Money Management 101 for Single Parents Going it Alone

1. Determine What You Owe

As the head of the household, it’s up to you to make sure that your entire family’s needs are being met. In order to do that, you need to be extremely diligent when it comes to money management basics. This is not something that will happen by accident. Instead, you must plan for it and work toward it.

The first step is to set up your “office.” Gather all of your bills, a calculator, a pencil, and your checkbook.

I would also recommend that you grab an old binder that you can use to keep track of your financial data and a shoebox for storing paid bills.

Now you’re ready to begin:

  • Go through all of your bills, and pay anything that is due within the next week.
  • If you have bills coming due that you cannot pay, notify the company and ask them to set up a payment plan with you.
  • Print a copy of the chart “Paying Down My Debts” or make your own.
  • On the chart, list all of your debts, including any car loans, student loans, and credit card debt.
  • In addition, list the total balance left to be paid on all of these debts, and the percentage rate you are paying.
  • For now, leave the fourth column of the chart blank, and store it in your “Financial Data” binder.

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2. Eliminate Joint Debt

Before we create a plan for paying down your debt, it’s important to consider some special circumstances that may apply to you as a single parent. I asked LaToya Irby, Credit/Debt Management Expert, to share her expertise on handling joint debt:

Wolf: Let’s say a single mom still shares a credit card with her ex. What should she do?

Irby: Ideally, she would want her ex to transfer his portion of any joint balances onto his own credit card. That way, everyone is paying for their own debt.

Wolf: What about leaving both names on the account, and agreeing to pay part of the amount due? Is that ever advisable?

Irby: No. If you’ve made an agreement with your ex to split the debt payments on accounts that include your name, and your ex-misses a payment, it’s going to hurt your credit. If the ex-fails to pay altogether, the creditors and collectors will come after you. Not even a divorce decree can change the terms of a joint credit card agreement. In the credit card issuer’s eyes, you’re just as much responsible for post-divorce accounts as before.

Wolf: What about situations when a couple’s divorce decree mandates that one individual must pay off the joint credit card debt, but that person fails to do it?

Irby: You can always file contempt of court papers against him/her, but in the meantime, your credit score suffers. So I suggest paying off the debt to save your credit. If you can’t afford to pay the debt, at least make minimum payments to keep a positive payment history on your credit report.

Wolf: What about other accounts, such as utilities and cell phones?

Irby: The safest thing to do, if you have a service in your ex’s name, is to turn off the account and reestablish service in your name.

 

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3. Find Money to Pay Down Debt

Another thing we have to do before creating a plan to pay down your existing debt is to find money in your budget each month. To assist in this step, I contacted Erin Huffstetler, Frugal Living Expert.

Wolf: How much money do you think the average person can uncover just by being more intentional about spending and budgeting?

Huffstetler: The average person could easily uncover an extra $250 a month—and probably much more.

Wolf: What are the top 5 areas that you think people should look to first when they’re trying to cut their expenses?

Huffstetler:

  • Food spending (both groceries and eating out)
  • TV-related expenses (cable/satellite services, certainly; but also movie subscriptions and rentals)
  • Phone services (particularly extras like call waiting, caller id, long distance, and cell phones)
  • Insurance premiums
  • Miscellaneous spending (all those small amounts spent on coffee, vending machine snacks, and other indulgences)

Wolf: How can single parents, specifically, stretch their child support dollars and reduce child-related expenses?

Huffstetler: For single parents looking to stretch their child support dollars, creativity is the key. Look to children’s consignment shops and thrift stores to buy your kids’ clothes instead of department stores; sign them up for Parks and Rec-run activities instead of privately-run activities (which will always cost more); and don’t feel like you have to make up for being a single parent by buying them extra things—it’s you they need, not stuff.

 

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4. Pay Off Your Debt

The next step is creating a schedule for paying down your debt:

  1. Pay off the debts that charge you the highest interest first.Bob Hammond, author of Life Without Debt, recommends that you pay off the debts that are charging you the highest interest first since borrowing from those creditors is costing you the most money. “Concentrate on paying off the high-cost debts as soon as possible,” Hammond advises. LaToya Irby, Credit/Debt Management Expert, agrees. “Highest interest rate debts cost the most money, especially when those debts have high balances. So you’ll save money on interest charges when you pay off those high-interest rate debts first.”However, there are exceptions to this general rule. Irby notes, “If you’re likely to get discouraged because it’s taking a long time to pay off that high-interest rate debt, you can start with the lowest balance debt. Getting some small debts paid off will motivate you to keep going.”
  2. Pay more than the minimum payment. Aim for paying more than the suggested minimum payment, in order to pay off your debts as quickly as possible.Miriam Caldwell, Money in Your 20’s Expert, shares this advice:
    • Choose one debt to focus on.
    • Increase your payment on that debt by as much as you can.
    • Once you have paid off that debt, move all that you are paying on it to the next debt you want to pay off.
    • You’ll be surprised at how quickly you can get out of debt with this plan!
  3. Meanwhile, continue to pay the minimum balance due on all of your other debts.Record what you intend to pay toward each debt on the debt chart you made in Step 1.

 

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5. Budget Your Monthly Expenses

Now that you know where you stand financially, and you’ve created a plan for paying down your debts, it’s time to make sure that you’re making any other necessary adjustments so that you can keep up with your plan. And this means creating a budget.

I know this can be intimidating, but I’m going to make a suggestion for you: Sign up for Mint.com. It’s a free financial software program available on the Internet, and it will basically do your budgeting for you. It will create a visual pie chart showing how much you’re spending each month on housing, gas, food, entertainment, and more. This way, if it turns out that you’re spending a lot more on food than you really should, you can begin to make the necessary adjustments to get your spending under control.

If you would prefer to create your budget the traditional way, allotting a certain amount of money to each spending category, I’ve created an online budget calculator you can use, which includes categories for child support and other details specific to your life as a single parent.

Finally, in taking a look at where your money really goes each month, it’s important to know approximately how much money you “should” be spending in each category. Generally speaking, your net spendable income (after taxes) should be allocated as follows*:

  • Housing: 30%
  • Food: 12%
  • Auto: 14%
  • Insurance: 5%
  • Debt: 5%
  • Entertainment: 7%
  • Clothing: 6%
  • Savings: 5%
  • Medical/Dental: 4%
  • Miscellaneous: 7%
  • Child Care: 5%
  • Investments: 5%

 

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6. Set Financial Goals

Now that you’ve worked out a plan to pay down your debt, and you’ve created a budget, it’s time to determine your needs moving forward.

Specifically, as a single parent, you need to ask yourself some questions, such as:

  • Do you need to file for child support?
  • Do you need to get a higher-paying job?
  • Is it time to think about going back to school?
  • Do you need to consider moving into a home/rental that would reduce your overall monthly payments?
  • Are there alternatives, such as taking on another job or splitting expenses with another single parent family, that you need to consider at this point?

One of the things that I want you to know is that the ball is in your court. You determine where this goes from here on out. But unfortunately, you can’t do that if you’re ignoring your financial health, right?

So the fact that you’ve come this far in the process of getting a handle on your finances tells me that you’re determined to make the changes you need to make in order to provide for your family’s future.

So go ahead and ask yourself these questions. So much of single parenting is learning to roll with the punches and be creative in the face of adversity. If, indeed, you need to make some pretty major changes, now is the time to do it. Don’t incur any more debt where you are. Be resourceful, follow through, and do what you need to do to turn your financial situation around.

