What Women Need to Know Before Deciding to Retire: Challenges & Opportunities

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A practical financial checklist for the future.

When our parents retired, living to 75 amounted to a nice long life, and Social Security was often supplemented by a pension. The Social Security Administration estimates that today’s average 65-year-old female will live to age 86.6. Given these projections, it appears that a retirement of 20 years or longer might be in your future. (1,2)

Are you prepared for a 20-year retirement?

How about a 30- or 40-year retirement? Don’t laugh; it could happen. The SSA projects that about 25% of today’s 65-year-olds will live past 90, with approximately 10% living to be older than 95. (2)

How do you begin?

How do you draw retirement income off what you’ve saved – how might you create other income streams to complement Social Security? How do you try and protect your retirement savings and other financial assets?

Talking with a financial professional may give you some good ideas.

You want one who walks your walk, who understands the particular challenges that many women face in saving for retirement (time out of the workforce due to childcare or eldercare, maintaining financial equilibrium in the wake of divorce or death of a spouse).

As you have that conversation, you can focus on some of the must-haves.

Plan your investing.

If you are in your fifties, you have less time to make back any big investment losses than you once did. So, protecting what you have is a priority. At the same time, the possibility of a 15-, 20-, or even 30- or 40-year retirement will likely require a growing retirement fund.

Look at long-term care coverage.

While it is an extreme generalization to say that men die sudden deaths and women live longer; however, women do often have longer average life expectancies than men and can require weeks, months, or years of eldercare. Medicare is no substitute for LTC insurance; it only pays for 100 days of nursing home care and only if you get skilled care and enter a nursing home right after a hospital stay of 3 or more days. Long-term care coverage can provide a huge financial relief if and when the need for LTC arises. (1,3)

Claim Social Security benefits carefully.

If your career and health permit, delaying Social Security is a wise move for single women. If you wait until full retirement age to claim your benefits, you could receive 30-40% larger Social Security payments as a result. For every year you wait to claim Social Security, your monthly payments get about 8% larger. (4)

Above all, retire with a plan. Have a financial professional who sees retirement through your eyes help you define it on your terms, with a wealth management approach designed for the long term.

Sources

  1. cdc.gov/nchs/products/databriefs/db293.htm
  2. ssa.gov/planners/lifeexpectancy.htm
  3. medicare.gov/coverage/skilled-nursing-facility-care.html
  4. thestreet.com/retirement/how-to-avoid-going-broke-in-retirement-14551119

This material was prepared by MarketingPro, Inc., and does not necessarily represent the views of the presenting party, nor their affiliates. This information has been derived from sources believed to be accurate. Please note – investing involves risk, and past performance is no guarantee of future results. The publisher is not engaged in rendering legal, accounting or other professional services. If assistance is needed, the reader is advised to engage the services of a competent professional. This information should not be construed as investment, tax or legal advice and may not be relied on for the purpose of avoiding any Federal tax penalty. This is neither a solicitation nor recommendation to purchase or sell any investment or insurance product or service, and should not be relied upon as such. All indices are unmanaged and are not illustrative of any particular investment.

How to Make Sure “Lifestyle Creep” Doesn’t Ruin Your Financial Plan

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Sometimes more money can mean more problems.

“Lifestyle creep”

An unusual phrase describing an all-too-common problem: the more money people earn, the more money they tend to spend.

Frequently, the newly affluent are the most susceptible.

As people establish themselves as doctors and lawyers, executives, and successful entrepreneurs, they see living well as a reward. Outstanding education, home, and business loans may not alter this viewpoint. Lifestyle creep can happen to successful individuals of any age. How do you guard against it?

Keep one financial principle in mind: spend less than you make.

If you get a promotion, if your business takes off, if you make partner, the additional income you receive can go toward your retirement savings, your investment accounts, or your debts.

See a promotion, a bonus, or a raise as an opportunity to save more.

Do you have a household budget? Then the amount of saving that the extra income comfortably permits will be clear. Even if you do not closely track your expenses, you can probably still save (and invest) to a greater degree without imperiling your current lifestyle.

Avoid taking on new fixed expenses that may not lead to positive outcomes.

Shouldering a fixed mortgage payment as a condition of home ownership? Good potential outcome. Assuming an auto loan so you can drive a luxury SUV? Maybe not such a good idea. While the home may appreciate, the SUV will almost certainly not.

Resist the temptation to rent a fancier apartment or home.

Few things scream “lifestyle creep” like higher rent does. A pricier apartment may convey an impressive image to your friends and associates, but it will not make you wealthier.

Keep the big goals in mind and fight off distractions.

When you earn more, it is easy to act on your wants and buy things impulsively. Your typical day starts costing you more money.

To prevent this subtle, daily lifestyle creep, live your days the same way you always have – with the same kind of financial mindfulness. Watch out for new daily costs inspired by wants rather than needs.

Live well, but not extravagantly.

