Sadly, unscrupulous people often prey on the most vulnerable among us, and too often that means our senior citizens are targeted. Even worse, in some instances these abuses can go unreported. Perhaps because of embarrassment or fear others will think it a sign of mental incompetence, the scammers go unpunished and can be free to find the next victim. Here are a few tips to help you avoid retirement planning scams.
Insurance and Prescription Drug Scams
Scammers can seek out those who are on Medicare or Medicaid in an attempt to induce the victim to reveal their personal information. Sometimes the scammer will tell you that you need a new identification card or maybe that you qualify for a new level of benefit. Whatever the approach, if you reveal your personal identification number, the scammer can then bill Medicare for bogus medical tests or prescription drugs and pocket the money. It’s highly unlikely you will be contacted over the phone or in person by anyone legitimately from Medicare, and never reveal your ID number, which is essentially your social security number as well.
This is one of the most prevalent retirement planning scams out there. You get a call from someone claiming to be an IRS agent, who may even have the last four digits of your social security number. You are told you owe back taxes or that there is some other issue with a recent tax return. The scammer asks you to verify your full nine-digit SSN, and you do. Once they have that information, they can open false credit card accounts, charge the maximum and leave you to pay the balance. Be wary of any telephone calls from someone purporting to be from the IRS – the IRS almost exclusively communicates via U.S. mail.
There are so many different telemarketing scams it can make you never want to answer the phone. Callers who excitedly tell you have won a fantastic prize, you qualify for some amazing discount on medical supplies or other such random stroke of good fortune are almost assuredly looking to take advantage of you. Somewhere in the conversation, they will ask you for a credit card number or bank account information for some minor fee or other expense. Don’t fall for it.
Mostly going door-to-door, these folks could over promise, under deliver or simply take a large down payment and never come back. If you need work done on your home, it may be best to get references, actually speak with the people who have used the repair person, check the better business bureau and check your state’s contractor licensing agency.
Everyone is seeking better returns on their investments, but if too high a return is promised or a fee needs to be paid up front, it may be wise to be skeptical. Even if you learn of others who seemingly have earned great dividends, you should be careful. Certain Ponzi schemes actually pay early investors, but end up taking all the investments from those who come later. Make sure you know who you invest with and double check, no triple check, their credentials.
This, arguably, could be the worst scam of all. There may come a time when you need a little help around the house or someone to assist you with balancing the checkbook, and you turn to a family member. Be very cautious about adding anyone to your accounts as a joint tenant. It’s preferable to have a power of attorney that comes into play only if you become disabled.
With a bit of caution, some common sense and by keeping your eyes and mind wide open, you can enjoy your golden years free of scammers who are looking to rip you off.
Recent market volatility has some investors thinking about their “uncle point”. Yes, your uncle point, that moment when the market drops and you emotionally cannot stomach the loss. Managing risk in retirement is important for many approaching or still navigating a successful retirement. This level can vary wildly from one person to another. It is important in your planning that you know what your “uncle point” is.
What Is The Appropriate Level For Me?
Determining your own tolerance for investment volatility is the first step to take when thinking about investing. You need to know this in order to select investments that are appropriate for your portfolio. Part of the equation to consider is your age and how far away retirement is for you.
Investopedia discusses this concept by saying that younger investors generally should have an appetite for more risk in their investments. This is the general theory because it is said that younger investors can take a hit to their account and still have plenty of time to regroup and get back those losses over time. They have the time horizon to be able to get back money they may lose by taking on investments that are too risky.
The upside for a young investor to take on a risky investment is that it has the potential to pay off big. Sometimes the stocks of very small companies for example are a type of investment worth taking a look at. They could go bust and end up dropping to zero, but on the other hand they could hit it out of the park and allow the investor to get a huge return on his or her money.