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7. Increase Your Net Worth

The next step is to determine your net worth and begin adding to it.

Determine Your Net Worth:

Your net worth is what you own minus what you owe. Programs such as Mint.com, Quicken, and Microsoft Money will calculate your net worth for you, automatically.

You can also determine your net worth simply by adding up all that you own, including all of your investments, the equity you may have paid into your home, the value of your car, and any other assets you possess; and subtracting what you owe in remaining debts.

Set Up a Savings Account:

Once you know where you stand, you’ll be ready to set up a savings account. You can do this through your regular bank, or begin investing in a mutual fund that pays interest.

Even if you can only afford to set aside $25 or $50 per month, it will begin to add up.

Before you know it, you’ll have an emergency savings plan in place, to protect you in the event that your car breaks down, or your home needs a major repair.

In addition, this regular savings will help you increase your net worth over time.

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8. Become Even More Frugal

Unfortunately, all of the work you’ve already done in steps 1-7 will have little lasting value if you don’t change your attitude toward money. Now is the time to become even more frugal and learn to live within your means.

Practice Discipline:

Stop imagining that more money is going to pour in tomorrow—through finally collecting on unpaid child support, winning the lottery, or getting a promotion. If those things happen, great! You’ll be even better off. But living as if they’re going to happen is causing you to spend money you don’t have.

Instead, force yourself to make purchases with cash only. Do not continue to pay outrageous interest payments toward credit cards for purchases you don’t absolutely need. You can get by without that new furniture, right? What else could you skip, in the interest of spending only what you have right now in the bank?

Try These Ideas:

  • Check Freecycle before you make another major purchase. Someone else may be giving away the very thing you’d like to buy!
  • When you’re getting ready to buy something specific, look for it on eBay first. I buy a lot of my clothes, new-with-tags, through online auctions!
  • Forget trying to keep up with “The Jones’s.” You already know your value; don’t get caught up trying to “prove” your worth to others by having “just the right” house, car, or appearance.
  • Do not use shopping, ever, to appease your emotions.
  • Finally, when you do go to make a big purchase, step back and give yourself a few days–or even a week–to think about it. There’s no reason to suffer through buyer’s remorse and try to justify to yourself purchases that you really can’t afford. Think it over carefully and make those purchases, when necessary, with cash.

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9. Schedule Your Own Weekly Financial Check-In

Grab your calendar and schedule a weekly financial update meeting with yourself. This is an extremely important step in managing your personal finances, and it’s one that you need to continue each and every week. During your “meeting” time:

  • Pay any bills that are due.
  • If your bank statement has arrived, take the time to balance your checkbook.
  • Check the balances of your checking and savings accounts.
  • Update your debt list to incorporate any recent payments.
  • This is also a good time to write out your grocery shopping list and check what’s on sale at your local grocery store this week (either using the store’s Web site or the sales circular that comes in the newspaper).
  • Finally, also make note of any upcoming expenses you need to anticipate and plan for.

An attitude of gratitude and finances.

 

 

References:
Irby, LaToya. Email interview. 24 Oct. 2008, 
Huffstetler, Erin. Email interview. 24 Oct. 2008. 
Sources:
Caldwell, Miriam. Email interview. 27 Oct. 2008, Hammond, Bob. “Debt Free Key: 10 Steps for Coping With Credit Problems.” Life Without Debt. Franklin Lakes, NJ: Career Press, 1995. 31-32, Irby, LaToya. Email interview. 24 Oct. 2008. 
“Spending Plan Online Calculator.” Crown Financial Ministries. 11 Oct. 2008.

Written By: Jennifer Wolf

Source: thebalance

 

 

 

Your Money: Sharing Family Getaways Without Any Cottage Conflicts

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Picture it: 40 picturesque acres nestled in Wisconsin lake country.

That is the ideal getaway the grandfather of Chicago financial planner Tim Obendorf’s wife built around 50 years ago. Then the property passed to the next generation, with ownership shared by four people.

Now they are thinking about the next generation: 11 potential owners.

Without the right planning, that paradise could turn into hell.

As brothers, sisters, parents, aunts, uncles, cousins and grandparents gather this summer at family homes to go hiking, canoeing or swimming, there will also be arguments over schedules, property taxes or mortgage costs, and upkeep duties, along with the thousand other matters that come with shared homeownership.

“Whenever a number of families are under the same roof, conflicts are going to arise,” said Jill Shipley, managing director of family dynamics for Abbot Downing, a division of Wells Fargo that handles high-net-worth families and foundations.

That is why Obendorf’s family has already logged a couple of family meetings. “It’s never going to be perfect, but you have to decide you value the place, more than the hassles of working through family issues,” said Obendorf.

It is not surprising that vacation homes have become a point of contention. Many vacation homeowners are baby boomers: They possess the bulk of the nation’s assets and are projected to hold over 50 percent by 2020, according to a study by the Deloitte Center for Financial Services. They are now beginning to retire as they hit their 60s and 70s.

The potential problems are plentiful: Is the place big enough for everybody? Who gets it on July 4th weekend? Do they split costs equally? Who cleans up, handles repairs, or stocks the fridge?

And the big one: When the owners eventually pass on – who gets the place?

How can families get the most out of shared vacation properties this summer, without either going broke or killing each other? Some tips from the experts:

Draw Up a Calendar

Just like season tickets for a sports team, some dates will be in high demand. So if the property is not big enough to handle multiple families at once – or, let’s face it, you just do not get along – pick your spots. “Establish a rotating lottery each year, and allow each family member to pick their respective dates,” suggests Kevin Reardon, a financial planner in Pewaukee, Wisconsin.

Write Down a Policy

Everyone has different opinions of what a getaway should be, so hash it out and put it all down on paper. One key item: Whether ongoing costs like property taxes, homeowner’s association dues and repairs are split equally, or allocated based on usage.

Create an Opt-out

A sure way to guarantee family resentment: One member being forced into an arrangement they do not want. If a family cottage is being passed to the next generation, allow an escape hatch that permits one member’s share to be bought out by their siblings. After all, not everyone might be able to use the property to the same extent, especially if they have moved far away.

Bring in a Pro

Siblings, of course, do not always get along. In fact, 15 percent of adult siblings report arguing over money, according to a new survey from Ameriprise Financial. To make sure everyone is heard, bringing in a trained facilitator is probably your best bet, advises Shipley.

Have the Discussion Now

“I have been in many family meetings where the kids ask, ‘I wonder what mom and dad would have wanted?'” says Shipley. So if you are fortunate enough that the family matriarch and patriarch are still around, arrange a family meeting and find out what they envision for the property in the decades to come.

Maybe they want it to stay in the family, as a legacy for the grandkids. Or maybe, because of family circumstances like far-flung siblings, it would be wiser to just sell the property and split the proceeds.

Set up a Trust

One way to take future financial squabbles out of the equation altogether: If families have the resources, they should create a trust to “fund the maintenance and ongoing use of the property in perpetuity,” says Shipley. “That is one solution to reduce conflict, and keep the property in the family for generations.”

 

 

 

Written By: Chris Taylor
Source: Reuters

29 Biggest Tax Problems For Married Couples

Preparing your annual income tax return is a chore. It’s even more complex when you’re married. You might have two sets of income, assets, debts and deductions. Further, if you were separated, widowed or divorced during the year, you might have a thorny tax situation.

