The cost of labor and how to maximize your Social Security

Many people are surprised to learn that Social Security payments can be taxable. In fact, depending on your Modified Adjusted Gross Income (MAGI), you may be taxed on up to 85% of your benefits. Once you reach retirement age, your Social Security benefits are taxed based on your filing status and how much other income you receive. If you file singly and your provisional income is below $25,000 annually, you will not pay taxes on your Social Security benefits.  (Provisional income includes gross income, tax-free interest, and 50% of Social Security benefits.) A single filer whose provisional income is between $25,000 and $34,000 will be taxed on up to 50%. Single filers whose provisional income is more than $34,000 are taxed on up to 85% of their benefits. The numbers increase for people who file jointly, with those whose provisional income remains under $32,000 avoiding taxes on Social Security, couples earning a provisional income of between $32,000 and $44,000 taxed on up to 50% and those earning over $44,000 in provisional income taxed on up to 85%. Some states also tax Social Security benefits, although they are exempt from state taxes in Wisconsin and 36 other states. Knowing the difference between qualified and non-qualified money is the key to making the most out of the money you’re earned. Qualified money includes assets you have accumulated but not paid income taxes on yet, for instance, IRA and 401(k) money.  Because you won’t have to pay taxes on these assets until you withdraw them, the government requires you to begin doing so when you reach 70 ½. These are called required minimum distributions and you must take them every year or you will be penalized. Additionally, these distributions adjust your provisional income higher, which makes more of your Social Security taxable. That’s one reason to increase the amount of non-qualified assets you have in your portfolio as you get closer to retirement…. | Read More »

What your children need to know about money

High schools around the country are doing a much better job of providing financial education to students, but the best teaching still occurs in the home. You can start with a simple piggy bank and show your little people how to set a goal and then save to achieve it. By the time they get to grade school, children should understand these basic principles of saving and spending, but they also should begin to understand what it means to invest money in something and how and why people borrow money. Teach them about income and why a good education and training can lead to more. Children should learn how to count money, how to budget, why you should try very hard not to spend more than you make. In later grade school years you can teach them how to manage a credit card and why adults need insurance. By the time they get to middle school your kids are ready to learn about the stock market and how interest rates and inflation affect the value of money. It might be fun to pick out and track a few stocks with them and show them how they can take financial risks to make money. Middle schoolers already experience sales tax, so you can start talking to them about property and income taxes and how to factor them into your purchases and financial goals. Revisit as often as you can the idea of making and keeping a good budget plan and how to avoid paying interest rates and late fees. Talk about insurance and why people need to protect themselves. By high school, many students begin receiving a paycheck, which is an excellent opportunity to drive home the impact of taxes and Social Security on income.  Many will also be planning to apply for college and that process also offers a very necessary opportunity to discuss loans, interest rates, budgeting, and your… | Read More »

Seven steps to preserving your independence

How we age depends on so much more than genetics. The good news is that, even though it isn’t always easy, we do have control over most of the factors shaping our golden years. Last year, Northwestern University released a study of “super agers”, people over 80-years old who have maintained excellent cognitive function. The study noted a clear link between brain health and positive relationships. Want to maintain your independence? Call a friend to chat! In addition to cultivating and maintaining social connections, we’ve identified six other key factors that influence how we age and you have some control over them all. You just have to lean in. Physical strength. You don’t have to go to the gym every day, but you do need to remain active. Take a walk, ride a bike, go for a swim, play a little pickle ball, practice yoga. Taking fitness and just plain activity seriously enough to maintain a basic amount of body strength is also very important for fall prevention. Most doctors recommend 30 minutes a day. Home modifications. As physical needs change, people need to adapt their environment to accommodate those changes. Install handrails, clear the floor of any throw rugs, move furniture to ensure a clear path through it. Arrange your cabinets to make things you use every day readily accessible. Add floor mats and guard rails to your tub, check the lighting in your bedroom to make sure you can see at night. You don’t necessarily have to cook your own meals, but you do have to make sure you are consuming nutritious food. Home delivery services make that very easy. Pay attention to what you put in your mouth and make sure you keep healthy snacks in stock. Stock up on freezer containers so you can split one large meal into several smaller and freeze them for later use. Of course, having a driver’s license makes transportation much… | Read More »

Age is just a number, especially in retirement planning

One of the most important numbers most people consider when they plan their retirement is also the one that gets them in trouble: their age. The right way to consider age in financial planning is to use it to plan an effective retirement horizon – how many years will you need to fund and how likely are you to need to pay for some form of long term care. The wrong way to consider age is to use it to defend an otherwise random decision to stop working. It is extremely dangerous to base your retirement on the feeling that you are entitled to it. “Listen, I’ve worked hard for 35 years and I’m already five years older than my dad was when he retired,” goes the common though flawed rationale. “I’m done. I’m out. “ Asked what they intend to do when their money runs out (as it probably will), they respond, “I’ll figure that out when it happens.” Well, that won’t work. You can’t take out a loan to fund your retirement, and, as your money runs out you find yourself less and less in control of the life choices you took for granted. To establish the financial freedom you need to enjoy your retirement, you need to be proactive. Here are seven steps you need to take before you decide to retire (and none of them involves your age): Establish a budget. This tedious task yields a key number to consider when planning your retirement – how much money you will need each month. Of course your retirement budget will look a little different than your working budget – for one thing you’ll be withdrawing, not contributing, to a retirement plan. But the best place to start planning is by figuring out your outflow now. Develop disciplined spending habits. Don’t spend money you don’t have. Plan for large expenditures and try to keep debt under control. If… | Read More »

How to risk well

The single most important thing you need to know about risk as you plan your retirement is that you can’t avoid it. The less risk you’re willing to take in the stock market, the more vulnerable you make yourself to inflation risk. If you overweight your portfolio to bonds because you want to avoid market risk, you end up facing business and interest rate risk.  In general, the financial planning industry lists seven types of risks all investors face: default, business, liquidity, inflation, interest rate, political and market risks. Each risk affects the balance of your retirement portfolio, but you control the position of the fulcrum. We call that risk tolerance and we ask all clients and prospective clients to answer a series of questions to determine theirs. Most people find that their risk tolerance decreases as the get closer to retirement for both practical and emotional reasons. They have less time to make up for any sudden dips in the market and probably should shift assets onto more stable ground as they anticipate withdrawing from them Additionally, their sleeping level decreases as they become more hyper-focused on their accounts. Other factors influencing risk tolerance include major life changes like marriage, divorce, promotions, job loss, birth of children, inheritance, home purchase, caring for elderly parents, medical disability etc.  Because these dramatic changes can have a profound effect on your risk tolerance, it is important to check your risk tolerance periodically, particularly after experiencing any of these events. According to Finametrica, the risk tolerance surveyor to which we subscribe, the first part of the process is determining how much risk is required for you to meet your goals: What annual return will you need on your investments to meet them, given what you think you can save? Next, figure out your risk capacity, which is different from your risk tolerance.  Given your budget, retirement timeline and financial assets, how much risk… | Read More »