After years of law school or time toiling at start-ups, getting hired by the right firm and making that career leap can be exhilarating – but it should not be a gateway to runaway debt. According to the Federal Reserve’s latest Survey of Consumer Finances, the average American head of household aged 35-44 carries slightly more than $100,000 of non-housing debt. This is one area of life where you want to be below average. (1)

Sources

  1. time.com/money/5233033/average-debt-every-age/

This material was prepared by MarketingPro, Inc., and does not necessarily represent the views of the presenting party, nor their affiliates. This information has been derived from sources believed to be accurate. Please note – investing involves risk, and past performance is no guarantee of future results. The publisher is not engaged in rendering legal, accounting or other professional services. If assistance is needed, the reader is advised to engage the services of a competent professional. This information should not be construed as investment, tax or legal advice and may not be relied on for the purpose of avoiding any Federal tax penalty. This is neither a solicitation nor recommendation to purchase or sell any investment or insurance product or service, and should not be relied upon as such. All indices are unmanaged and are not illustrative of any particular investment.

What a Target-Date Retirement Mutual Fund Is and How to Use It Properly

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Are these low-maintenance investments vital to retirement planning, or overrated?

Do target-date funds represent smart choices, or just convenient ones?

These funds have become ubiquitous in employer-sponsored retirement plans and their popularity has soared in the past decade. According to Morningstar, net inflows into target-date funds tripled during 2007-13. Asset management analysts Cerulli Associates project that 63% of all 401(k) contributions will be directed into TDFs by 2018. (1,2)

Fans of target-date funds praise how they have simplified investing for retirement. Still, they have a central problem: their leading attribute may also be their biggest drawback.

How do TDFs work?

The idea behind a target-date fund is to make investing and saving for retirement as low-maintenance as possible. TDFs feature gradual, automatic adjustment of asset allocations in light of an expected retirement date, along with diversification across a wide range of asset classes. An investor can simply “set it and forget it” and make ongoing contributions to the fund with the confidence that its balance of equity and fixed-income investments will become more risk-averse as retirement nears.

In a sense, a TDF starts out as one style of fund for an investor and mutates into another. When he or she is young, it is an aggressive growth fund, with as much as 90% of the inflows assigned to equities. By the time the envisioned retirement date rolls around, the allocation to equities and fixed-income investments may be split closer to 50/50. (2)

With such long time horizons, TDFs are truly buy-and-hold investments.

That has definite appeal for people who lack the time or inclination to take a hands-on approach to retirement planning. TDFs also usually have low turnover, with some distributions taxed as long-term capital gains. (1)

Are pre-retirees relying too heavily on TDFs?

Putting retirement investing on “autopilot” can have a downside – and that may be worth an alarm or two, given Vanguard’s forecast that 58% of its retirement plan participants (and 80% of its new plan participants) will have all of their retirement plan assets in TDFs by 2018. So in noting the merits of TDFs, we must also look at their demerits. (2)

The asset allocation of a target-date fund is not exactly dynamic.

As it is geared to a time horizon rather than current market conditions, TDF investors may wince when a severe bear market arrives – it could be a case of “set it & regret it.” They will need the patience to ride such downturns out. If they sell, they defeat the purpose of owning their TDF in the first place.

Additionally, some investors are conservative well before they reach retirement age.

A fortysomething risk-averse investor might not like having a clear majority of his or her TDF assets held in equities.

An investor will not be able to perform any tax loss harvesting with assets invested in a TDF (that is, selling “losers” in a portfolio to offset gains made by “winners”) and if all of his or her retirement savings happen to be in the TDF, you have to pull money out of the TDF to put it in other types of investments that might generate tax savings. (1)

Fees can be high

Because most TDFs are funds of funds – that is, multiple mutual funds brought together into one giant one – it may mean two layers of fees. (2)

The glide path is very important.

All TDFs have a glide path, the glide path being the rate or pace at which the asset allocation changes from aggressive toward conservative. With some TDFs, the glide path ends at retirement and the asset allocation approaches 100% cash. With others, the fund keeps gliding past a retirement date with the result that the retiree maintains a foot in the equities market – potentially very useful in the face of longevity risk, or as it is popularly known, the risk of outliving your money. The glide path of the TDF should be agreeable to the investor. The problem is that an investor may agree with it more at age 40 than at age 60. (1)

Here is a sample equity glide path for Vanguard’s target date funds:

Screen Shot 2018-06-05 at 8.59.23 PM

One feature can make TDFs even more appealing.

In 2014, the IRS and the Treasury Department permitted TDFs held in 401(k) plans to add a lifetime income option. That let a TDF investor receive a pension-like income beginning at the fund’s target date. Companies sponsoring 401(k)s can even elect to make such TDFs the default plan investment; that is, employees who wanted to direct their money into other investment vehicles would have to inform their employers that they were opting out.

Younger retirement savers should take a look at TDFs.

If you are not enrolled in one already, you may want to weigh their pros and cons. While not exactly “the cure” for America’s retirement savings problem, they are deservedly popular.

