Dear Liz: I have an American Express card and two Visa cards, which I have held for many years. I received a notice that my American Express card is being converted to a Visa card. I don’t want a third Visa card, but I have no choice. For credit score purposes, will this conversion appear to be a closure of my old card and a request for a new one? Obviously, closing a long-standing credit card and applying for a new one will affect my excellent credit score, which is 830. If I decided to apply for a new American Express card, what impact would that have on my score?
Responnse: Conversions from one issuer to another can have a temporary negative impact on your credit scores because one account is closed and another is opened. The effect should be minor as long as you have other open and active accounts.
In a month or two, the new account should show the same history as the old one and your scores should recover. (By the way, you have multiple credit scores, and your scores change all the time. As long as they’re usually over around 760, you should get the best rates and terms from lenders.)
The type of card is generally less important than the benefits associated with the card. If these benefits are useful to you and are enough to offset the annual fee, consider keeping the card. Its long history and credit limit are likely contributing to your scores.
That doesn’t mean you have to keep a card that you really don’t want. However, the fewer cards you have, the more care you will likely have to be when closing one.
You can always add an American Express or other card to your wallet. Adding a new card usually drops your scores to less than five points. The effect is temporary and the new account could positively contribute to your scores over time.
Social Security and the fiscal torpedo
Dear Liz: People are generally advised to wait as long as possible (full retirement age or later) to purchase Social Security in order to maximize benefits. If a couple has low expenses and substantial pensions, wouldn’t it be wise to take Social Security earlier, in order to preserve the retirement funds to pass on to their heirs? Social Security payments stop on death, while retirement accounts are passed on to heirs.
Responnse: If your main concern is preserving an inheritance, maximizing your Social Security payments could help you reduce the amount you need to withdraw from long-term retirement funds.
Starting early could also make you more vulnerable to what’s known as the fiscal torpedo, which is a sharp increase in marginal tax rates because of the way Social Security is taxed when a person receives other income. People who only receive Social Security don’t face the torpedo, and people with higher incomes probably can’t avoid it, but people with middle incomes may be able to soften the blow by delaying security. social security and tapping into their retirement funds instead.
One way to preserve the assets of heirs is to convert traditional retirement accounts to Roth IRAs. This requires paying taxes on conversions, but then you wouldn’t face the minimum distributions required on Roth accounts.
Calculating the best course can be difficult. You can pay anywhere from $ 20 to $ 40 to use sophisticated claims software such as Social Security Solutions or Maximize My Social Security to model various options, or consider seeing a paid advisor.
Dear Liz: I would appreciate your thoughts on long term care insurance programs. Ours just announced a 52% rate hike with a possible 25% increase next year. While I realize that none of us can predict the future, are there any guidelines you can suggest when deciding whether, for example, a healthy 80-year-old needs the maximum coverage of 10 years or can get away with three one year coverage period?
Responnse: Most people over 65 will need long-term care, but most will need it for less than three years. You may want to err on the side of caution and go for a longer period of coverage if you have a family history of dementia.
Liz Weston, Certified Financial Planner, is Personal Finance Columnist for NerdWallet. Questions can be sent to him at 3940 Laurel Canyon, No. 238, Studio City, CA 91604, or by using the “Contact” form at asklizweston.com.