A qualified accountant can advise you on the basic tax problems that married couples face. For a brief introduction, read through to see 29 of the most significant tax problems married people might encounter. Understanding these challenges can help you get more tax breaks this year.

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1. YOU’RE NOT SURE OF THE YOUR MARITAL STATUS FOR THE TAX YEAR

When preparing taxes, you first need to determine your marital status. It might seem like a straightforward task. However, life is not always so simple.

The IRS considers you to be married if you were lawfully wed on the last day of the tax year. For example, if you tied the knot at any time in the past and were still married on Dec. 31, 2016, you were married to your spouse for the entire year in the eyes of the IRS. The laws of the state where you live determine whether you were married or legally separated for the tax year.

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2. YOU’RE NOT SURE OF YOUR MARITAL STATUS IN A SAME-SEX RELATIONSHIP

Married, same-sex couples are treated the same as married, heterosexual couples for federal tax purposes. However, same-sex couples in a registered domestic partnership or civil union cannot choose to file as married couples, as state law doesn’t consider those types of couples to be married.

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3. YOU DON’T KNOW WHICH FILING STATUS TO CHOOSE

If you weren’t married on Dec. 31 of the tax year, the IRS considers you to be single, head of household or a qualified widow(er) for that year.

If you were married, there are three filing possibilities:

  • Married filing jointly
  • Married filing separately
  • Head of household

If more than one category might apply to you, the IRS permits you to pick the one that lets you pay the least amount in taxes.

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4. YOU CAN’T DECIDE WHETHER TO FILE JOINTLY OR SEPARATELY

If you’re married and don’t qualify to file as head of household, you typically have two choices: filing jointly or separately. It’s best to choose the one that allows you to pay the least amount in taxes, which all comes down to your particular circumstances.

Sometimes it makes sense to file separately, said Josh Zimmelman, owner of Westwood Tax & Consulting, a New York-based accounting firm. “A joint return means that your finances are linked, so you’re both liable for each other’s debts, penalties and liabilities,” he said. “So if either of you has some financial issues or baggage, then filing separately will better protect your spouse from your bad record, or vice versa.”

If you file jointly, you can’t later uncouple yourselves to file married filing separately. “On the other hand, if you file separate returns and then realize you should have filed jointly, you can amend your returns to file jointly, within three years,” Zimmelman said.

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5. YOU ASSUME MARRIED FILING JOINTLY IS ALWAYS THE BEST OPTION

Even if married filing jointly has been your best choice in the past, don’t assume it will always be that way. Do the calculations each year to determine whether filing singly or jointly will give you the best tax result.

Changes in your personal circumstances or new tax laws might make a new filing status more desirable. What was once a marriage tax break might turn into a reason to file separately, or vice versa.

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6. YOU’RE NOT CLEAR ABOUT HEALTHCARE REQUIREMENTS

The Patient Protection and Affordable Care Act — more commonly known as “Obamacare” — requires that you and your dependents have qualifying health care coverage throughout the year, unless you qualify for an exemption or make a shared responsibility payment.

Even if you lose your health insurance coverage because of divorce, you still need continued coverage for you and your dependents during the entire tax year.

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7. YOU CHANGED YOUR LAST NAME

If you want to change your last name after a marriage or divorce, you must officially inform the federal government. Your first stop is the Social Security Administration. Your name on your tax return must match your name in the SSA records. Otherwise, your tax refund might be delayed due to the mismatched records. Also, don’t forget to update the changed names of any dependents.

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8. YOUR SPOUSE DIED DURING THE TAX YEAR

If your spouse died during the year, you’ll need to figure out your filing status. If you didn’t marry someone else the same year, you may file with your deceased spouse as married filing jointly.

If you did remarry during that tax year, you and your new spouse may file jointly. However, in that case, you and your deceased spouse must file separately for the last tax year of the spouse’s life.

In addition, if you didn’t remarry during the tax year of your spouse’s death, you might be able to file as qualifying widow(er) with dependent child for the following two years if you meet certain conditions. This entitles you to use joint return tax rates and the highest standard deduction amount.

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9. YOU FILE JOINTLY AND YOU’RE BOTH LIABLE

If you use the status married filing jointly, each spouse is jointly and severally liable for all the tax on your combined income, said Gail Rosen, a Martinsville, N.J.-based certified public accountant. “This means that the IRS can come after either one of you to collect the full amount of the tax,” she said.

“If you are worried about your spouse and being responsible for their share of their taxes — including interest and penalties — then you might consider filing separately,’ she said.

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10. YOU FILE SEPARATELY AND LOSE TAX BENEFITS

Although filing separately might protect you from joint and several liabilities for your spouse’s mistakes, it does have some disadvantages.

For example, people who choose the married filing separately status might lose their ability to deduct student loan interest entirely. In addition, they’re not eligible to claim the Earned Income Tax Credit and they might also lose the ability to claim the Child and Dependent Care Credit or Adoption Tax Credit, said Eric Nisall, an accountant and founder of AccountLancer, which provides accounting services to freelancers.

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11. YOU DON’T MEET THE MEDICAL EXPENSE DEDUCTION THRESHOLD

To include non-reimbursed medical and dental expenses in itemized deductions, the expenses must meet a threshold of exceeding 10 percent of your adjusted gross income. However, when you file jointly — and thus report a larger combined income — it can make it more difficult for you to qualify.

A temporary exception to the 10 percent threshold for filers ages 65 or older ran through Dec. 31, 2016. Under this rule, individuals only need to exceed a lower 7.5 percent threshold before they are eligible for the deduction. The exception applies to married couples even if only one person in the marriage is 65 or older.

Starting Jan. 1, 2017, all filers must meet the 10 percent threshold for itemizing medical deductions, regardless of age.

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12. YOU DON’T TAKE ADVANTAGE OF THE MARRIAGE BONUS

Many people complain about the marriage tax penalty. “Married filing jointly may result in a higher tax bill for the couple versus when each spouse was filing single, especially if both spouses make roughly the same amount of income,” said Andrew Oswalt, a certified public accountant and tax analyst for TaxAct, a tax-preparation software company.

However, you might have an opportunity to pay less total tax — a marriage tax break — if one spouse earns significantly less. “When couples file jointly with largely differing income levels, this may result in a ‘marriage tax benefit,’ potentially resulting in less tax owed than when the spouses filed with a single filing status,” Oswalt said.

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13. YOU’RE DIVORCED BUT STILL NEED TO FILE A FINAL MARRIED RETURN

If your divorce became official during the tax year, you need to agree with your ex-spouse on your filing status for the prior year when you were still married. As to whether you should file your final return jointly or separately, there is no single correct answer. It partially depends on your relationship with your ex-spouse and whether you can agree on such potentially major financial decisions.

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14. YOU HAVE TO DETERMINE THE STATUS OF DEPENDENTS AFTER A DIVORCE

Tax laws about who qualifies as a dependent are quite complex. Divorcing parents might need to determine which parent gets to claim the exemption for dependent children.

Normally, the custodial parent takes the deduction, Zimmelman said. “So if your child lives with you more than half the year and you’re paying at least 50 percent of their support, then you should claim them as your dependent,” he said.

In cases of shared custody and support, you have a few options. “You might consider alternating every other year who gets to claim them,” said Zimmelman. Or if you have two children, each parent can decide to claim one child, he said.

