed your account’s paper trail if you find yourself in a situation similar to one encountered by financial planner Zimmerman.

She got a notice from her bank saying that her youngest son’s checking account was overdrawn by 56 cents. It wasn’t much, but it didn’t sound right. When Zimmerman called the bank, an officer there told her that the account wasn’t in arrears and the bank wasn’t sure how she had received the overdrawn notice.

Zimmerman’s story had a happy ending (the bank acknowledged its mistake), in large part because she was paying attention and immediately acted on a discrepancy. If you report problems quickly, they’re likely to be fixed quickly and not escalate. It’s also easier to track things when they just happened versus six months ago.

And by being prompt in your account reconciliation, you show the bank that you are trying to stay on top of your finances. That diligence could later pay off. For example, Zimmerman recommends that if you bounce a check, and it’s the first time, ask for forgiveness including waiver of any fees.

“Lots of people don’t realize that the rules can been waived and often a bank will do that for good will,” Zimmerman says. Of course, don’t expect to get off easy if you are a repeat offender.

6. Check daily balance summaries.
First Eagle’s Wegner says that most people don’t need to analyze their daily balance summaries. However, there are exceptions: consumers with interest bearing accounts or those who must maintain a minimum average balance.

Folks that fall into these categories may want to keep closer tabs on daily balances to make sure their accounts are in compliance or to make sure they are paid the appropriate amount of interest.

7. Keep tabs on your account between statements.
OK, maybe only truly obsessive people review their accounts daily via phone or the Internet.

But periodic checking on your account between printed statements does sometimes make sense. That’s the case when you are expecting an out-of-the-ordinary transaction: Has that payment to the Internal Revenue Service been posted yet? Did that big freelance check clear?


Most of these tips don’t take much time. And once they become a part of your financial routine, you’ll find it’s easy maintaining a healthy checking account.

How To Outwit a Car Dealer

“Sticks and stones may break my bones, but words will never hurt me.”

That’s all well and good on the playground, but it’s a different story in a car showroom.

That’s because auto dealers have their own colorful slang that says something about how the car business operates; some pitfalls to watch out for; and, in some cases, how some of the more cynical dealerships see the customer.

Many car dealer terms can be applied to customers. Quite a few, like “Minnie the Moocher” are not compliments. (In the Cab Calloway song, Minnie the Moocher dreams she has $1 million in nickels and dimes, which she counts a million times.) A “mooch” is a customer who wants everything, without paying for anything. Not something the dealer likes to see.


Another such term: Be-back. This is a customer who makes multiple visits, as in, “I’ll be back.” Salespeople get paid on commission, so naturally their first priority is to close the deal.

Don’t allow yourself to be rushed. If the salesperson is helpful and knowledgeable on your first visit (on your first visit, you’re called an “up”), get their business card and ask for them next time. Consumers should negotiate hard, but they shouldn’t get so caught up in the nickels and dimes that they lose sight of the big picture.

Nor should they take to the “ether” and let the details flow in one ear and out the other.

It’s important to take your time. Read the fine print. Don’t fall in love with a particular car–at least, not so much in love that you get in a rush and won’t settle for anything else.

“Good advice,” says Rosemary Shahan, president of the Consumers for Auto Reliability and Safety advocacy group, in Sacramento, Calif.

Money Grubbing

She says another term to watch out for is “dealer reserve.” Often poorly understood, it refers to the markup the dealer applies to the interest rate on your car loan.

Dealers make money for arranging loans. Based on how risky the customer is, the lender approves a loan at the so-called “buy” rate. The dealer hikes the buy rate to the rate you pay, up to a ceiling specified by the lender, usually a couple of additional percentage points. The difference, called “dealer reserve,” is a big source of dealer profit.

There’s nothing illegal about it. Dealers and auto lenders have argued successfully in several lawsuits that arranging loans at the point of sale is a valuable, convenient service. And the National Automobile Dealers Association is quick to point out that in independent consumer surveys, most people say they are satisfied with their dealerships.

People should know that the dealership, not the bank or the finance company, sets the final interest rate you pay. “Most people have no idea that the dealer is getting what in essence is a kickback on the loan,” Shahan says. “It is an undisclosed conflict of interest.” Potentially, the interest rate is even negotiable.

However, Ron Burdge, a Dayton, Ohio, attorney who specializes in “Lemon Law” complaints, said that even if you know this, few dealerships will budge.

“What’s negotiable about it,” he says, “is it just means you can go somewhere else if you don’t like it.”

Bottom Line

For the consumer, it pays to know the behind-the-scene details; it also pays to shop around and study up so you know even a few words of the local language.

Parent College Loans

A college education is an investment in your child’s future that pays big dividends. The Census Bureau reports that U.S. workers with a bachelor’s degree earned an average of $54,689 in 2005, compared with $29,448 for workers with a high school diploma.




So it can make sense for students to borrow judiciously to finance their own education. Like a home mortgage, student loans at subsidized interest rates can be used to purchase an asset that appreciates over time.

Realistically, paying for college is a family affair, and most parents would probably be willing to help foot the bill, possibly by borrowing.

To make sure that no one’s debt gets out of hand, your family will have to decide how much is reasonable and find the lowest-cost loans. For students, that means federal Stafford loans. For parents, that means another federal program, Parent Loans for Undergraduate Students (PLUS).

With PLUS loans, parents can borrow as much as they need to pay for any costs not covered by the student’s financial-aid package, up to the full cost of attendance. So there’s usually no need to take out private loans.

And terms are attractive. PLUS loans have a fixed interest rate of 8.5 percent. You don’t have to file the Free Application for Federal Student Aid (FAFSA) to apply. A credit check is required but isn’t onerous.

Some lenders do offer lower rates or discounts. For example, they might cut your rate by 0.25 percent or more if your monthly payment is debited directly from your bank account.

Immediate discounts are better than future benefits that are tied to a certain number of on-time payments, a standard that’s tough to meet (for more on loan discounts, including calculators, go to www.finaid.com).

Despite their attractive terms, parents don’t take full advantage of PLUS loans. One study shows that only 7 percent of parents use them, although that number is increasing.

It may be that parents aren’t aware of the program, or, if they borrow, prefer to tap their home equity.

Most home-equity lines of credit carry variable rates that are tied to the prime rate — currently 8.25 percent — so right now they’re competitive with PLUS loans. But interest on home-equity loans is deductible. In the 25 percent tax bracket, for example, the effective interest rate on an 8.25 percent home-equity line is 6.19 percent.

Some financial advisers still recommend that parents consider using PLUS loans to avoid depleting their home equity or having to pay off the entire loan at once if they want to sell the house and downsize.