by Dear Liz: I’m way behind on pension funds. I did receive retirement funds from my employer after 25 years of service, but used a large portion to pay off debts that were crushing me. I am a widow, 62 years old and work full time as a nurse. I rent my place. How can I overtake? I have $200,000 in an IRA.
Answer: This answer may come too late for you, but it may help others overwhelmed by debt as they approach retirement.
It’s understandable that people want to pay what they owe, but bankruptcy is sometimes the best of the worst options. This is especially true if you are nearing the end of your employment period and do not have enough time to replenish your savings. The typical bankruptcy filing can erase debt while protecting the retirement funds you need for the future. Before using your lump sum retirement benefit to pay debts, you should have discussed your situation with a bankruptcy attorney.
Right now, your best options may be to work as long as you can, save as much as you can, and come up with a smart Social Security strategy. As a widow, you may be eligible for Social Security survivor benefits as well as your own retirement benefits. You can’t receive both at the same time, but you can switch between benefits. For example, you can start with a survivor benefit and then switch to your own benefit when it reaches the maximum at age 70, if that amount is higher. Normally you would want to wait until at least your full retirement age before starting benefits, otherwise you will face the means test which reduces your benefit by €1 for every €2 you earn above a certain amount, which in 2024 is €22,320. Paid services such as Maximize My Social Security or Social Security Solutions can help you determine the best approach.
The fine print about deducting medical expenses
Dear Liz: I take $5,000 a month from my investment account (and the $1,400 in taxes when I withdraw the money) for my husband’s Alzheimer’s care facility, where he now lives 24/7. Can I claim that on my taxes under medical expenses only if I itemize my deductions on my taxes? I have no other deductions.
Answer: Your husband’s expenses may be enough to warrant an itemization, even if you have no other deductions.
The standard deduction for married couples in 2024 is $29,200. To itemize, your deductions must exceed that amount. Additionally, medical expenses must exceed 7.5% of your adjusted gross income to be deductible, notes Mark Luscombe, principal analyst at Wolters Kluwer Tax & Accounting.
However, if your husband meets certain criteria, the deduction may include costs related to meals and lodging at the facility, as well as the portion for medical care, Luscombe says.
A recognized healthcare provider must annually certify that your husband is chronically ill and lives in the healthcare institution due to medical necessity, he says. A tax professional or the facility itself can provide further details.
More about bills that must be paid upon death
Dear Liz: You recently wrote about bills that need to be paid upon death. You wrote that one of the disadvantages of these accounts is that the executor of an estate may have to try to get money back from the beneficiaries or pay the costs out of pocket if there isn’t enough money left in the estate to pay the bills. I thought your bills had to be paid before any money would be distributed. Isn’t that the case?
Answer: No. Bills paid upon death usually go directly to the named beneficiaries. Such accounts avoid probate, the legal process that otherwise follows death, so there is no mechanism to withhold funds that might be needed to pay final dues or other bills.
Additionally, beneficiary designations typically take precedence over the terms of a will or living trust. If you were relying on an account to pay final dues but forgot to name a beneficiary, your executor probably didn’t have access to that money.
Payable death accounts can be a solution for people with simple situations and too few resources to justify a living trust. For example, you might use the pay-at-death designation if you leave a bank account to your only child and you trust that they will use the money to pay your final bills.
Otherwise, you will want to discuss your situation with an estate planning attorney and get personalized advice on how to best arrange your affairs.
Liz Weston, Certified Financial Planner, is a personal finance columnist. Questions can be sent to her at 3940 Laurel Canyon, No. 238, Studio City, CA 91604, or by using the “Contact Us” form at asklizweston.com.