Planning Out Your Future
The age factor is not the only consideration to put into the equation. It is a good starting point, but one has to consider themselves as a person as well. What do you feel when your investments drop by say ten percent? Are you willing to hold on and wait for better times? Would you consider putting even more money into an investment that has become cheaper like this?
Some people can handle the ups and downs of the market just fine. They don’t even necessarily look at what the market is doing, they just focus on the long-term horizon that they have to consider for their investments. That is the type of person likely to do well in the market.
Trust Your Instincts
Instincts are a powerful thing. If you ever feel uncomfortable with a particular investment, it is probably best to avoid them altogether. If someone tries to sweet talk you into putting money into something that you are not interested in, they probably have only their own best interests at heart. You are the only person responsible for your financial situation, remember that when investing.
Before putting money into investments, think about getting out the pencil and paper to write some things out and try to figure out what your tolerance level is for volatility. Seeking help from a financial or retirement planning professional can help safely guide you to your goals.
Long-Term-Care is something that some Americans rarely discuss. This underdiscussed topic is something that could be life-changing for families, potentially saving them thousands in the long run. If you are in a position to have the conversation, the best time is to have it before it is necessary.
What is long term care?
Long-Term-Care is available encompasses all services that include personal care needs. Most long-term care isn’t covered under conventional policies. A long term care policy offers coverage for everyday activities and living support.
Impact of long-term-care for families
Long term care is utilized by 12 million Americans. According to research by the Bipartisan Policy Center, only 11 percent of seniors age 65 entering retirement have long term care policies. The growing number of aging seniors relying on Medicaid will need assistance with nursing home care.
Expenses of long term costs are underestimated
According to a Genworth study, a private room in a nursing home averages $97,500 in 2017. A year in an assisted living facility was $45,000. Over the past five years, the costs of care increased between 3 percent and 4 percent each year. Time spent in a nursing care facility can cost hundreds of thousands of dollars over one’s lifetime. A semi-private nursing home room can cost $7,418, according to a Genworth Cost of Care Survey. Most families will find it difficult to handle the out-of-pocket costs independently. Most people turn to alternate sources to assist with meeting care needs.
Choices of the care needed
When resources are limited, families will have to make tough decisions. The costs could be significant for families, so planning for long term care is essential. As resources diminish, tough decisions may have to be made that could affect the quality of care provided to those in need of the care. Long term care evaluations assists with managing the costs that come with caring for a sick person. If planning is done well enough in advance, you will be able to manage care costs using a combination of long term care insurance and other resources.
The average person has a life expectancy of 78.8 years according to the CDC. If life expectancy is nearing 80 years, it is imperative that people plan for long term care. Only 11 percent of people with care means that the remaining 89 percent of households will likely experience hardship if the need for long term arises.
Long term care planning is one of the most overlooked topics, but it is an important discussion to have. People must be prepared to discuss the tough financial challenges that comes with managing the personal care needs of a family member like they would retirement plans. All people are encouraged to have this discussion sooner rather than later given the financial implications that come with being unprepared.
You’ve made it to the end, no more daily grind; you’re heading off in the sunset. Whatever metaphor you favor for beginning your golden years, it is an important milestone in your life. Your planning has focused on making certain your nest egg has grown sufficiently to outlast your life, and it’s just as important to be sure your tax obligation doesn’t foil your plans.
Withdrawals from a Traditional IRA or 401(k)
It was great to be able to stash money through these tax-advantaged plans while you were working, but now’s the time to pay the piper. Withdrawals are taxed as ordinary income, which is the highest tax rate. However, now that you are retired you are almost certainly in a lower tax bracket and hopefully your planning accounted for this. Of course, if you opted for a Roth IRA, you paid your tax in the year the money was earned and placed in the qualifying account, you now enjoy the investment returns tax-free.
Income from Pensions
Some retirees are fortunate enough to collect a pension as part of their retirement income. Although some military and disability pensions can be partially or completely tax-free, the average pension income is taxed as ordinary income.
