Financial Planner Can Give Retirement Advice

Q: We own a home in Beverly Hills with a recently refinanced $365,000 mortgage at 10%. We also have a condo in Palm Springs that we have owned for 18 years. Our family business is doing poorly, and we can no longer afford both our homes as well as the $4,000 monthly rent for our office.

We would like to sell our house but cannot afford to put it in the tip-top condition it needs to attract attention in today’s soft market. Our only other asset is a $30,000 bank account that is rapidly dwindling. My husband is 64; I am 47. Can you offer any advice? --N.F.

A: Your first move should be to find a competent financial planner to review both your current situation and, more importantly, your retirement goals.

You need to be able to answer such questions as: Does your husband plan to continue working? For how much longer? What kind of annual income can he expect to generate? What will happen to your family business--does it realistically have a future? What kind of job do you expect to have if your husband retires and the family business closes? What about your retirement savings?

Without knowing the answers to these and other important questions, we cannot offer precise advice here. But these are the types of questions you should expect to get. Based on the answers you give, your financial planner can help guide your decisions.

Here are some of the choices you face: If you were ready to retire, you could sell your Beverly Hills home, take the $125,000 profit exclusion and move into your Palm Springs condo. If the family business will snap back into shape once the recession ends and you want to stick with it until then, perhaps selling the Palm Springs condo might generate the kind of cash you need to tide you through these tough times.

You could also try to refinance your Beverly Hills home to take advantage of today’s lower interest rates; in some cases, adjustable-rate loans start as low as 6%.

You might also consider talking to your landlord about renegotiating your business lease. Many landlords are surprisingly willing to reduce their rents to keep valued tenants from folding their tents.

Remember, landlords are having a tough time finding tenants now too, so you may be in a strong bargaining position.

Again, you would be well served to talk to a competent professional who can guide you through these problem times and position yourselves strongly for your retirement. Professional advice would be well spent since it appears that your margin for error is rapidly shrinking.

One last note: Since investment is not your key objective at this point, you might want to select a financial planner who will charge you an hourly rate and not attempt to sell you any investments that will generate commissions for him.

This selection will cost you more initially, but you should wind up getting exactly what you want: problem-solving advice and not insurance policies, real estate investment trust shares or a piece of a limited partnership.

Widow Can’t Get Two Social Security Checks

Q: I have been diagnosed with cancer and am worried about how much Social Security my wife will have upon my death, which could come within the year.

I draw $865.20 monthly. My wife retired at age 62 and draws $325.80.

Will she get both her benefits and mine when I die? --M.M.

A: If your wife is at least age 65 when you die, she will be able to draw the larger of either her own benefits or her widow’s benefits, which are set at 100% of your monthly payments. She is not entitled to both her own benefits as well as yours.

If she is younger than age 65, she can continue drawing her own benefits until turning age 65 and then switch to widow’s benefits.

Spouses electing to draw widow’s benefits before turning age 65 face reduced payments. At age 62, the payments are 82.9% of the deceased spouse’s benefit; at age 60, the rate is 71.5%.

One side note: Last week’s column on spousal Social Security benefits may have left the impression that couples must be married for a minimum of 10 years for either spouse to claim spousal benefits.

In fact, a couple must be married only nine months for a spouse to be eligible for spousal benefits. The 10-year marriage requirement applies only in situations where a couple has divorced and an ex-spouse is claiming benefits on the former spouse’s account.

In such cases, the former spouses must have been married 10 years for the claim to be approved.

Capital Loss Cannot Be Carried Forward

Q: Last year I had taxable income of about $11,000 and accumulated capital losses from previous years totaling $13,000. I took $7,000 in standard deductions and exemptions. Since the $3,000 capital loss that I am entitled to use in any given year did not produce a tax benefit (given my low income and other deductions), may I carry forward the entire $13,000 to next year? --B.B. A: No, you must subtract the $3,000 capital loss deduction from your total, giving you a $10,000 balance to carry forward to future years. Although the final bottom line, after all your deductions, leaves you with no taxable income, that result was achieved, in part, because of the capital loss deduction.

Let’s walk through it. You got the benefit of the deduction because you still had a positive adjusted income before taking the standard deduction and exemptions. ($11,000 minus $3,000 leaves you with $8,000 prior to standard deductions and exemptions.) If your adjusted income before standard deductions and exemptions was a loss greater than $3,000, then you would not have gotten any benefit from the capital loss deduction and would have been able to save it for future years. See Part 5 of Schedule D of the IRS Form 1040 to see how the computation is made.