Source

  1. money.usnews.com/money/blogs/the-smarter-mutual-fund-investor/2015/04/07/3-questions-to-ask-before-choosing-target-date-funds
  2. time.com/money/3616433/retirement-income-401k-new-solution/
  3. nextavenue.org/article/2015-02/target-date-funds-pros-and-cons
  4. https://www.vanguard.com/pdf/s167.pdf

This material was prepared by MarketingPro, Inc., and does not necessarily represent the views of the presenting party, nor their affiliates. This information has been derived from sources believed to be accurate. Please note – investing involves risk, and past performance is no guarantee of future results. The publisher is not engaged in rendering legal, accounting or other professional services. If assistance is needed, the reader is advised to engage the services of a competent professional. This information should not be construed as investment, tax or legal advice and may not be relied on for the purpose of avoiding any Federal tax penalty. This is neither a solicitation nor recommendation to purchase or sell any investment or insurance product or service, and should not be relied upon as such. All indices are unmanaged and are not illustrative of any particular investment.

Guide to Financing a College Education for Parents and Grandparents

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A primer for parents and grandparents.

A university education can often require financing and assuming debt.

If your student fills out the Free Application for Federal Student Aid (FAFSA) and does not qualify for a Pell Grant or other kinds of help, and has no scholarship offers, what do you do? You probably search for a student loan.

A federal loan may make much more sense than a private loan.

Federal student loans tend to offer kinder repayment terms and lower interest rates than private loans, so for many students, they are a clear first choice. The interest rate on a standard federal direct loan is 4.45%. Subsidized direct loans, which undergraduates who demonstrate financial need can arrange, have no interest so long as the student maintains at least half-time college enrollment. (1,2)

Still, federal loans have borrowing limits, and those limits may seem too low.

A freshman receiving financial support from parents may only borrow up to $5,500 via a federal student loan, and an undergrad getting no financial assistance may be lent a maximum of $57,500 before receiving a bachelor’s degree. (That ceiling falls to $23,000 for subsidized direct loans.) So, some families take out private loans as supplements to federal loans, even though it is hard to alter payment terms of private loans in a financial pinch. (1,2)

You can use a student loan calculator to gauge what the monthly payments may be.

There are dozens of them available online. A standard college loan has a 10-year repayment period, meaning 120 monthly payments. A 10-year, $30,000 federal direct loan with a 4% interest rate presents your student with a monthly payment of $304 and eventual total payments of $36,448 given interest. The same loan, at a 6% interest rate, leaves your student with a $333 monthly payment and total payments of $39,967. (The minimum monthly payment on a standard student loan, if you are wondering, is typically $50.) (3)

When must your student start repaying the loan?

Good question. Both federal and private student loans offer borrowers a 6-month grace period before the repayment phase begins. The grace period, however, does not necessarily start at graduation. If a student with a federal loan does not maintain at least half-time enrollment, the grace period for the loan will begin. (Perkins loans have a 9-month grace period; the grace period for Stafford loans resets once the student resumes half-time enrollment.) Grace periods on private loans begin once a student graduates or drops below half-time enrollment, with no reset permitted. (4)

What if your student cannot pay the money back once the grace period ends?

If you have a private student loan, you have a problem – and a very tough, and perhaps fruitless, negotiation ahead of you. If you have a federal student loan, you may have a chance to delay or lower those loan repayments. (3)

An unemployed borrower can request deferment of federal student loan payments.

A borrower can also request forbearance, a deferral due to financial emergencies or hardships. Interest keeps building up on the loan balance during a forbearance, though. (1)

At the moment, federal student loans can be forgiven through two avenues.

The first, the Public Service Loan Forgiveness (PLSF) program, requires at least 10 years of public service, government, or non-profit employment, or at least 120 student loan payments already made from the individual. The second avenue, income-driven repayment plans, first lowers the monthly payment and extends the payment timeline based on what the borrower earns. If the balance is finally forgiven, the loan forgiveness is seen by the Internal Revenue Service as taxable income. (If you have student loan debt forgiven via the PLSF, no taxes have to be paid on the amount.) (1,3)

Consult financial aid officers and high school guidance counselors before you borrow.

Get to know them; request their knowledge and insight. They have helped other families through the process, and they are ready to try and help yours.

Lastly, avoid draining the Bank of Mom & Dad.

If your student needs to finance a college education, remember that this financial need should come second to your need to save for retirement. Your student has a chance to arrange a college loan; you do not have a chance to arrange a retirement loan.

Sources:

  1. nbcnews.com/better/business/student-loan-debt-what-kids-their-parents-need-know-ncna865336
  2. www2.cuny.edu/financial-aid/student-loans/federal-direct-loans/
  3. credible.com/blog/refinance-student-loans/how-much-will-you-actually-pay-for-a-30k-student-loan/
  4. discover.com/student-loans/repayment/student-loans-semester-off.html

This material was prepared by MarketingPro, Inc., and does not necessarily represent the views of the presenting party, nor their affiliates. This information has been derived from sources believed to be accurate. Please note – investing involves risk, and past performance is no guarantee of future results. The publisher is not engaged in rendering legal, accounting or other professional services. If assistance is needed, the reader is advised to engage the services of a competent professional. This information should not be construed as investment, tax or legal advice and may not be relied on for the purpose of avoiding any Federal tax penalty. This is neither a solicitation nor recommendation to purchase or sell any investment or insurance product or service, and should not be relied upon as such. All indices are unmanaged and are not illustrative of any particular investment.