Gains from Investments
If you hold investments outside your IRA or 401(k) accounts, gains are taxable. One way to minimize the tax burden is to ensure your gain is taxed as a long term gain as opposed to a short term gain. This can be accomplished simply by holding the asset at least one year and one day before initiating a sale.
Income from Investments
In addition to earning income from the sale of an investment, you can earn income while retaining an ownership stake in an asset in the form of a dividend from a stock or an interest payment from a bond. Both are typically a taxable event, but favorable options exist. If you invest in a stock that pays a qualified dividend you can be taxed at the much more favorable long term gain tax rate rather than as ordinary income. Municipal bonds are tax-exempt from the feds and if you purchase in-state bonds you pay no state tax either.
Many people are surprised and perhaps a bit outraged to learn social security benefits may be taxable, but if you have any other additional income, there is a good chance some of your social security will be taxed. The income threshold where taxes kick in is not very high, and often 50 percent or as high of 85 percent of your social security benefits are subject to taxation.
The old saying that nothing is certain but death and taxes may be true, and including tax planning for your retirement income is an important part of the big picture. Don’t make the mistake of ignoring the inevitable. Proper preparation can provide security and peace in your long awaited post work years. Create a retirement plan that considers every aspect of planning for retirement, including tax strategies, we can help guide you. You deserve nothing less.
Divorce rates are surging in the 50 and older age group. Today, divorce for those 50 and older has more than doubled since the 90’s! Divorce can be complicated at any age. However, older couples usually have more financial consequences. The financial consequences are particularly fraught when a couple has to divide their retirement funds. Traditionally, older couples have more assets. Retirement accounts can be the cause of many arguments. Older people may be unable to correct poor retirement planning decisions. Retirement divorce planning is very important. Retirement assets are not always equally divided in a divorce settlement.
Give Your Spouse the House
Many people assume a house is their largest asset. The marital home could be a liability as the value might plummet. Also, the home will have property taxes due every year. A well-diversified portfolio can be a better retirement funding option.
Do Not Overlook Retirement Account Withdrawal Fees
If you have not paid taxes on your retirement accounts, you will have to give away some of your money. The government will take a percentage of your pre-tax retirement accounts. You will not have to pay taxes on your after-tax savings accounts.
Moving Your Spouse’s Retirement Account May Have Financial Consequences
Some divorcing spouses can withdraw money from their ex’s pre-tax retirement accounts without owing the usual 10 percent tax penalty. The QDRO allows you to use the money to pay for your divorce expenses. If you withdraw the money after it has been moved to your account, you will have to pay the usual 10 percent tax penalty.
Do Not Take Too Much Money Out of Retirement Accounts
Many people are overly excited about avoiding the tax penalty, and they take extra money for shopping and vacations. Remember, you will need your retirement funds in the future. If you spend the money on frivolous purchases, you will panic when you need the money at a later date.
Be Mindful of Social Security
An ex-spouse can claim a social security spousal benefit. The spousal benefit does come with stipulations; the marriage had to be at least 10 years, and the divorcee cannot remarry. The ex’s social security payments will not affect the primary beneficiary’s social security payments.
Get a Prenuptial Agreement for Your Second Marriage
If you tie the knot again, you should consider signing a prenuptial agreement. The agreement will protect your finances. Without a prenuptial agreement, your retirement accounts can be divided again after a second divorce.
In most divorces, one partner has a solid understanding of the couple’s finances. If you do not know how much money is in the retirement accounts, you will need to take an inventory of your marital assets. Also, do not underestimate your expenses when you are thinking about your retirement divorce planning. You will have to adjust your spending after the divorce, so you should be prepared for major lifestyle changes.
Are you in the retirement sweet spot (RSP)? No, it’s not a trick question. The RSP refers to that time after you retire and before you take any required distributions from your 401k or traditional IRA at age 70 1/2. In addition to IRA’s, there are several other financial planning moves to consider in this time period. A recent article by Sarah O’Brien, appearing in CNBC online, reviews the RSP and what you might want to learn about these wealth-preserving ideas.
