New! Q. Both presidential candidates and a few members of Congress announced that they favored a suspension of the Minimum Required Distributions from IRAs and 401(k) plans for 2008, due to the sharp decline in values since the end of 2007. Where does this stand?

A. Government officials are considering changing the rules that require millions of Americans who are 70½ or older to withdraw money annually from their retirement accounts. The amount of the required withdrawals is based on the market value of the funds on Dec. 31 of the previous year, which means that this year retirees are being forced to take money out of accounts that have drastically shrunk—and pay tax on that withdrawal—rather than leaving it alone with a chance at recovery.

Talk has centered around allowing taxpayers to delay taking the required withdrawals or reducing the amount that must be withdrawn. Officials are also considering ways to provide tax relief to people who have already taken their money out.

Some advocacy groups, including AARP, have urged the Treasury Department to take immediate action. The chances of Congress taking any action this year are slim, says AARP legislative policy director David Certner, but the Treasury still has some authority to provide administrative relief for 2008.

Updates:
Penalty waived for 2009

Tip sheet for calculating MRD relief

Q. I'm thinking about refinancing my mortgage. Is this a good time or are the banks still skittish about lending?

A. It's a great time to refinance a mortgage because rates are headed down. However, if you don't have good credit, the lower rates may not be applicable. Interest rates are generally higher for folks with less-than-stellar credit. But the majority of individuals who have good credit, collateral, and a verifiable job or verifiable income will be able to refinance with very favorable interest rates.

Q. I have a lot of debt that I need to pay off. Should I tap into my 401(k) retirement account?

A. There’s no one-size-fits-all answer when it comes to debt management because everyone’s situation is different. But there are some things for you to consider. If you can pay off the debt without tapping into your 401(k) account, that would be the better option. If it’s credit card debt you’re tackling, have you considered transferring the balance to a no-interest or lower-interest card so that all or most of your payments go toward reducing the principal?

If you’re considering a bank loan to pay off your debt, then borrowing from your 401(k) might be a better alternative because you’re generally required to pay yourself back with interest within a specific period of time, depending on your plan’s rules. That saves you the interest rate a bank would charge. Also, there’s no penalty or credit check when you borrow against your 401(k). Typically, the loan principal and the interest rate get deducted from your payroll check and automatically go right into your 401(k) account. On the flip side, it’s important to remember that 401(k) loans incur interest that is not tax-deductible—unlike home equity loans, which are often used for debt consolidation. Also, having the money “on loan” prevents it from being invested in other assets in your 401(k) plan.

In the end, financial professionals usually advise people against accessing their 401(k) accounts so that the money can grow, tax-deferred, and fund their retirement as it’s supposed to.

But regardless of what approach you take to debt management, managing spending habits is critical to long-term financial health.

Q. Both presidential candidates and a few members of Congress announced that they favored a suspension of the Minimum Required Distributions from IRAs and 401(k) plans for 2008, due to the sharp decline in values since the end of 2007. Where does this stand?

A. It seems that older adults will get a break next year. A bill that would temporarily waive the penalty on adults age 70 and a half and older who don’t withdraw their annual minimum required distribution (MRD) from their retirement accounts in 2009 is awaiting President Bush’s signature. The bill, passed by the House and the Senate last week, would place a one-year moratorium on penalties for IRAs, 401(k)s and 403(b)s, so that older people aren’t forced to take their withdrawals from savings plans that have drastically shrunk.

AARP praised Congress for passing the Worker, Retiree and Employer Recovery Act of 2008, though it pressed lawmakers for a freeze that would be applicable this year as well.

The amount of the required withdrawals is based on the market value of the funds on Dec. 31 of the previous year, which means that this year retirees are required to take money out of accounts that have plummeted in value--and pay tax on that withdrawal—rather than leave it alone with a chance at recovery. 

Q. I can't sell my house. What do I need to know if I want to rent it out?

A. Renting your house takes patience, common sense and a price that reflects what comparable properties are bringing in each month. You may want to go to websites like Craigslist  or Rentometer to check out comparable rentals in your area.

Next, screen applicants when you’re looking for a good tenant. Check with their previous landlords for their payment history as well as how they cared for the home. Make sure they have a stable income and job history. The Landlord Protection Agency  offers free landlord forms as well as a tenant screening document for $4.99. Finally, be sure to get landlord insurance and require your tenant to get renter’s insurance.