 

Planning Income For Life: Using The Bucket Strategy in Retirement

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Constructing a portfolio this way may help you ride through a bear market in retirement.

The bucket approach may help you through different market cycles in retirement.

This investing strategy, credited to a Florida financial planner named Harold Evensky, has simple and complex variations. It assigns fixed-income and equity investments to different “buckets” with the goal of providing sufficient cash flow to retirees during different stages of their “second acts.” (1,2)

The simplest version involves just two buckets.

One holds the equivalent of 1-5 years of cash reserves (in deposit accounts and/or fixed-income investments), and the other holds everything else in the investment portfolio. When you need to fund your expenses, you turn to the cash and the fixed-income vehicles and leave equities untouched. Rebalancing your portfolio (that is, selling investments in an overweighted asset class) lets you increase the size of your cash bucket. (1,2)

Other versions of the bucket approach have longer time horizons.

In one variation designed to be used for at least 25 years, a cash reserve bucket is created to fund the first two years of retirement, its size approximating 10% of the portfolio; the cash comes from FDIC-insured sources or Treasuries. A second bucket, intended to generate somewhat greater income, is planned for the rest of the first decade of retirement; this bucket is filled with longer-duration, fixed-income investments and comprises about 35% of the portfolio. The third bucket (the other 55%) is designed for the years afterward and contains a sizable equities position; the goal here is to realize some growth and compounding for a decade, then tap into that bucket for income. (1,2)

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In glimpsing the details of the bucket approach, you can also see the big picture.

Suppose a bear market occurs just as you retire. Since your retirement income strategy pulls cash from deposit accounts and fixed-income investments first, your equity positions have time to rebound. You have a chance to avoid selling low (and selling off part of your retirement fund).

Is the bucket approach foolproof?

No, but no investing strategy is. In the worst-case scenario, you drain 100% of the cash bucket(s) and end up with an all-equities portfolio. That is hardly what you want in retirement. Bucket allocations must be carefully calculated, and periodic bucket rebalancing is also needed.

The bucket approach may have both financial and psychological merits.

Most retirees use the 4% rule (or something close) when withdrawing income: they take distributions from various accounts and asset classes, perhaps with little regard for tax efficiency. If Wall Street stumbles and their portfolios shrink, they may panic and make moves they will later regret – such as selling low, abandoning stocks, or even running toward alternative investments in desperation.

When you use a bucket approach, you first turn to cash and/or liquid securities for retirement income rather than equities. Psychologically, you know that if a bear market arrives early in your retirement, your equity holdings will have some time to recover. This knowledge is reassuring, and it may dissuade you from impulsive financial decisions.

Sources

  1. seattletimes.com/business/about-to-retire-heres-how-to-cope-with-stock-market-shocks/
  2. news.morningstar.com/articlenet/article.aspx?id=839521
  3. https://am.jpmorgan.com/us/en/asset-management/gim/adv/insights/guide-to-retirement

This material was prepared by MarketingPro, Inc., and does not necessarily represent the views of the presenting party, nor their affiliates. This information has been derived from sources believed to be accurate. Please note – investing involves risk, and past performance is no guarantee of future results. The publisher is not engaged in rendering legal, accounting or other professional services. If assistance is needed, the reader is advised to engage the services of a competent professional. This information should not be construed as investment, tax or legal advice and may not be relied on for the purpose of avoiding any Federal tax penalty. This is neither a solicitation nor recommendation to purchase or sell any investment or insurance product or service, and should not be relied upon as such. All indices are unmanaged and are not illustrative of any particular investment.

Are we in for another round of high oil prices?

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Oil prices have a stealthy way of luring investors into the complacency of a trading range, before taking a dramatic turn on the cusp of a single geopolitical factor (often in the Middle East) or variety of coinciding factors.

Supply and demand

With any asset, it all comes back to the confluence of supply and demand that drives final pricing. The prior range of $45-55 was largely kept in check by the various supply and demand factors falling into balance. In normal conditions, demand is far more predictable than supply over the long-term, with steady growth being the norm in most nations as populations and industries grow, and the secular trend of emerging market demand growing at a faster rate than that of developed markets. Recessions and shifts to better energy efficiency can alter this pattern a bit, but growth remains the base case.