Why the Sweet Spot is so Sweet
For many career workers, their highest earnings years are just prior to leaving career employment. Because of that, they often find themselves in higher tax brackets. Upon leaving work their income commonly decreases, pushing them down to the lower brackets.
Being in a lower bracket makes some financial decisions particularly advantageous:
Convert to a Roth IRA
Is it a good idea to consider converting your traditional IRA or 401K to a Roth IRA? The sweet spot years may be a perfect time to effect such a conversion. Because you will probably be in a lower IRS bracket, the tax due will be minimized on any gains in your qualified investments.
Keep in mind that a Roth has many benefits that are not part of the rule-structure governing traditional IRA’s an 401k’s, especially when you withdraw money: Roth withdrawals are generally tax-free! There are other benefits as well including that there are no required minimum distributions. This makes Roth IRA’s a perfect vehicle for passing wealth on to loved ones when you die.
Be sure you are aware of the Roth 5-year rule. This rule states that in order to receive tax-free withdrawals, you must have your contributions in a Roth IRA for at least five years. Otherwise, you may be liable for taxes on your gains as well as a ten-percent penalty. Ouch! Be sure that you will not need to withdraw from your Roth conversion for al least five years.
Sell Stock Winners
Again, because you are now probably in a lower IRS bracket upon leaving full-time work, take a look at any stock holdings you may have in your taxable, non-qualified accounts. If you have some big winners, consider selling them. Your profits will now be taxed at your lower tax-bracket rate.
This is especially neat for long-term (greater than 1 year) holdings. You may end up paying zero taxes on your long term gains if you are married filing jointly and have up to $77,200 in income (up to $38,600 if single), courtesy the Tax Cuts and Jobs Act of 2017.
Unload Employee Stock Options
Some employees were fortunate enough to receive employee stock options as part of their total compensation plan. If any of these are in-the-money, take the gains while you are in the sweet spot. Again, you’ll probably be taxed at a lower rate.
Sell Savings Bonds
Over the years, many folks have systematically purchased savings bonds as part of their retirement planning. If you have some, the RSP may be a good time to cash them in. Again, the idea is that you’ll now probably be paying less to the IRS during this time.
We can help you with these strategies and more as you plan for the years ahead in retirement.
The thought of growing older and retirement can be overwhelming to some. As the body begins to age, things like routine home maintenance are not as easy as they once were. It is estimated that homeowners will spend about one to four percent of their annual income on household upkeep. When you are no longer able to cut the grass, repair clogged drains, and service the water heater, then you will likely need to call for professional assistance. All these little expenses have a dramatic impact on your already strained budget. With that in mind, some seniors are choosing to rent rather than own.
The Beauty of On-Call Free Maintenance
There are apparent benefits to owning a home, even if you must pay someone to take care of routine maintenance. You must consider that a mortgage payment comes with taxes and insurance that must also be figured into the equation. A renter can merely pick up the phone and have assistance quickly and without any additional costs, a homeowner is required to do planning. If your budget is already stretched thin, paying for household maintenance may be out of the question.
The Lucrative Tax Write-Off
Some people want to own a home because it gives them a nice tax write-off at the end of the year. Yes, that write-off is very helpful when you pay insurance and mortgage interest. Arguably, it is not the best option for everyone. Those who have a steady stream of income from investments and other sources during retirement may benefit from the write-offs.
Selling a Home Is A Daunting Task / Leases Can Be Easily Broken
Owning a home ties you to one location. If you have children scattered all over the country, you may choose to move closer to one of them. Should your health take a turn for the worse, selling a home can be a significant burden on your family. A rental can easily be re-rented, and there are no lasting financial repercussions to bear. Debatably, a mortgage does give the family options should someone want to take over a childhood home.