Q. I live on Social Security and stock dividends. Given the market, I’m worried about having enough money for Christmas gifts for my grandchildren. Any ideas?

A. You might consider a holiday sales job. Hours are flexible, not a lot of training is involved and you may get a discount for gifts. Shops welcome older workers: Retail employs more people 65-plus than any other industry.

Q. I’m not one to ride out the storm on Wall Street. Where can I park my money that’s less risky?

A. The safest investments are certificates of deposit and money market funds, particularly those that invest in Treasury bills. But there’s a tradeoff. The safest investments usually produce the lowest returns. Buying annuities—or charitable gift annuities from a charity or university, which come with tax breaks—may be an alternative for investors like you who are seeking to reduce their stock exposure and who want an income stream for life.

Q. I just lost my part-time job. I’m having trouble paying my Medicare premiums. Can I get financial help for this?

A. You can apply for help from your state Medicare Savings Programs (MSP). If you qualify, the state will pay your Part B premiums and you’ll also be automatically eligible for low-cost Medicare prescription drug coverage. Eligibility depends on your income and possibly your savings. If your income is low enough, an MSP may also pay your other out-of-pocket costs in Medicare—the Part A and Part B deductibles and copayments for medical services.

To find out if you’re eligible for MSP help, call Medicare at 1-800-633-4227 or go online to www.medicare.gov and click on “Find Helpful Phone Numbers and Websites” under Search Tools.

Q. I purchased a variable annuity to have income for life. Should I be concerned about the market downturn?

A. Because variable annuities fluctuate with the market, they allow you to take advantage of a market boom. But they also may not protect you from a down market unless you buy a guaranteed minimum withdrawal benefit. The withdrawal benefit gives you a guaranteed income stream regardless of the performance of the investment accounts. The downsides to that feature: It costs more and most insurers restrict the investment choices.

You may also consider transferring your variable annuity to a fixed annuity. The principal is guaranteed, and withdrawals of up to 10 percent of the account value are permitted each year without a penalty. However, you may incur stiff penalties for switching from a variable to a fixed annuity, so check with your adviser for details. [See more on variable annuities.]

Q. My money is tied up in a money market fund and in a brokerage account. Is it safe?

A. The federal government now temporarily insures money market funds against losses for the next year. The guarantee of a $1 share price was created after a large money market fund fell below $1 a share in September in a rare move known as “breaking the buck.”

Conversely, your brokerage account, which may include mutual funds, stocks or bonds, is not protected against market swings. But your account is insured against fraud, so if your broker disappears overnight, the Securities Insurance Protection Corporation would insure your account up to $500,000. For this reason, you should make sure that your brokerage is SIPC-insured.

Q. I have bank accounts, an IRA and a 401(k). Are they insured?

A. The Federal Deposit Insurance Corporation (FDIC) has just raised the insurance limit for individual bank deposits, from $100,000 to $250,000. So if you have $250,000 or less in an IRA, checking or savings account, and your FDIC-insured bank fails, you’d be covered against any loss. Joint accounts held by a husband and wife would be covered up to $500,000 ($250,000 for each).

Sadly for American workers, defined contribution plans such as 401(k)s are not protected against market losses. However, federal protections are in place to shield you if your employer or the firm managing your account goes broke. Under the Employee Retirement Income Security Act (ERISA), the amount in your 401(k) account cannot be claimed by creditors of the failed firms.

Q. I am 73, retired and living on a fixed income. I have a couple of CDs that pay very little interest. Everything costs more these days, and I worry about running out of money. What can I do?

A. Perhaps you can work part time or lower your expenses by eating out less, driving less or cutting back on other non-necessities. [See more penny pinching tips here.] When your CDs come due, shop around at several banks, brokerage firms and mutual fund companies for the highest rates. Go to www.bankrate.com for comparisons. But make sure the CDs are FDIC-insured.

Q. I want to switch auto insurance carriers, but I’ve had a bad patch. I’ve been late on my mortgage and credit card payments, and my credit score has gone down. Would this affect the cost of a new policy?

A. Most likely. When your credit score goes down, your insurance premium goes up. Insurers look at your driving record as well as an insurance score derived from data in your credit report. (It’s the same information that credit card companies use, but insurers say this score gives them an accurate probability on whether an applicant will file a claim.)