Supply remains the wildcard

We’ve been told we’re awash in domestic oil, thanks to new North American finds resulting from increasingly efficient extraction techniques, such as directional drilling, which is pulling more oil from nooks and crannies deeper in the ground (and ocean floor). Also, the advent and increased cost-effectiveness of shale oil production has allowed for the opening of large swaths of locked oil previously unusable. This potential volume has threatened global supply, traditionally managed by OPEC, and particularly the leader of the group, Saudi Arabia. The problem has stemmed from the Saudis and neighboring countries needing a certain price per barrel in order to maintain adequate incoming revenue to balance government budgets—these breakevens have generally been well over $75/barrel. In response, OPEC has implemented production cuts in order to artificially constrain supply and keep prices higher. In the past, this has been difficult, due to widespread ‘cheating’ (producing more than promised) by members, but in this case, with everyone needing more revenue, compliance seems to have improved. This last week’s pullout of the Iran nuclear deal by the U.S. and potential for re-imposed sanctions has created another problem for supply abroad (the Chinese tend to be heavier users of Iranian oil). Internal political tension in Venezuela, another large producer, has also threatened supplies.

U.S. infrastructure is an issue

Many of these issues appear manageable, however, one that has created problems for the safety valve of U.S. shale acting as the swing producer is infrastructure. While the oil is there, pipeline and rail capacity hasn’t kept up, due to a lack of upswing in capex spending in recent years. Oil companies and pipeline operators will typically tend to push more significant infrastructure investments if prices are expected to stay high and they have a better chance of recouping their initial fixed costs, so this tends to be a multi-year effort rather than a short-term remedy.

Crude could trade in the range of $60-70 over the next several years

Price movements, especially those due to fickle geopolitics, can be impossible to predict, but it appears consensus from a variety of sources is for crude to trade in the range of $60-70 over the next several years. Not surprisingly, estimates for future prices tend to anchor themselves around current prices. This is a bit higher than the expected range in the $50’s not that long ago, but certainly not exorbitant.

Source

  1. LSA Portfolio Analytics

The Major 2018 Federal Tax Changes

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Comparing the old rules with the new.

The Tax Cuts and Jobs Act made dramatic changes to federal tax law.

It is worth reviewing some of these changes as 2019 approaches and households and businesses refine their income tax strategies.

Income tax brackets have changed.

The old 10%, 15%, 25%, 28%, 33%, 35%, and 39.6% brackets have been restructured to 10%, 12%, 22%, 24%, 32%, 35%, and 37%. These new percentages are slated to apply through 2025. Here are the thresholds for these brackets in 2018.(1,2)

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The standard deduction has nearly doubled.

This compensates for the disappearance of the personal exemption, and it may reduce a taxpayer’s incentive to itemize. The new standard deductions, per filing status:

  • Single filer: $12,000 (instead of $6,500)
  • Married couples filing separately: $12,000 (instead of $6,500)
  • Head of household: $18,000 (instead of $9,350)
  • Married couples filing jointly & surviving spouses: $24,000 (instead of $13,000)

The additional standard deduction remains in place.

Single filers who are blind, disabled, or aged 65 or older can claim an additional standard deduction of $1,600 this year. Married joint filers are allowed to claim additional standard deductions of $1,300 each for a total additional standard deduction of $2,600 for 2018. (2,3)

The state and local tax (SALT) deduction now has a $10,000 ceiling.

If you live in a state that levies no income tax, or a state with high income tax, this is not a good development. You can now only deduct up to $10,000 of some combination of a) state and local property taxes or b) state and local income taxes or sales taxes per year. Taxes paid or accumulated as a result of business or trade activity are exempt from the $10,000 limit. Incidentally, the SALT deduction limit is just $5,000 for married taxpayers filing separately. (1,4)

The estate tax exemption is twice what it was.

Very few households will pay any death taxes during 2018-25. This year, the estate tax threshold is $11.2 million for individuals and $22.4 million for married couples; these amounts will be indexed for inflation. The top death tax rate stays at 40%. (2)

More taxpayers may find themselves exempt from Alternative Minimum Tax (AMT).

The Alternative Minimum Tax was never intended to apply to the middle class – but because it went decades without inflation adjustments, it sometimes did. Thanks to the tax reforms, the AMT exemption amounts are now permanently subject to inflation indexing.

AMT exemption amounts have risen considerably in 2018:

  • Single filer or head of household: $70,300 (was $54,300 in 2017)
  • Married couples filing separately: $54,700 (was $42,250 in 2017)
  • Married couples filing jointly & surviving spouses: $109,400 (was $84,500 in 2017)

These increases are certainly sizable, yet they pale in proportion to the increase in the phase-out thresholds. They are now at $500,000 for individuals and $1 million for joint filers as opposed to respective, prior thresholds of $120,700 and $160,900. (2)

The Child Tax Credit is now $2,000.

This year, as much as $1,400 of it is refundable. Phase-out thresholds for the credit have risen substantially. They are now set at the following modified adjusted gross income (MAGI) levels:

  • Single filer or head of household: $200,000 (was $75,000 in 2017)
  • Married couples filing separately: $400,000 (was $110,000 in 2017) (2)

Some itemized deductions are history.

