Should you buy or rent if you plan to move within five years?
Dear Liz: Is it true that if you plan to live in a house less than five years, you are better off renting?
Answer: There are significant costs associated with buying and selling homes. In hot markets, homes may appreciate fast enough to offset those costs quickly. In more normal markets, such growth typically takes longer. If there’s a downturn, sellers could incur a loss even if they own the home longer than five years.
Also, selling a home can take awhile, which can be frustrating if the money you’ll need for your next move is tied up.
That’s not to say you should never buy if you’re planning to move again in five years. Just understand that you’re taking on some risks you wouldn’t face if you were renting.
Pensions complicate Social Security claiming
Dear Liz: I am 62 and plan to retire with a government pension later this year. My divorce from a spouse I was married to for more than 10 years will be final in about a month. The settlement agreement assigns my government pension 100% to me. He will be 65 this year and has not started Social Security benefits. Can I claim former-spouse benefits upon retirement and then claim my full benefit at age 70? What percentage would I be eligible for? Are there adverse tax or other considerations?
People may be eligible for benefits from ex-spouses’ work records if the marriage lasted at least 10 years. The rules are complex. Here’s a primer.
Answer: When you apply for a spousal or divorced spousal benefit, you’re considered to be applying for your own benefit as well. You’ll get the larger of the two amounts, and you can’t switch later.
Your divorced spousal benefit can be up to 50% of your former husband’s benefit, but the amount would be reduced if you apply before your own full retirement age of 67. If you were still married, your husband would have to apply for benefits to trigger your ability to file for a spousal benefit, but that requirement doesn’t apply to benefits for divorced people.
Your government pension also may affect how much you get from Social Security. If the pension comes from a job that didn’t pay into Social Security, your Social Security retirement benefit could be reduced by up to half. Benefits based on someone else’s work record — spousal and survivor benefits and their equivalents for divorced people — could be eliminated entirely. Your human resources department has more information, and the Social Security website has calculators to help you estimate the effects of these provisions.
You won’t be affected by these provisions if you’ve been paying Social Security taxes while working this government job, or if you paid Social Security taxes for 30 years on “substantial earnings” from an earlier job.
You also might consider consulting a fee-only financial planner or using a paid Social Security claiming site, such as Social Security Solutions or Maximize My Social Security.
The 50/30/20 budget was popularized by Sen. Elizabeth Warren and her daughter Amelia Warren Tyagi in their book, “All Your Worth: The Ultimate Lifetime Money Plan.”
Medicare Part A premiums
Dear Liz: You recently wrote that people can qualify for Medicare without a work history. However, you should have mentioned that they will have to pay Medicare Part A premiums if they don’t qualify based on their own work record or that of a spouse.
Answer: You’re right, and that was a pretty big omission.
Part A is the part of Medicare that covers hospitalization. Most people don’t pay premiums for this coverage because they or a spouse have at least 40 qualifying “work credits,” or 10 years of working and paying taxes into the Social Security and Medicare systems. A work credit is essentially a quarter in which you earn at least a certain amount, which changes each year but which is $1,640 in 2023, and you can earn up to four credits each year. People who have accrued fewer than 30 credits pay $506 a month in 2023 for Part A. Those who have 30 to 39 credits pay $278 a month in 2023.
The other parts of Medicare typically require paying premiums, regardless of work history. Part B covers doctor’s visits and starts at $164.90 a month in 2023. Part D covers prescriptions, and premiums vary by plan.
Liz Weston, Certified Financial Planner, is a personal finance columnist for NerdWallet. Questions may be sent to her at 3940 Laurel Canyon, No. 238, Studio City, CA 91604, or by using the “Contact” form at asklizweston.com.
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