It’s important to know what’s on your credit report so you can correct any mistakes. Go to www.annualcreditreport.com to get a free copy. Beyond that, you can try to explain your situation to your insurance company, though it’s under no obligation to reduce your premium.

Q. The market has shaken me up. I’m worried about my nest egg, which is worth less now. Should the way I handle my savings be based on my age and years out to retirement?

A. In a word, yes. Your age and years until retirement, your post-retirement income and the value of your overall investments are the most important factors in determining how to allocate your portfolio.

As you approach your retirement age, diversified investments that focus more on capital preservation and income generation—and less on riskier growth stocks—are your best bets. Older investors may opt for the safety of money market funds because they have less time to recover from market losses.

See also:

Protecting Your Nest Egg in a Volatile Market

The Bear (Market) Necessities

Crunching the Numbers: How Much Do You Need to Retire?

Q. My insurance only partially covered my surgery and post-op treatment. I’ve been trying to pay off the balance but recently lost my job. What should I do about these medical bills?

A. Explain the problem to the hospital and your doctors and try to work out a monthly repayment plan with each of them. Be sure to pay on time or your account could be turned over to a collection agency. Hospitals that receive federal funding are required to provide “charity care” up to a specific amount per year. Find out if your hospital gets federal funding so you can apply. To learn if you qualify for other benefits, contact your state health department and local social service agencies, and look into Medicaid, the federal-state program for low-income Americans. Go to benefits.gov and search “Medicaid/Medicare” for contact information in your state.

Q. In this scary economy, is it better for me to use my credit card or my debit card for purchases?

A. It depends on your situation. Use your credit card if you can pay the full balance each month. That way, you’re borrowing someone else’s money to finance your monthly purchases at no interest. If you’re carrying a balance, don’t go further into debt. In that case, use your debit card so you’re not adding to your debt load. Be careful though. It’s easy to forget to record a payment. Overdrawing a bank balance will result in a painful bank charge. If you’re struggling with a tight budget and aren’t a careful record keeper, pay in cash. That can be tough, but it’s a powerful self-discipline tool that will help you avoid spending more money than you can afford.

Q. I decided to cash in my 401(k) and renovate my home since the market took a dive. I felt much better, and my kitchen and bath look great. I’m 53. Was this a bad move?

A. It was probably better for your peace of mind than for retirement security. Between the taxes and penalties for early withdrawal, you probably lost about 30 percent of your 401(k) funds—and that’s before you even cashed the check. What’s done is done. Try to rebuild your retirement savings so you’ll have a nest egg you can count on.

Q. My financial adviser told me I am too heavily invested in international funds. Is this a good time to rebalance? Wouldn't I be locking in my tremendous loss?

A. Investing for your retirement security depends on several factors—risk tolerance, time horizon and investment goals. So before you make any decisions about which funds or investment types to invest in, consider your circumstances and your objectives to see if rebalancing at this time is the right decision for you.

If you do move funds from one investment to another when these investments are down, you will be realizing these losses. That’s why it's important to be patient, focus on your long-term goals and make sure your portfolio is diversified to reduce your exposure to risk. Keep in mind that no investment strategy, such as diversification or asset allocation, can protect against loss in a down market with declining values.

[The advice for the question above comes from Janet Fossell, director, Retirement and Investor Services at the Principal Financial Group.]

Q. I’m considering buying a new car to replace my gas guzzler. Which models for 2009 are the most fuel-efficient?

A. The Environmental Protection Agency and the Department of Energy just published the 2009 “Fuel Economy Guide” for new-car buyers. The downloadable guide lists the estimated annual fuel costs of 2009 model-year cars and trucks in an effort to help consumers save money at the pump.

The fuel guide website also features an interactive guide that gives estimated mileage and fuel costs for vehicles from model years 1985 through 2009. You can plug in your local gasoline prices and typical driving habits to get a personalized cost estimate.

Q. How much money have Americans lost in their 401(k) plans from the down market? How long will it take to get that money back?

A. Earlier this month, the House Education and Labor Committee held a hearing on the nation’s financial crisis and its impact on workers’ retirement security. In his opening remarks, Committee Chairman George Miller, D-Calif., said that more than $500 billion has evaporated from 401(k) plans as a result of the market turmoil over the last year. He also quoted experts as saying it could take three years to recover those losses—but only if the market turns around soon.