The list of disappeared deductions is long and includes the following tax breaks:

  • Home equity loan interest deduction
  • Moving expenses deduction
  • Casualty and theft losses deduction (for most taxpayers)
  • Unreimbursed employee expenses deduction
  • Subsidized employee parking and transit deduction
  • Tax preparation fees deduction
  • Investment fees and expenses deduction
  • IRA trustee fees (if paid separately)
  • Convenience fees for debit and credit card use for federal tax payments
  • Home office deduction
  • Unreimbursed travel and mileage deduction

Under the conditions set by the reforms, many of these deductions could be absent through 2025. (5,6)

Many small businesses have the ability to deduct 20% of their earnings.

Some fine print accompanies this change. The basic benefit is that business owners whose firms are LLCs, partnerships, S corporations, or sole proprietorships can now deduct 20% of qualified business income*, promoting reduced tax liability. (Trusts, estates, and cooperatives are also eligible for the 20% pass-through deduction.) (4,7)

Not every pass-through business entity will qualify for this tax break in full, though.

Doctors, lawyers, consultants, and owners of other types of professional services businesses meeting the definition of a specified service business* may make enough to enter the phase-out range for the deduction; it starts above $157,500 for single filers and above $315,000 for joint filers. Above these business income thresholds, the deduction for a business other than a specified service business* is capped at 50% of total wages paid or at 25% of total wages paid, plus 2.5% of the cost of tangible depreciable property, whichever amount is larger. (4,7)

* See H.R. 1 – The Tax Cuts and Jobs Act, Part II—Deduction for Qualified Business Income of Pass-Thru Entities

We now have a 21% flat tax for corporations.

Last year, the corporate tax rate was marginally structured with a maximum rate of 35%. While corporations with taxable income of $75,000 or less looked at no more than a 25% marginal rate, more profitable corporations faced a rate of at least 34%. The new 21% flat rate aligns U.S. corporate taxation with the corporate tax treatment in numerous other countries. Only corporations with annual profits of less than $50,000 will see their taxes go up this year, as their rate will move north from 15% to 21%. (2,4)

The Section 179 deduction and the bonus depreciation allowance have doubled.

Business owners who want to deduct the whole cost of an asset in its first year of use will appreciate the new $1 million cap on the Section 179 deduction. In addition, the phaseout threshold rises by $500,000 this year to $2.5 million. The first-year “bonus depreciation deduction” is now set at 100% with a 5-year limit, so a company in 2018 can now write off 100% of qualified property costs through 2022 rather than through a longer period. Please note that bonus depreciation now applies for used equipment as well as new equipment. (1,7)

Like-kind exchanges are now restricted to real property.

Before 2018, 1031 exchanges of capital equipment, patents, domain names, private income contracts, ships, planes, and other miscellaneous forms of personal property were permitted under the Internal Revenue Code. Now, only like-kind exchanges of real property are permitted. (7)

This may be the final year for the individual health insurance requirement.

The Affordable Care Act instituted tax penalties for individual taxpayers who went without health coverage. As a condition of the 2018 tax reforms, no taxpayer will be penalized for a lack of health insurance next year. Adults who do not have qualifying health coverage will face an unchanged I.R.S. individual penalty of $695 this year. (1,8)

Sources

  1. cpapracticeadvisor.com/news/12388205/2018-tax-reform-law-new-tax-brackets-credits-and-deductions
  2. fool.com/taxes/2017/12/30/your-complete-guide-to-the-2018-tax-changes.aspx
  3. cnbc.com/2017/12/22/the-gop-tax-overhaul-kept-this-1300-tax-break-for-seniors.html
  4. investopedia.com/taxes/how-gop-tax-bill-affects-you/
  5. tinyurl.com/ycqrqwy7/
  6. forbes.com/sites/kellyphillipserb/2017/12/20/what-your-itemized-deductions-on-schedule-a-will-look-like-after-tax-reform/ 
  7. americanagriculturist.com/farm-policy/10-agricultural-improvements-new-tax-reform-bill
  8. irs.gov/newsroom/in-2018-some-tax-benefits-increase-slightly-due-to-inflation-adjustments-others-unchanged

This material was prepared by MarketingPro, Inc., and does not necessarily represent the views of the presenting party, nor their affiliates. This information has been derived from sources believed to be accurate. Please note – investing involves risk, and past performance is no guarantee of future results. The publisher is not engaged in rendering legal, accounting or other professional services. If assistance is needed, the reader is advised to engage the services of a competent professional. This information should not be construed as investment, tax or legal advice and may not be relied on for the purpose of avoiding any Federal tax penalty. This is neither a solicitation nor recommendation to purchase or sell any investment or insurance product or service, and should not be relied upon as such. All indices are unmanaged and are not illustrative of any particular investment.

7 Ways to Replace Your Income In Retirement

Thinking about retirement? Wondering where your income will be coming from. Here are the top 7 sources of income for your retirement:

 

INCOME SOURCE #1

SOCIAL SECURITY

Provides Foundation for Average Person’s Retirement

Social Security provides the foundation for the average person’s retirement income. So long as you’ve paid into the system, you will receive it. It’s a good starting point, but unfortunately it usually isn’t enough to help you maintain the lifestyle you may be accustomed to.