Weighing the Pros and Cons
It appears that renting has many advantages that come along with flexibility, no maintenance costs, and the ability to move with ease. Yes, owning a home also comes with benefits to ponder. When the house is paid off, the costs of insurance and maintenance would be a small price in comparison with the cost of rent. Keeping a home in the family that has been around for a long time has a sentimental factor that cannot be ignored. Should you become cash-strapped in the future, you have the option of a reverse mortgage or taking out a home equity loan. These two options are not available to renters. Some fear that renting is throwing away good money that could go towards an investment.
Every situation is different, and the dynamics of that situation certainly come into play. True, having a home to pass down to the children is a noble gesture, but it is not always feasible. A home provides stability both physically and financially as well as a great deal of upkeep and planning. A rental gives the ability to move into a nursing home or assisted living facility with ease. Before considering the right option for you, it is essential to review all the intricacies of your situation and decide based on the finances and your overall health and well-being.
Deductions are a way to lower your tax liability. Maximizing your deductions across all areas gives you access to tax savings. One area where some taxpayers could be missing out on deductions is in medical expenses. Here are ways to you could potentially get the most out of tax deductions where healthcare expenses are concerned.
What is a medical expense?
The IRS clearly describes what’s considered a qualified expense. Any expense incurred for the purpose of diagnosing, curing, treating, mitigating or preventing an ailment is considered a qualified expense. That leaves ample opportunity for taxpayers to claim deductions and credits to reduce your overall tax liability.
Deducting the max amount
The IRS has established a maximum threshold amount for which you can deduct in qualified healthcare expenses. The Tax Reform and Jobs Act of 2017, enacted on December 22, 2017, changed the AGI threshold for medical expenses from 10% to 7.5% for 2017 (and 2018).
Examples of qualified expenses:
• Ambulatory transport
• Laboratory tests required for treatment
• Health insurance premiums
• Fees to physicians, surgeons, dentists, psychiatrists, and chiropractors
• Health equipment
• Acupuncture treatment
• Inpatient hospital care
• Smoking cessation and inpatient drug treatment programs
• Cosmetic surgery required as a result of an accident
Where do you claim these health-related expenses?
Deductions should be itemized using the Schedule A form. This information is entered on the first line of the form. The total amount of healthcare expenses should be added to that particular line. The difference between your medical expenses and adjusted gross income is used to reduce your taxable income for that year.
Qualified expenses that can be deducted without itemization
You are permitted to deduct some expenses without having to fill out a Schedule A form. Your contributions made to your health savings account can be deducted like similar retirement funds. Individuals can deduct up to $3,400 for individuals and $6,750 for a family annually. Flexible spending account contributions can be deducted as well. You can deduct $2,600 annually as an individual. For couples, you are only able to deduct $2,600 for purpose. If you pay any insurance premiums as a self-employed individual, you can claim that as a deduction. If you have paid premiums for long term care insurance, you can deduct the total amount of payments made toward insurance premiums for the calendar year. Those who had to by healthcare equipment for a recognized disability can deduct these as expenses. Any reimbursements you receive for a physical injury or other expenses as a result of a legal claim can be deducted. You can claim the health coverage tax credit if you paid monthly health insurance premiums. The credit covers 72.5 percent of your monthly health insurance premiums.
Remember, the last day to file taxes in 2018 is Tuesday, April 17.
No matter what your age, it’s important to start preparing for the time when you eventually retire. One of the biggest financial issues you may encounter by the time you’re ready to stop working is how much money you will need for your health care. In general, this can be a sizable amount. On average, a person of 65 would need around $190,000 to pay for costs related to their health. This estimate doesn’t even take into account any preexisting chronic conditions or disabilities.
Unfortunately, the one mistake people could make regarding retiring is that once they reach the age of 65, they will be eligible for Medicare and that it will cover all their needs. However, in reality, Medicare isn’t free and people are responsible for covering their premiums, deductibles and copays. Retirees who require coverage for dental care, prescription drugs, vision or hearing are also required to either buy additional insurance or pay for these things out of pocket.