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15. YOU DEDUCT VOLUNTARY ALIMONY PAYMENTS

If you want to deduct alimony payments you made to a former spouse, it must be in accordance with a legal divorce or separation decree. You can’t deduct payments you made on a voluntary basis.

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16. YOU DEDUCT CHILD SUPPORT PAYMENTS

Even if you don’t take the standard deduction and instead itemize your deductions, you can’t claim child support payments you paid to a custodial parent.

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17. YOU CLAIM CHILD SUPPORT PAYMENTS AS INCOME

Do not report court-ordered child support payments as part of your taxable income. You don’t need to report it anywhere on your tax return. On the other hand, you must report alimony you receive as income on line 11 of your Form 1040.

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18. YOU DON’T CLAIM ALIMONY YOU PAID AS A DEDUCTION

Unlike child support that isn’t tax deductible, you are permitted to deduct court-ordered alimony you paid to a former spouse. It’s a deduction you can take even if you don’t itemize your deductions.

Make sure you include your ex-spouse’s Social Security number or individual taxpayer identification number on line 31b of your own Form 1040. Otherwise, you might have to pay a $50 penalty and your deduction might be disallowed.

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19. YOUR SPOUSE DOESN’T WORK AND MISSES TAX SAVINGS

Saving for retirement is important. Contribute to a 401k plan and you will both save money for your golden years and lower your taxable income now. If your employer offers a 401k plan, you can contribute money on a pretax basis, subject to certain limits.

However, nonworking spouses can’t contribute to a 401k because they don’t have wages from an employer.

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20. YOU MISS QUARTERLY TAX PAYMENTS

Single or married, you might have to pay quarterly tax payments to the IRS, especially if you are self-employed. Make sure you know how to calculate estimated taxes. If you are required to make such payments but do not do so, you might have to pay an underpayment penalty, Rosen said.

All taxpayers must pay in taxes during the year equal to the lower of 90 percent of the tax owed for the current year, or 100 percent — 110 percent for higher-income taxpayers — of the tax shown on your tax return for the prior year, Rosen said. “The problem for married couples is that often they do not realize they owe more taxes due to the combining of the two incomes,” she said.

You should be proactive each year. “To avoid owing the underpayment penalty, make sure to do a projection of your potential tax for 2017 when you finish preparing your 2016 taxes,” she said, adding that you should make sure to comply with the payment rules outlined above.

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21. YOU PHASE OUT OF PASSIVE LOSSES

Crystal Stranger — a Los Angeles-based enrolled agent, president of 1st Tax and author of “The Small Business Tax Guide” — said she sees a lot of married couples who have issues with passive loss limitation rules.

“With these rules, if you have a passive loss from rental real estate or other investments, you are allowed to take up to $25,000 of passive losses against your other income,” she said. “But this amount phases out starting at $100,000 (of) adjusted gross income, and is fully lost by $150,000 (of) adjusted gross income.”

Married filers lose out, as the phaseout amount is the same for a single taxpayer as for a married couple. “This is a big marriage penalty existing in the tax code,” Stranger said. “It gets even worse if a married couple files separately. The phaseout then starts at $12,500, meaning almost no (married filing separately) filers will qualify.”

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22. YOU CLAIM A CHILD AS A DEPENDENT, BUT YOUR INCOME IS HIGH

You are not obligated to claim your kids as dependents on your own tax return. In fact, it might be beneficial not to claim them.

“High earners lose the personal exemption after crossing certain income thresholds,” said Nisall. So in some cases, it might make more sense to let working children claim the exemption for themselves on their own return, he said.

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23. YOU MISS OUT ON THE CHILD TAX CREDIT

Married couples might be able to claim the Child Tax Credit up to a limit of $1,000 for each qualifying child.

“The Child Tax Credit phases out starting at $55,000 for couples electing to use the married filing separately filing status, and (at) $110,000 for those choosing the married filing jointly status,” said Oswalt. “But married couples receive twice the standard deduction that individuals receive, so the phaseout limitations may not negatively impact a married couple’s return if they choose to file jointly.”

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24. YOU NEGLECT THE TAX BREAK FROM A HOME SALE

The IRS provides a tax break when you sell your home, subject to certain conditions. Generally, you must meet a minimum residency period by owning and living in the house for two of the five years previous to the sale.

A single person who owns a home that has increased in value can qualify to exclude up to $250,000 in gains from income, said Oswalt. However, married people can exclude up to $500,000 in gains. This rule can become tricky if one person in the couple purchased the house prior to marriage.

“If you are married when you sell the house, only one of you needs to meet the ownership test for the $250,000 exclusion,” Oswalt said. “You both must meet the residency period to exclude up to the full $500,000 of gain from your income, however.”

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25. YOU DON’T CLAIM THE CHILD AND DEPENDENT CARE CREDIT

Married tax filers might be eligible for the Child and Dependent Care Credit if they paid expenses for the care of a qualifying individual so that they could work or look for work. The rules for who can be a dependent and who can be a care provider are strict. This credit is not available if you file separately.

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26. YOU CAN’T DEDUCT STUDENT LOAN INTEREST

If you’re paying back student loans, you might be looking forward to taking the student loan interest deduction. However, if you’re married, it might not be so easy to do that.

“For a single filer, the deduction begins to phase out when the taxpayer’s adjusted gross income is greater than $65,000,” said Oswalt. “This amount is doubled to $130,000 when filing jointly.”

“So if both spouses are making $65,000 or less, then their deduction will not be affected by the phaseout,” he explained. “However, if one is making $60,000 and the other $75,000, the deduction begins to phase out, which will ultimately result in a larger tax bill.”

Young woman playing slot machines at the Casino

27. YOU INCORRECTLY ACCOUNT FOR GAMBLING WINS AND LOSSES

Imagine a married couple where both spouses like to gamble in Las Vegas. He’s not so lucky and has losses, while she has winnings. If they file a joint return, they might have to report the gambling winnings as taxable income. Meanwhile, the losses might be deductible if the couple itemizes their deductions instead of taking the standard deduction.

However, they can’t take the amount of gambling winnings, subtract the losses and claim the net amount as winnings. Instead, they must report the entire amount of gambling winnings as income, whereas the losses are reported as an itemized deduction up to the amount of the winnings. The IRS requires you to keep accurate records of your winnings and losses.

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28. YOU BECAME A VICTIM OF TAX IDENTITY THEFT

Identify theft is a financial nightmare, no matter how it happens. Tax identity theft happens when someone files a tax return using one or both of the spouse’s Social Security numbers in hopes of scooping up your legitimate refund. If this happens to you, “contact the IRS immediately and fill out an identity-theft affidavit,” said Zimmelman. “You should also file a complaint with the Federal Trade Commission, contact your banks and credit card companies, and put a fraud alert on your and your spouse’s credit reports.”

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29. YOU CAN’T GET YOUR 2015 RETURN

The IRS and state tax agencies work to develop safeguards to avoid identity theft related to tax returns. In 2017, they will be particularly concerned about the implications of taxpayers who file using tax software.

The IRS has alerted taxpayers that they might need to have their 2015 adjusted gross income handy if they are changing software products this year. This number might be required to submit your return electronically.

Getting your 2015 adjusted gross income might be difficult if you are a member of a divorced couple that is not on positive terms, or that hasn’t even been in contact the past few years.

However, you still have options. You might be able to get the information if you go to the IRS website and use the Get Transcript service.