INCOME SOURCE #2

DEFINED BENEFIT PENSIONS

Employer Funds This Plan and Provides Lifetime Income

If you have a pension, congrats. Unfortunately pensions are becoming a thing of the past as the burden of retirement funding is falling on the employee. In a pension, the employer funds the plan and agrees to provide you a specified amount of lifetime income. This is a direct contrast to #3 the defined contribution plan

INCOME SOURCE #3

DEFINED CONTRIBUTION PLANS

These Are Your 401(k)’s and 403(b)’s

These are designed to help you , the employee, save for your retirement. They can be funded by both you and your employer but it is your responsibility to contribute and choose the investments. During retirement it is up to you to figure out how to convert these funds into retirement income

INCOME SOURCE #4

IRAs

Funded With Money You Contribute or Rollover

IRAs are individual retirement accounts funded with money you contribute or with money you have rolled over from an old employer’s retirement plan. You can begin withdrawing money from the account for retirement without penalty after you turn 59 1/2

INCOME SOURCE #5

ANNUITIES

Can Provide a Fixed or Variable Amount of Money

Annuities are insurance products that can provide a fixed or variable amount of money during retirement. You do give up some control over your money, however they can help you create guaranteed income for life.

INCOME SOURCE #6

TAXABLE INVESTMENTS

Often Held in Savings or Brokerage Accounts

These are any investments you hold outside your retirement plans. These assets could be held in savings accounts or brokerages accounts. Depending on how have this money invested you can use the dividends, interest and capital gains on these investments to help create retirement income.

INCOME SOURCE #7

JOBS

You May Still Need or Want to Work in Retirement

Even though you are retired you may still want or need to work. If you are healthy and able to still work, a job can help with your retirement income strategy.

 

7 Things to Put on Your Year-End Financial Checklist

The end of the year is a key time to review your financial “health” and well-being. To that end, here are seven aspects of your financial life to think about as this year leads into the next.

#1 | YOUR INVESTMENTS

Review your approach to investing and make sure it suits your objectives. Look over your portfolio positions and revisit your asset allocation.

#2 | YOUR RETIREMENT PLANNING STRATEGY 

Does it seem as practical as it did a few years ago? Are you able to max out contributions to IRAs and workplace retirement plans, like 401(k)s? Is it time to make catch-up contributions? Finally, consider Roth IRA conversion scenarios. If you are at the age when a Required Minimum Distribution (RMD) is required from your traditional IRA(s), be sure to take your RMD by December 31. If you don’t, the IRS will assess a penalty of 50% of the RMD amount on top of the taxes you will already pay on that income. (While you can postpone your very first IRA RMD until April 1, 2018, that forces you into taking two RMDs next year, both taxable events.)1

   

#3 | YOUR TAX SITUATION

How many potential credits and/or deductions can you and your accountant find before the year ends? Have your CPA craft a year-end projection including Alternative Minimum Tax (AMT). In years past, some business owners and executives didn’t really look into deductions and credits because they just assumed they would be hit by the AMT. The recent rise in the top marginal tax bracket (to 39.6%) made fewer high-earning executives and business owners subject to the AMT – their ordinary income tax liabilities grew. The top bracket looks as though it will remain at 39.6% for 2018 even if tax reforms pass. So, examine accelerated depreciation, R&D credits, the Work Opportunity Tax Credit, incentive stock options, and certain types of tax-advantaged investments.2

Review any sales of appreciated property and both realized and unrealized losses and gains. Look back at last year’s loss carry-forwards. If you’ve sold securities, gather up cost-basis information. Look for any transactions that could potentially enhance your circumstances.

 

#4 | YOUR CHARITABLE GIFTING GOALS

Plan charitable contributions or contributions to education accounts, and make any desired cash gifts to family members. The annual federal gift tax exclusion is $14,000 per individual for 2017, meaning you can gift as much as $14,000 to as many individuals as you like this year, tax-free. A married couple can gift up to $28,000, tax-free, to as many individuals as they like. (The limits rise to $15,000 and $30,000 in 2018.) The gifts do count against the lifetime estate tax exemption amount, which is $5.49 million per individual (and therefore, $10.98 million per married couple) in 2017.3,4

You could also gift appreciated securities to a charity. If you have owned them for more than a year, you can deduct 100% of their fair market value and legally avoid capital gains tax you would normally incur from selling them.5

Besides outright gifts, you can explore creating and funding trusts on behalf of your family. The end of the year is also a good time to review any trusts you have in place.

 #5 | YOUR LIFE INSURANCE COVERAGE

Are your policies and beneficiaries up-to-date? Review premium costs and beneficiaries, and think about whether your insurance needs have changed.