Q. To prevent a foreclosure, my lender suggested a “short sale” of my property. What is this?

A. Short sales generally take place in a down market when a homeowner owes more on a property than its current value and can no longer afford the mortgage payments. A bank or mortgage lender agrees to take a loss on the property by reducing the loan balance and avoiding the costs of a foreclosure. When the property is sold, the proceeds of the sale go to the lender.

But there are drawbacks. Lenders have the right to approve or reject a proposed sale. Also, there’s still the possibility that homeowners will be liable for the balance between what the house sells for and the original mortgage amount. In addition, a homeowner’s credit score would be adversely affected by a short sale, though not as much as if the property went into a foreclosure.

Q. My husband and I live off our Social Security benefits. How will the federal rescue plan affect our benefits?

A. Fortunately, the rescue package will have no impact on your Social Security benefits. You will continue to receive your current benefit amount plus a cost-of-living adjustment. The 2009 Social Security COLA, announced Oct. 16, will be 5.8 percent and will start in January.

Q. Should I cancel my AIG life insurance policies and switch to another insurer?

A. No. Insurance regulators are recommending that AIG customers stick with their policies, and warn that people might not be able to sign up with another insurer if they cancel their AIG policies. This is especially possible for those with health problems.

State regulators and guaranty associations say that AIG has many insurance subsidiaries, which are not in financial trouble and have enough money to cover claims.

In any case, each state’s guaranty association would intervene to safeguard your funds even if a subsidiary failed. The amount of coverage you’d get varies from state to state. Generally, with life insurance, you would be covered for up to $300,000 in death benefits, and for $100,000 in cash surrender or withdrawal value.

For more information, go online to the National Association of Insurance Commissioners.

Q. Will it cost more to heat my home this winter?

A. Most likely, particularly for households that depend on heating oil. Across the board, the Energy Department says this year’s expected heating costs will be about 15 percent higher on average than last winter’s. Expenses can vary depending on region, local weather and a home’s energy efficiency. But overall, households that use electric heat will see the smallest increase, about 10 percent on average, followed by propane, 11 percent; natural gas, 18 percent; and heating oil, used mostly in the Northeast, 23 percent.

Q. I have a pension plan with my company. Recently I was offered a lump sum in lieu of a monthly income. Should I take it?

A. Ask yourself this: Could I use the lump sum to buy myself an immediate annuity that pays more per month? If not, and you want a fixed income, the monthly pension is the better deal, says Jane Bryant Quinn, author of Making the Most of Your Money. If you’re worried that your company might fail, then taking the lump sum and rolling it into an immediate annuity (if you want fixed income) or an individual retirement account invested in stock and bond mutual funds is a wise idea. Though company pensions are insured by the Pension Benefit Guaranty Corp., you’d likely get a lower amount than you would’ve received with the pension.

Q. My money is in a credit union. Is it guaranteed?

A. Insurance for credit unions varies. Most credit unions are insured by the National Credit Union Administration (NCUA), which covers all individual investors up to $250,000 per account if an institution fails. The coverage limit was raised from $100,000 when the economic relief package was signed into law Oct. 3. It will be in place through Dec. 31, 2009.

If your credit union is not covered by the NCUA, it’s likely that it is regulated at the state level with private insurance. Contact your credit union and ask if it is NCUA-insured. A credit union that opts for private insurance is required to disclose that to members.

Q. Over the past year I have moved most of my retirement money to bonds or bond funds based upon my desire to have a safe portfolio. It now appears that bonds go down when the market goes down, but they don’t recover when the market goes up. My broker says to stay the course because these funds are paying terrific yields but are still going down. My portfolio went down by about 9 percent in September and almost 15 percent for the year. Does this make sense, and what do I do?

A. Typically, when stocks fall, bond returns rise. But the current financial crisis is creating the unusual movement of bonds and stocks losing ground simultaneously. It’s important to note that some bond funds are more volatile than others. Closed-end funds are particularly volatile because they use leverage (borrowed money) and trade like a stock, so when this type of fund is out of favor, investors will likely see a larger loss compared with other bond funds.

