You can’t spend it when you’re gone, but delaying Social Security payments makes sense

Dear Liz: I’m a single person with no children. I worked for one private employer for 36 years, retired from there at 54 and am now 57. My home is paid off. I receive a pension of $2,400. I’ve been working a nearly full-time job averaging $3,800 a month with 8% going into a 401(k) and 4% being matched. I have observed many fellow workers wait till 65 to collect Social Security and then die a few years later. I also volunteer at my local VFW and listen to people complain about the lack of money they have, especially the women, who unfortunately relied on their dead husbands. So would it be bad for me to start collecting my Social Security at 63?

I am a very healthy person and longevity is in the family.

Answer: Some people do die shortly after retiring. Most, though, live well past the “break-even” age, when the smaller checks they give up by delaying Social Security are more than made up for by the larger checks they receive by waiting.

And the ones who die early … well, they’re dead. They no longer care about Social Security checks. The ones who care intensely about how much they’re getting are those who survive and run through their savings. Perhaps some of the women at the VFW had husbands who started their retirement benefits early, thus stunting the survivors’ checks their wives are getting. A few years’ delay could have made a huge difference to these women, who may have to live for years or even decades on a too-small benefit.

That’s why it’s so important for the higher earner in a couple to delay starting Social Security as long as possible, preferably to age 70, when their benefit maxes out. That’s also good advice for single folks who haven’t been previously married and don’t have another person’s benefit to supplement their own.

Plus, starting Social Security before your full retirement age of 67 means you’re subject to the earnings test. That test reduces your check by $1 for every $2 you make over a certain amount, which in 2024 is $22,320.

Your good health and family longevity don’t guarantee a long life, but they certainly make it more likely. Maximizing your Social Security benefit is a powerful way to ensure you don’t run short of money in your old age.

Beware foreign transaction fees when using credit cards abroad

Dear Liz: I have a question regarding the use of credit cards for foreign transactions. Are the card companies required to use a certain exchange rate? I’ve used two different cards, and the one that charges a fee used a better exchange rate. The total cost to me, including the fee, was less than the other card. How can I find out what exchange rates are used?

Answer: You can always ask. Credit card companies may use a number of different exchange rates. Often they use the ones set by their payment networks, such as Visa or Mastercard, or by their issuing banks.

Keep in mind that exchange rates are constantly changing. Unless you used the two cards within a relatively short period, it would be hard to draw conclusions about which got the better rate. Also, you will get a much worse deal if you ever agree to a “dynamic currency conversion” that charges the transaction in U.S. dollars rather than the prevailing currency. When offered the choice, opt for the charge to be in the local currency.

Most travelers find they’re better off using a credit card that doesn’t charge foreign transaction fees. These fees are typically just another profit center for the issuing banks.

A follow-up question about payable on death accounts

Dear Liz: I’ve worked for various broker dealers for 33 years and have never heard of a “payable on death” account. Did you mean transfer on death (TOD) in your previous column?

Answer: I did not.

Payable on death accounts are similar to transfer on death accounts since both allow owners to designate beneficiaries and avoid probate, the court process that otherwise follows death. But the two accounts are meant for different types of assets. Bank accounts use the payable on death designation, while investment accounts are transfer on death. Some states have transfer on death registration for vehicles and transfer on death deeds for real estate.

Liz Weston, Certified Financial Planner, is a personal finance columnist. 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.