However, there is good news. There is a lot you can do to manage the costs of your medical care. Planning ahead can really be a lifesaver for your costs once you retire. These are ways you can ensure that you are covered:
• Health Care Investment Account: Creating an investment account for your estimated medical costs can be a great idea. You should ensure that it’s kept separate from your other retirement money. Estimating how much you will need for the future can help you to be successful at saving for these costs. Additionally, these types of accounts also allow you to save money on your taxes.
• Consider Long-Term Care Insurance: Over half of people 65 or older will require long-term care at some point in their lives. Getting a long-term care insurance policy can ensure that your future health needs are met if you require assisted living, home care or a nursing home. This option is also expensive, but it is well worth it if you save early on and already have chronic health conditions or a family history of certain conditions.
• Take Care of Your Health: Obviously, if your health is better after retirement age, it will be easier on you from a financial standpoint. Your health care expenses will be less than that of someone who isn’t in good health. Eat a well-balanced diet, incorporate physical activity into your everyday routine, maintain a healthy weight and get a good night’s sleep daily. This offers you a dual benefit in enjoying better health than your peers and helping you save money in the long run.
• Use COBRA: If you had health insurance through your last job, you can take advantage of COBRA to continue using it after you retire. COBRA allows you to use your work health insurance for up to 18 months after you leave the job as long as the company employs at least 20 employees.
These are great ways to go about planning for the time you eventually retire. They can help you to save plenty of money on any medical related costs and can bring you a sense of ease.
Divorce can be hard on many levels. One of the things that can be crucial is the financial split of the couple’s assets. These assets include retirement benefits and investments. Figuring out how benefits should be divided, or if they are even able to be divided, can be a minefield if not navigated properly.
It is often that one of the spouses becomes the couple’s treasurer, but it is important that both partners are aware of the couple’s financial situation. This is especially true when it comes to investments. If one spouse was not as attentive to the tax responsibilities, it could affect the other spouse’s share. If the spouse was deceptive about the couple’s investments, this could make issues between the couple even worse. Hiring a forensic accountant can help find discrepancies or deceptive practices by the responsible spouse.
When it comes to retirement benefits, there are only certain things eligible to be split during a divorce. Those eligible are considered community property, and include things like military pensions, GI Bill benefits, IRAs, employee stock option plans, and 401(k) plans. Benefits that are not considered community property are Social Security benefits, Worker’s compensation, and any military injury compensation. It is often advised that if the spouse’s benefits are sizable that the other spouse should petition to split the benefits. Benefits are usually split by percentage instead of a money value in case the value of some of the benefits fluctuates between the time of evaluation and actual settlement.
There are some other exceptions and considerations when it comes to benefits. For instance, if a spouse invested money or started a 401(k) before the marriage and continued to pay into them during the marriage, the amount invested before the marriage must be deducted from the total amount before any valuation can be made.
When it comes to Social Security benefits, a couple must have been married at least 10 years for one spouse to have a claim to them. However, the claiming spouse cannot have their own Social Security benefit value exceed half of their spouse’s. If there is a possibility that a spouse will have a claim to the other’s Social Security benefits, they may request a delay in proceedings in order to pass the 10 year threshold. If the length of marriage is close to 10 years, the court may issue a continuance. If the spouse with the Social Security benefits dies after the proceedings are over, the surviving former spouse can collect 100 percent of their Social Security.
When married couples split up, the financial quandaries can be messy. Knowing the law, and getting advice from a financial expert is a good idea for both spouses involved. It is beneficial for both spouses to be well aware of the collective financial situation so surprising issues like back taxes or hidden assets can be avoided. Maintaining the financial futures of both former spouses is key to making sure the separation is a clean one with no resentment or animosity between those involved.