 

#6 | LIFE EVENTS

Did you happen to get married or divorced in 2017? Did you move or change jobs? Buy a home or business? Did you lose a family member or see a severe illness or ailment affect a loved one? Did you reach the point at which Mom or Dad needed assisted living? Was there a new addition to your family this year? Did you receive an inheritance or a gift? All of these circumstances can have a financial impact on your life as well as the way you invest and plan for retirement and wind down your career or business. They are worth discussing with the financial or tax professional you know and trust.

 

#7 | DID YOU REACH ANY OF THESE FINANCIALLY IMPORTANT AGES IN 2017? 

If so, act accordingly.

  • Did you turn 70½ this year? If so, you must now take Required Minimum Distributions (RMDs) from your IRA(s).
  • Did you turn 65 this year? If so, you are likely now eligible to apply for Medicare.
  • Did you turn 62 this year? If so, you can choose to apply for Social Security benefits.
  • Did you turn 59½ this year? If so, you may take IRA distributions without a 10% early withdrawal tax penalty.
  • Did you turn 55 this year? If so, you may be allowed to take distributions from your 401(k) account without penalty, provided you no longer work for that employer.
  • Did you turn 50 this year? If so, you can make “catch-up” contributions to IRAs (and certain qualified retirement plans).1,5

Sources:

  1. This material was prepared, in part, by MarketingPro, Inc.
  2. fool.com/retirement/2017/04/29/whats-my-required-minimum-distribution-for-2017.aspx [4/29/17]
  3. businessinsider.com/trump-gop-tax-reform-plan-bill-text-details-rate-2017-10 [11/2/17]
  4. irs.gov/Businesses/Small-Businesses-&-Self-Employed/Frequently-Asked-Questions-on-Gift-Taxes [10/23/17]
  5. turbotax.intuit.com/tax-tips/estates/the-gift-tax-made-simple/L5tGWVC8N [11/10/17]
  6. kiplinger.com/article/taxes/T055-C032-S014-4-year-end-tax-savings-tips-to-try-by-thanksgiving.html [10/17]
  7. merrilledge.com/article/ready-set-retire-8-deadlines-you-need-to-know [11/10/17]

What Is Covered Under Each Part of Medicare

Whether your 65th birthday is on the horizon or decades away, you should understand the parts of Medicare – what they cover, and where they come from.

Medicare was created in 1965 as a national health insurance program for seniors. It was made up of two original components, Part A and Part B.

Part A = Hospital Insurance

National Health Insurance Program for Seniors

It provides coverage for inpatient stays at medical facilities. It can also help cover the costs of hospice care, home health care, and nursing home care – but not for long, and only under certain parameters.

Part B = Medical Insurance

Part B Covers:

  • Physical Therapy
  • Physician Services
  • Medical Equipment
  • Medical Services

Part B is medical insurance and can help pick up some of the tab for physical therapy, physician services, expenses for durable medical equipment (scooters, wheelchairs), and other medical services such as lab tests and varieties of health screenings.

Keep in mind, Part B isn’t free. You pay monthly premiums to get it along with a yearly deductible. The premiums vary according to the Medicare recipient’s income level.

Part C = Medicare Advantage

Part C Covers:

  • Prescription Drug Coverage
  • Vision
  • Dental

Part C are medicare advantage plans. Insurance companies offer these Medicare-approved plans. Part C plans offer seniors all the benefits of Part A and Part B and more: many feature prescription drug coverage, vision and dental benefits. To enroll in a Part C plan, you need have Part A and Part B coverage in place.

Medigap

Addresses Gaps in Part A & B Coverage

Medigap Covers:

  • Copayments
  • Coinsurance
  • Deductibles

Medigap plans address the gaps in Part A and Part B coverage. If you have Part A and Part B already in place, a Medigap policy can pick up some copayments, coinsurance, and deductibles for you.

Part D = Prescription Drug Plans

While Part C plans commonly offer prescription drug coverage, insurers also sell Part D plans as a standalone product to those with Original Medicare.

Visit Medicare.Gov for More Info

I hope this helps to demystify medicare a bit. There is a lot more to know about these plans but this should be enough to get you started in the right direction. If you need more information be sure to visit Medicare.Gov.


Sources:

  1. This material was prepared, in part, by MarketingPro, Inc.
  2. mymedicarematters.org/coverage/parts-a-b/whats-covered/
  3. medicare.gov/coverage/skilled-nursing-facility-care.html
  4. medicare.gov/your-medicare-costs/part-b-costs/part-b-costs.html
  5. tinyurl.com/hbll34m
  6. medicare.gov/sign-up-change-plans/when-can-i-join-a-health-or-drug-plan/when-can-i-join-a-health-or-drug-plan.html
  7. medicare.gov/supplement-other-insurance/medigap/whats-medigap.html
  8. ehealthinsurance.com/medicare/part-d-cost
  9. medicare.gov/part-d/coverage/part-d-coverage.html
  10. medicare.gov/sign-up-change-plans/when-can-i-join-a-health-or-drug-plan/five-star-enrollment/5-star-enrollment-period.html