In your case, losing 15 percent in bonds so far this year seems extreme, says Roy Williams of Prestige Wealth Management in Pennington, N.J. He points out that as of Sept. 30, the Morningstar corporate bond index is down 7.46 percent year-to-date, and the high yield (junk bond) is down 10.64 percent year-to-date—far better than your 15 percent loss. Check out what types of bonds are in your portfolio—corporate investment-grade bonds, high-yield corporate bonds or foreign bonds, for example. Do you have open-ended or closed-ended funds? You may wish to seek another opinion to assess your risk tolerance and bond allocation.

Q. I've heard that pension benefits may be one of the casualties of the economic crisis. I've been retired for four years. Is my pension safe if my former company fails?

A. Most likely. The Pension Benefit Guaranty Corp. (PBGC) insures defined benefit pension plans sponsored by companies in the private sector. However, the maximum amount that is guaranteed varies based on the retiree; the older you are when you retire, the higher the maximum. For 2008 the PBGC insures pensions up to $51,750 annually for a 65-year-old, and up to $33,638 annually for a person age 60.

Not everyone's pension plan is covered, though. For example, workers in professional service firms, such as doctors' and lawyers' offices, with fewer than 25 employees, and employees of religious organizations are not covered by the PBGC.

You can check your company's summary plan description to see whether your plan is covered by the PBGC program. For more information, go to  Your Guaranteed  Pension on the PBGC website.

Q. Could Black Monday happen again?

A. Black Monday refers to Oct. 19, 1987, the day that the Dow Jones Industrial Average plummeted 22.6 percent, a 111-year record loss that still stands. Many experts say that a repeat of this magnitude is highly unlikely because the stock market operates very differently than it did 20 years ago, with changes from more stringent curbs on trading to greater investor participation and awareness. By comparison, on Sept. 15, 2008, the Dow Jones sank 4.4 percent.

Q. What happened with AIG?

A. The government seized control of the insurance giant American International Group, putting up $85 billion in exchange for 80 percent of its stock. The government stepped in after private companies decided not to assume AIG’s massive financial risk.

AIG found itself near bankruptcy due to mounting losses from investments tied to subprime mortgages and also from the insurance it was providing to others who invested in mortgages. If the company had failed, it could have sent losses cascading across the global financial system.

Q. I retired five years ago, but with the economy and inflation as they are, I need to go back to work. Where do I start?

A. You’re not alone. Workers age 55 and older are becoming one of the fastest-growing demographics in the U.S. labor pool. Today many websites now cater to older job seekers. Here are a few: RetirementJobs.com, SeniorJobBank.org, RetiredBrains.com and Jobs4point0.com. You may want to give them a try as a first step in your search.

AARP’s Job Search is a free service that allows you to hunt for opportunities with thousands of employers, and AARP’s National Employer Team lists 39 companies interested in hiring older workers.

See Also:

How to Get Hired by a 30-Year-Old

Job Search Resources and Websites for Older Workers

Where the Jobs Are

Q. I’m about to start a new job. What should I do with my 401(k) plan?

A. When you leave a job, there’s a temptation to pull your money out of your former employer’s plan. But that triggers taxes, and possibly penalties, and reduces your nest egg’s tax-deferred growth. Consider moving your 401(k) plan to your new employer’s plan, if there is one, or roll it over into an IRA. [See Also: Mastering Your 401(k).]

Q. I’m behind on my house payments and the bank is about to foreclose on my house. What can I do?

A. Contact your lender immediately to see if you can negotiate your payments. Also, it’s best to read your loan documents so you know what your lender may do if you can’t make your payments. Contact your state’s housing department to learn about the foreclosure laws and time frames in your state, because every state is different.

You can also call a U.S. Department of Housing and Urban Development-approved counseling agency at (800) 569-4287, or go to HUD’s website for more information. The nonprofit group Neighbor Works also provides counseling at (888) 995-HOPE.

Q. I’m 74, retired and living on a fixed income. I may not have enough money for my living expenses, but I own my own home. Is taking out a reverse mortgage a wise move?

A. It depends on your individual circumstances and wishes. Reverse mortgages can provide additional cash to help you remain independent in your home. But these loans can be very expensive, especially if you aren’t able to stay in your house for many more years. Equity limits that affect how much you can borrow for a federally insured reverse mortgage (which represents at least 90 percent of the marketplace today) are also expected to increase shortly. Read more about how these loans work, the pros and cons, and get a personalized estimate of about how much you might be able to borrow at www.aarp.org/revmort.