 

 

Written By: Valerie Rind
Source: GOBankingRates

5 Tips for Better Spending Habits

Spending
Provided by US News & World Report

While 2016 is in full swing, if you haven’t thought about a resolution yet, don’t give up. Maybe it’s time to make one that has the potential to stick. If you’re often wondering how money slips out of your wallet, consider becoming the crash test dummy for better spending habits. Test drive some of these ideas below to develop better ones.

Be your own cheerleader.

Patting yourself on the back after following through on a behavior you want to increase goes a long way to help cement a behavior. Ginger Dean, psychotherapist and website owner of GirlsJustWannaHaveFunds.com explains the power of rewards: “When making smart money choices, celebrate them by rewarding yourself. Yes, make rewarding yourself a habit. For example, when you make it through a pay period and adhere to your spending plan, treat yourself to something nice that doesn’t break the bank.” She points out that this creates what we call positive reinforcement, which helps you connect good decisions with positive rewards.

According to research by Wendy Wood, a social psychologist and provost professor of psychology and business at the University of Southern California, a behavior only has to be rewarded initially to form a habit. So once the habit is established, you can relax and let momentum take over.

Cheat a little.

While it’s great to start the New Year off with a new idea, give yourself a lead and start with a familiar task. Repeat the task on a regular basis. Research shows you won’t have to train yourself to do the task, you just train yourself to do it repeatedly. For example, if you like drinking water when you eat at a restaurant, choose to do it more frequently. Set rules for yourself, like, “When I eat out, I will order water.” Before you know it, a small gesture will become a string of little actions that can have a big impact on how you spend. It can also do double duty for your bank account if you send the money you didn’t spend straight to savings. Once you establish one good habit, move on to another like trimming a little bit of your grocery budget every time you shop. Start with as little as five dollars and put that in savings, as well.

Keep using the Benjamins.

Let your dollars see the light of day and allow the real thing to get some exercise. Fans of carrying cash can do this more so in the New Year if it helps you control your spending. If you know you tend to do major dollar damage in just one swipe of a credit card, then this tip might work for you. Curtail the urge to go on a spending free-for-all when using a credit card as a short term loan and pay in cash whenever possible. Make using cash a habit if you find it keeps you on track. Choose a dollar amount to withdraw on a regular basis and challenge yourself to not to go beyond that amount.

Graduate from a spending spree.

Limit how much time you spend in a store. Research shows the slower you shop, the more you spend. Get what you need and go. Set a timer if you have to or have your eyes stay glued to your shopping list, then pay and skedaddle. This way you can avoid impulse buys and filling every nook and cranny of your shopping cart with items you didn’t plan to get. Side step a budget-busting aftermath and make it a habit to make short trips to stick with your spending plan.

Do a happy dance after checking out.

When you have carried out a small, smart money choice like spending less time in the store, celebrate it. As stated above, positive reinforcement can work wonders for habit formation. So if you accomplished all of your shopping in record time, celebrate your small win afterwards. So when you’re looking to applaud yourself for getting out of the store quickly, think of what Han Solo said in The Force Awakens when Finn and Rey reunited: “Escape now, hug later.”

If you originally couldn’t bear the thought of making a resolution, reconsider. Just know that people tend to stay with activities that are manageable. Consider following some of the ideas above to take a step in the right direction when it comes to spending this year. They can be beacons for long-term financial change and help you meet your goals. They can also help you shortcut your way to success by following research that gets results. Employ one of these tips to establish a money smart habit today.

Written by Karen Cordaway of U.S. News & World Report

(Source: U.S. News & World Report)

 

Budgeting Apps Feel the Pinch

 

Provided by Thinkstock

Tools that let you track all of your financial accounts in one place, such as Mint.com, rely on a steady flow of data from banks, brokerages and credit card issuers to operate smoothly. Lately, that steady access hasn’t been a given. Mint experienced disruptions in its feed from Chase last fall because of heavy traffic on the bank’s Web site. Plus, Chase later notified some customers that they would have to log in to their Chase accounts and go through steps to ensure that desktop ap­plications such as Quicken would continue to sync data. About the same time, Mint users with Wells Fargo accounts dealt with service interruptions—possibly an inadvertent side effect of security updates.

Chase and Wells Fargo assert that software updates and clogged servers caused the blockages. Even so, banks may have other reasons to think twice about keeping an open line with aggregators. First, they’re competitors: Financial in­stitutions offer their own money-management tools. Chase Blueprint lets customers with certain credit cards set and monitor spending goals, and Wells Fargo’s My Money Map provides similar options. In late 2014, Mint launched a separate application, Mint Bills, which allows users to pay bills online from one portal—just as many customers can do with their bank’s online bill-pay feature.

Banks are also on edge about the security risks involved when customers provide account information to third parties. Some have posted disclaimers on their sites that customers could be on the hook for financial losses that result from sharing log-in information with other services. That might not hold up under federal law, says Lauren Saunders of the National Consumer Law Center. “You still have the right to contest unauthorized charges on your bank account.”

Whether a budgeting tool would be liable in the event of a data breach is an open question, and one that won’t be resolved until lawmakers create clear rules or an app is hacked and the courts decide. In 2015 through December 8, there were 66 data breaches in the banking, credit and financial sector, according to the Identity Theft Resource Center.

Mint and similar sites haven’t suffered any known breaches (but in today’s hostile environment, no entity is infallible). Mint says that its encryption standards match those of a bank. If a crook were to log in to Mint’s budgeting tool with your credentials, he couldn’t see account numbers or make transactions, but he could move money with Mint’s bill-payment app.

Because consumers usually have financial accounts with a variety of institutions, banks aren’t likely to provide the big-picture value that applications such as Mint offer. And customers who are unhappy with how an institution is handling its relationships with third-party services can vote with their feet. “If there’s a backlash, banks will adjust,” says S&P Capital IQ analyst Scott Kessler.

Don’t expect the complex symbiotic relationship between banks and budget apps to end. “Banks rely heavily on these platforms to get new customers,” says Alex Matjanec, of MyBankTracker, a consumer site for bank information. For example, banks pay Mint to promote their credit cards to its users.

Written by Lisa Gerstner of Kiplinger

(Source: Kiplinger)

Investing in Your 30s: 3 Goals You Should Aim to Have

investingin30smain

In your 30s, your finances get real.

I remember putting money into a 401(k) in my 20s, and retirement was an abstraction: a far-away land that I would reach in another lifetime.

Now, in my 30s, I realize that I am halfway to retirement, and I only have 30 years left of my career. That starts to feel like a short amount of time.

Other things start to get real, too. If you’re like me, you may be feeling the same.

For instance, life isn’t as flexible to withstand a new career direction, or a move to a new city; you may need to build your career where you are. Living close to old friends and your parents likely becomes critical. Some might call this “putting down roots.”

I’m also getting older, physically: a late Friday night can now take all weekend to recover, not just the Saturday morning after.

Not that I have Friday nights anymore, since I had a baby—the most wonderful (yet most terrifying) thing that could happen to me. I had never worried so much about somebody’s respiratory system functioning before I had a newborn sleeping in the next room.

Having a child also brought into sharp focus the cost of college; some college calculators estimate that college can cost $600,000 for a private four-year college, and $300,000 for an in-state four-year public college.

With all of these new responsibilities, for the first time in my life I felt I absolutely required structured advice on how to handle the complex world of responsibilities in which I found myself.

