Use credit cards lightly to improve your score
Dear Liz: I’m working off credit card debt. I have two cards down to a zero balance. Which will improve my FICO credit scores the most: leaving the cards open but not using them or using them minimally and paying the bills off in full each month?
Answer: Congratulations on your progress paying off your debt. Erasing your debt on those two cards is doubtless already helping your scores. You can continue to improve your numbers by using the cards lightly but regularly, paying the balances in full each month.
Credit scoring formulas want to see you actively, and responsibly, using credit. Shutting the cards in a drawer won’t demonstrate that you can do that. You’re also running the risk that a card issuer will shut down your account because of inactivity.
If you discover you can’t use the cards responsibly, however, then locking them in that drawer (or freezing them in ice) is better than running up credit card debt again.
Pensions are subject to change
Dear Liz: I am 49 and have a pension that will pay about $90,000 a year beginning at age 60. This amount lasts until I die, and then my wife would receive 50% until her death. We will be covered by my employer’s health insurance after I retire, but I will have to pay my employer’s cost for this benefit. Does that sound sufficient for retirement? Should I be saving more on my own?
Answer: To many people reading this, your retirement package probably sounds more than sufficient — it sounds absolutely great. But you probably should still be saving additional money on your own.
Pensions can be changed or frozen, or you could lose your job before retirement age. You typically wouldn’t lose the benefits you’ve already accrued, but your ultimate pension may not be as comfortable as you now project.
Even if there are no changes, your pension may not keep up with inflation if it doesn’t have a cost-of-living adjustment built in. An inflation rate of 3% could cut your buying power in half in about 20 years. Also, your wife’s expenses probably won’t drop by 50% when you die, so the survivor portion of your pension may not be enough to live on by itself.
Finally, retiree healthcare benefits can be expensive — another reason to save more of a cushion for the future.
Consider spending a few hundred dollars to have a fee-only financial planner review your retirement plans and discuss your options. You can get referrals to planners who charge by the hour from the Garrett Planning Network at https://www.garrettplanningnetwork.com.
How to find a trusted advisor
Dear Liz: I’m 56 and have never had a clue about money matters although I have money. Over time, from your column, I have gleaned that one should go to a fee-based financial planner, but I have a hard time trusting people. I’ve had more of these professionals contact me than there are stars in the sky. I’m pretty scared and in “ostrich mode.” I would truly appreciate it if you could give me a nudge toward the right man or woman to chart my path.
Answer: Ultimately you’ll be charting your own path, but it can help to have a trusted advisor point the way.
“Trusted” is the key word, obviously. Many people prefer “fee-only” (not “fee-based”) arrangements because the planner is compensated only by the fees you pay, not by commissions he or she might earn on investment products. A fee-only planner doesn’t accept commissions, while a fee-based planner might.
Something else you’ll want to determine is whether the planner is willing to say in writing that he or she is willing to act as a fiduciary. What that means is that the planner is willing to put your interests ahead of his or her own. This is a much higher standard than most advisors must adhere to by law. Typically advisors only have to recommend “suitable” investments and strategies, rather than the ones that may best serve your needs.
It’s likely that many of the professionals contacting you are not fee-only financial planners but are instead investment salespeople of some kind. If you want a good financial planner, you typically have to seek one out.
Since you have money, you can start by asking for referrals from the National Assn. of Personal Financial Advisors at https://www.napfa.org. NAPFA holds its members to high educational, experience and ethics requirements. Many of its members specialize in financial planning for high-net-worth individuals and typically charge a percentage of your assets or a retainer fee. You also could get referrals from the Garrett network mentioned above if you want to pay for advice by the hour. Both organizations’ websites have additional tips for choosing a planner.
Liz Weston is the author of “The 10 Commandments of Money: Survive and Thrive in the New Economy.” Questions for possible inclusion in her column may be sent to 3940 Laurel Canyon, No. 238, Studio City, CA 91604 or via https://www.asklizweston.com. Distributed by No More Red Inc.