My husband and I tried to talk about our looming financial obligations. I broached the topic on one weekend drive to my in-laws—one of the only reliable times we can talk because that’s when the baby sleeps. Nevertheless, it got a little touchy, as I was surprised to discover that we conceptualized our finances in very different ways.

I viewed our savings as goal-based; I have a goal for my retirement, a goal for a down payment for a house, a goal for my daughter’s college, and an emergency savings fund.

He saw our savings as one giant mass, and if we borrowed out of retirement savings to pay for the house, that was okay.

After talking with friends, it felt like nobody had a good answer on this. So I sat down with my colleague Alex Benke, a CERTIFIED FINANCIAL PLANNER™ and Director of Advice at Betterment, to get some free advice for many of us 30-somethings. I wanted to make sure I had my bases covered. The last thing I want is some unknown financial liability creeping up and crushing me.

Don’t Delay Having a Plan: Three Goals for Your 30s

Sit down and lay out your goals. If you’re cohabitating or in a committed relationship, discuss your goals with your partner.

Don’t worry, this isn’t set in stone: Life changes so you’ll update it over time. To get started, here are some typical goals for people in their 30s:

Emergency Fund

Sometimes your plan doesn’t go as planned, and having an adequate emergency fund can help ensure those hiccups don’t affect the rest of your goals.

An emergency fund (at Betterment, we call it a Safety Net Fund) should contain enough money to cover your basic expenses for a minimum of three to six months.

Even more may be required depending on how long you (or others in your line of work) are typically out of a job. Also, depending on how much risk you want to take with these funds, you may need a buffer on top of that amount. Follow this simple formula:

Monthly Expenditures x Re-Employment Period = Baseline Safety Net Amount

Retirement

You don’t want to work forever, do you? According to 2010 Census Bureau data reported by U.S. News and World Report, 30.8% of people from age 65 to 69 were still working full- or part-time jobs, which was up 9% from prior Census data.

If you think you could keep on working in your golden years, you might feel differently when you’re old with achy bones.

Major Purchases

A wedding, a house, a big trip. Each of these goals has a different amount needed, and a different time horizon. Our goal-based savings advice can help you figure out how to invest and how much to save each month to achieve them.

Understand the Impact of Your Long-Term Investments

Make sure you are saving enough to meet your goals, especially for retirement.

Use contributions to tax-advantaged accounts, like your 401(k) and IRA, to reduce the tax you owe through your lifetime. (RetireGuide also helps you figure out the most tax-efficient accounts to use for your personal situation.)

Make sure you are in a low-cost investment fund. Low fees are a critical to making sure your investments are going as far as they can.

Reduce leaks in your retirement plan: When you leave a job, it is a good idea to look into rolling your funds over to another retirement plan rather than withdrawing them; don’t just forget about them. Often, consolidating your old 401(k)s and IRAs into one account can make it easier to manage, and might even reduce your costs. You may wish to research further regarding consolidation and rollovers before you do so.

How to Cover Your Bases If You Have Kids

Life insurance. Generally you only need life insurance once someone is depending on your future income.

If you plan to have kids, you should start thinking about the situation your survivors would be in if you passed earlier than expected.

Life insurance can help pay off your mortgage or other debt, as well as provide assets for your survivors to live on. A service such as PolicyGenius helps you compare policies and determine how much you might need quickly and in a transparent way.

Estate plan. Think you’re too young? Think this doesn’t matter? Consider this: Everybody has a “default” estate plan at birth, defined by your state’s laws. When you die, your “estate” goes into a process called probate.

When someone passes away without a will, an “intestate estate”—formally known as a “Last Will and Testament”—kicks in. The probate law defines how the estate gets divided and disbursed, and is pursuant to some general rules.

For example, if you’re married, your spouse gets it all, and if your spouse isn’t around, your kids get it all. Some of these rules might be illogical depending on your situation.

And for kids, there are usually no default rules about guardians. Once I looked into the default rules for my state, I realized I wanted control over what happened to my estate when I pass away.

It is worth the awkwardness to think this through and plan. When thinking about this consider that you likely need a will, healthcare proxy, and durable power of attorney, the last of which is a legal document giving someone else the power to act on your behalf should you be unable, due to death or disability.

Dependent care deductions. Ask your HR department about these deductions. These can help pay for childcare, using pre-tax earnings.

Education. Start to save for education.

  • 529 college savings plans: You might have heard about this as a way to save tax-free for a kid’s education and maybe even get an income tax break. It’s sort of like an IRA for educational expenses. Some states let you deduct your 529 plan contributions on your state income tax return, up to your state’s limit. Contributions—from you, or grandma, or anyone else—are considered gifts, and subject to a gift tax-benefit maximum per donor. But keep in mind, if you don’t end up using that money toward your kids’ college, you could be penalized on the gains. Also, a 529 plan could affect financial aid.
  • If you don’t want restrictions on the savings for your kid’s education—and how you spend it—you might decide to just invest in a taxable goal.

Your Parents Might Become Your Responsibility One Day

As your parents get older, discuss their plans for healthcare and general care should they become infirm, before it’s too late. AARP has a decent checklist and tips for this uncomfortable but critical chat.

Knowing that I am at least thinking through these financial issues has given me some peace of mind—that’s the first step. Now to get myself over to yoga to delay physically aging to my next milestone—my 40s.

Written by Betterment

(Source: Betterment)

Retirement Replaces Homeownership in the American Dream

© TheStreet
© TheStreet

Most people still believe they can achieve the American dream, even after slow employment growth following a harsh recession, but many now define it as having a comfortable retirement rather than owning a home.

About 96% of people responding to a Wells Fargo/Gallup poll conducted at the end of May cited a financially secure retirement as their version of the American dream. That’s an increase from 92% a year ago, and higher than the 93% of people who identified success as buying a home. The poll surveyed a mix of retired (28%) and non-retired (72%) adults with at least $10,000 in savings and investments. Forty-one percent of respondents reported an annual income of $90,000 or more.

The exact definition of the American dream has changed somewhat since the term was popularized in James Truslow Adams’ 1931 book The Epic of America. In it, he wrote: “The American Dream is that dream of a land in which life should be better and richer and fuller for everyone, with opportunity for each according to ability or achievement.”

Since then, social and economic mobility have generally been associated with such markers as owning a home, attaining higher education, and living as well as — if not better than — one’s parents. Specifying a comfortable retirement as part of that goal wasn’t necessary in previous years as many retirees were almost guaranteed one via their employer’s pension plans. As 401(k)s became more the more popular employer-sponsored retirement plan following the Revenue Act of 1978, workers increasingly found themselves on the hook for ensuring that they had enough money to last them through old age.

“There has been a rapid, systemic shift in risk and responsibility from the government to the individual in managing retirement,” said Andrew Eschtruth, an associate director at Boston College’s Center for Retirement Research. “Most individuals don’t yet fully grasp this change.”

In fact, data from the center pinpoints when that shift occurred. In 1983, of workers surveyed who had access to an employer-sponsored retirement plan, 62% were relying solely on a pension plan, 12% were relying on a 401(k) plan, and 26% were relying on a mix of the two. Less than ten years later, in 1992, workers were almost split in how they received their retirement benefits, with 44% citing a pension, 40% using a 401(k), and 16% relying on a mix. Today, 72% of employees rely on a 401(k), and only 17% rely on a pension.

While an encouraging 84% of respondents to Wells Fargo’s poll said they believe they can achieve the American Dream, only 69% of non-retired respondents said they have a specific plan to reach their retirement goals. And, of the respondents with a plan, only half of them have it in writing.

Of course, a plan is only good if followed, but having one in writing suggests that risks and other contingencies have at least been considered. Those who do not have a written plan say they haven’t had the time to create one (35%) or they haven’t given it much thought (26%). Even so, written plans are hardly foolproof. Only 37% of those with a written financial plan are highly confident that it will ensure they reach their goals.

“While the number of people with written plans is slowly trending higher, it’s still less than half of investors. It is critical to have a financial plan in place that spans life’s major milestones in order to reach your financial goals,” said Mary Mack, President of Wells Fargo Advisors.

Despite the seeming optimism Wells Fargo survey participants reported about achieving the American Dream, there are reasons to be less sanguine. The 401(k) generation is just starting to retire and data from the Boston College center suggests that they may not have saved enough. Of workers aged 55-64 with 401(k) accounts, the combined balance is just over $100,000, which only offers about $400 a month, according to Eschtruth. For most people, $400 a month combined with social security may still not be enough to support them through retirement.

Workers need to save more to meet the demands of increasing life expectancy and rising healthcare costs before retiring, Eschtruth said. Unfortunately, workers who are near retirement age have had to do the last years of their retirement saving in a low interest-rate environment in which yields on traditionally safer investments lagged normal inflation rates. Workers have had to save more or invest in traditionally riskier assets to make up for the shortfall.

“The problem with retirement is twofold,” Eschtruth said in an interview. “People need more and they expect less.”

Written by Carleton English of The Street

(Source: The Street)

12 Ways to Get the Most Out of Social Security

© Monkey Business Images/shutterstock
© Monkey Business Images/shutterstock

Social Security payments are the primary source of income for many retirees. Nearly one-third of respondents to a 2013 survey by the Federal Reserve Board indicated that they had no retirement savings. Whether Social Security will be your sole means of support or a source of pocket change, it’s a good idea to strategize how to get the most out of your benefits — before you hit retirement age.

WORK FOR 35 YEARS OR MORE

Throughout your working years, the Federal Insurance Contributions Act (FICA, as it appears on your pay stub) taxes part of your wages that count as credit toward Social Security. The Social Security Administration determines your monthly benefits based on how much you earned during your 35 highest grossing years before you file a claim. The calculation also factors in your age and the number of years you worked. The result is known as the primary insurance amount, or PIA. Check the official online estimator to see how these numbers work out for you.

WAIT UNTIL FULL RETIREMENT AGE

In a recent survey by MassMutual Life Insurance Company, more than 70 percent of respondents incorrectly assumed the retirement age was 65. Full retirement age is 66 for people born between 1943 and 1954 and rises incrementally to 67 for those born in 1960 and after. Although you can start collecting Social Security benefits when you turn 62, the amount of your monthly payment is reduced permanently by 25 percent.

DELAY UNTIL AGE 70

The maximum payout at full retirement age is $2,663 a month in 2015. But most financial planning experts recommend waiting even longer to start receiving benefits. For each year you hold off beyond 66 or 67 up to the maximum age of 70, the size of your monthly payment increases 8 percent. Once the benefit stream starts flowing, regardless of your age, there is no turning back; you cannot change your mind.

MAXIMIZE LIFETIME BENEFITS

The first Social Security payout is the base line for what you will receive every month thereafter. Each October, the Social Security Administration calculates a cost of living adjustment, based on changes in the federal consumer price index, and increases your monthly benefit accordingly for the following year. In 2015, the adjustment amounted to 1.7 percent. When you delay Social Security payments beyond the minimum retirement age of 62, the cost of living adjustments you “missed” are factored into the benefit you ultimately receive.

CONSIDER YOUR LIFE EXPECTANCY

The decision to stop working is, of course, a very personal one. There are many factors to consider when assessing the right time to push “go” on Social Security, including the question with an unknowable answer: How long will you live? Although waiting longer to collect benefits increases the monthly payout, it may not make sense for you. If your health is poor, it may be more prudent to start receiving Social Security now. And if you find yourself in financial straits once you hit retirement age, collecting a smaller benefit for a longer period might be the wiser (and necessary) choice.

BRIDGE THE GAP

It’s possible to retire at 62, delay collecting Social Security, and still maximize your financial situation. Depending on the size and nature of your retirement savings, you could draw on investments, particularly those made through a tax-deferred account such as a traditional IRA or 401(k), until Social Security checks start flowing. Research by a consulting firm that partners with Kiplinger suggests that waiting on Social Security could be more beneficial than limiting withdrawals from a private retirement account. That is, you would wind up with a larger Social Security benefit and likely extend the longevity of your retirement account. This is a very complicated calculation that depends in part on the type of investments you have and is best discussed with a financial planning professional.

LIMIT POST-RETIREMENT EARNINGS

You can keep your job after hitting age 62 and still collect Social Security, but there is a penalty for doing so. Until you reach full retirement age, the Social Security Administration (SSA) will deduct $1 from your benefit for every $2 you earn above $15,720. If you are working the year you reach full retirement age (66 or 67), SSA will deduct $1 for every $3 earned above $41,880 before your birth month. These deductions are temporary; when you stop working, the SSA will recalculate your benefit based on earnings and the benefits withheld. If you work beyond full retirement age, you can collect the full benefit regardless how much you earn.

CLAIM SPOUSAL BENEFITS FIRST

Being married has its advantages as far as Social Security is concerned. When one spouse files for benefits, the other may collect up to half that amount, assuming both spouses are at least 62. This is a boon to couples where one spouse didn’t earn any credits toward Social Security or earned significantly less than the other. For example, if a husband and wife retire at 66 with full retirement benefits — she at $1,500 a month and he at $600 a month — he can file for spousal benefits worth $750 instead of his own Social Security. Meanwhile, the value of his benefits continue to increase until age 70; at that point, he will receive the greater of the two. Note that spousal benefits are reduced for people younger than full retirement age.

‘FILE AND SUSPEND’

This tactic for maximizing spousal benefits pays off most when one half of the couple has reached full retirement age with accrued earnings that exceed those of the other spouse. The high-income earner can file for Social Security and immediately suspend the benefits flow. The lower-earning spouse, who must be at least 62, can then file for spousal benefits while the value of the higher earner’s benefits continue to grow until he or she reinstates the claim (ideally at age 70).

APPLY FOR SURVIVORS BENEFITS

A surviving spouse at least 60 years old can collect a percentage of a deceased spouse’s benefit. By waiting until full retirement age, the surviving spouse would receive a higher benefit — up to 100 percent of the deceased’s benefit, depending how old the deceased was when Social Security payments started. Survivor benefits are available even if the deceased was not yet receiving checks from the Social Security Administration. If both spouses are retired and collecting Social Security, the higher benefit is the one that endures regardless which half of the couple lives longest.

MINIMIZE YOUR TAX BURDEN

Once Social Security benefits kick in, recipients with income over certain thresholds must pay the tax man. (Income here includes variables such as wages, capital gains, dividends and interest payments, payouts from retirement accounts, and one-half of Social Security benefits.) A married couple with income between $32,000 and $44,000 owes taxes on up to half the value of their Social Security benefits. Income exceeding $44,000 incurs taxes up to 85 percent of the annual benefit. For single recipients, the outside income thresholds are $25,000 and $34,000.

START PLANNING NOW

Consider working with a financial planner who knows the ins and outs of the system to customize a plan for you. Barring that, free online tools from the likes of AARP and T. Rowe Price, an investment management firm, can help you optimize your Social Security benefits.
Written by Elizabeth Sheer of Cheapism
(Source: Cheapism)

3 Smart Ways Senior Citizens Can Save Money

© Getty Images
© Getty Images

If you’re a senior citizen, one of your primary financial goals should be to make sure the money you’ve saved lasts as long as you do. Of course, the most obvious ways to do this are to save as much as possible before you retire, and to use the money from your nest egg wisely. With that in mind, here are three smart ways you may be able to lower your expenses in retirement, and make your savings last as long as possible.

Take advantage of senior discounts

Don’t be afraid to ask for a senior discount when you’re out shopping or dining. Many establishments offer senior discounts, and not all of them are advertised.

Just as a reference, according to theseniorlist.com, there are about 100 restaurant, retail, and grocery store chains that offer senior discounts, and some are quite generous. To name just a few, seniors are entitled to

  • 15% off at Belk on the first Tuesday of each month
  • 20% off at Rite Aid on the first Wednesday of each month
  • 10% off at Chick-Fil-A, or a free drink or coffee
  • 10% off at Wendy’s
  • 5% off at Kroger one day per week

Finally, keep in mind that this just refers to the discounts offered by large chains. Thousands of local and regional businesses offer senior discounts as well. Many are offered to people as young as 55. So, whether or not you consider yourself to be a “senior citizen” just yet, those 10% and 15% discounts can add up to hundreds or even thousands in savings each year.

Join AARP

You can join AARP as early as age 50 at a cost of just $16 per year, and your membership can pay for itself many times over. For starters, many businesses offer additional discounts to AARP members beyond what is discussed above, such as 25% off at Papa John’s and 20% off at Denny’s.

Many travel discounts are available, such as 15% off from Starwood Hotels and Resorts and 5% off from Norwegian Cruise Lines. In addition, AARP runs its own travel center in partnership with Expedia, where members can enjoy discounted rental cars, flights, and hotel rooms that aren’t available to the general public.

AARP members are entitled to other potentially money-saving resources including:

  • Free tax help — the AARP Foundation’s Tax Aide helps 2.6 million taxpayers with their returns each year
  • Financial planning and estate planning resources
  • Free webinars covering topics such as Social Security and Medicare
  • Member-exclusive insurance programs offered through companies such as The Hartford and New York Life

Spend your money wisely

One of the smartest ways seniors can save money is with some responsible tax planning. Specifically, many seniors have their retirement savings spread among several different types of accounts, and the order in which you tap into these can make a big difference.

Any money you have saved in a traditional (taxable) brokerage account should be the first place you turn to withdraw money to meet your expenses. Tax-advantaged accounts like 401(k)s and IRAs should be left alone for as long as possible in order to take advantage of tax-free compounding (you don’t pay capital gains or dividend taxes each year in these accounts).

Once your taxable accounts are exhausted, then and only then does it make sense to tap into retirement accounts. First to go should be your tax-advantaged accounts, such as traditional IRAs and 401(k)s. These have required minimum distributions beginning when you are 70 1/2 years old, and your withdrawals are taxable, so it makes sense to use these next.

Finally, any money you were wise enough to save in Roth accounts should be used last. Roth accounts have no RMD requirements, and all withdrawals after age 59 1/2 are tax-free. So, it makes sense to take advantage of the tax-free growth in your Roth IRA for as long as possible.

The point here is that order matters when it comes to your retirement savings. If you’ve saved money in several account types, by tapping into your savings in a strategic manner, you can save yourself thousands of dollars in taxes over the course of your retirement.

Written by Matthew Frankel of The Motley Fool

(Source: The Motley Fool)

7 Questions to Ask Yourself Before Deciding to Retire

Few Americans save abundantly for retirement. Whether due to financial issues or a lack of foresight, a lot of people either don’t give much thought to retirement or are unable to save up enough to help them fund their elder years.

In fact, only 13 percent of people who haven’t retired yet say they’ve given a lot of thought to financial planning for retirement, according to the Report on the Economic Well-Being of U.S. Households in 2014 conducted by the Federal Reserve Board. Nearly 40 percent say they have given little to no thought to retirement planning.

Mapping out your retirement takes more than asking yourself, “When should I retire?” Consider these seven questions to help you better plan for financial and personal obstacles in retirement.

1. What kind of lifestyle do I want?

If you’re married, you’ll need to speak with your spouse to make sure your retirement plans are aligned.

© Blend Images/REX If you’re married, you’ll need to speak with your spouse to make sure your retirement plans are aligned.

Before you try to figure out how much money you need to retire, you need to consider what sort of lifestyle you want to have in retirement, said John Sweeney, Executive Vice President of Retirement and Investing Strategies at Fidelity. Do you want to stay in your current home or downsize? Will you want to move to a bigger city or someplace warmer? Maybe you want to travel the world.

No matter how you envision your retirement, you’ll need to plan ahead to fund it. Depending on your goals, you might need to save more than you originally planned. If you’re married, you’ll need to speak with your spouse to make sure your retirement plans are aligned.

2. What will my expenses in retirement be?

When to retire

© Provided by Gobankingrates When to retire

Sweeney said most people can expect to spend about 85 cents in retirement for every dollar spent before retirement. Depending on your health, however, you might need to save more to cover medical expenses. If you have a chronic condition or have mobility issues, over time you might end up needing to spend more money to maintain your quality of living.

To help you project rough estimates of your retirement costs, you can use an online retirement income calculator. With a financial planner, you can get a detailed cash-flow analysis and help managing taxes.

3. Will I have enough savings to cover my expenses?

© Ocean/Corbis

Less than half of all workers say they’ve ever tried to calculate how much money they will need to save to live comfortably in retirement, according to The 2015 Retirement Confidence Survey conducted by the Employee Benefit Research Institute. Scott Bishop, Director of Financial Planning at STA Wealth Advisors in Houston, recommends comparing your current monthly expenses with how much income you’ll have in retirement.

If your retirement savings can’t sustain your mortgage, insurance and other typical costs, you might want to reconsider your current savings plan. You will also want to calculate your Social Security benefit to determine how it will affect your monthly budget. When considering whether you’ll have enough income in retirement, assume you’ll be in retirement for 25 years and have access to four percent of your savings annually.

In retirement, you’ll want to revisit your withdrawal percentage, adjusting for your actual spending, said Bishop. Your retirement portfolio, which should include numerous asset types, should also be structured to outpace inflation. Sweeney recommends you have a mix of stocks — about 55 percent — in your early years of retirement to maintain growth, and fixed income, such as bonds, to guard against market volatility.

4. What impact will taxes have on my retirement income?

© Heide Benser/Corbis

Taxes don’t disappear when you stop working. In fact, your tax bill can take a big bite out of your retirement income.

Up to 85% of your Social Security benefits might be taxable if you have income in addition to your benefits. Withdrawals from tax-deferred retirement accounts, such as traditional IRAs and 401(k)s, are also taxed. So, if you need $5,000 a month to cover expenses in retirement, you might need to withdraw up to $6,000, thanks to taxes, Bishop said.

Higher-income taxpayers will have to pay taxes on profits from the sale of stocks, bonds, mutual funds and other investments not held in a tax-deferred retirement account. States have their own rules for taxing retirement income, so depending on where you live, you could be hit with an above-average tax bill.

The states that impose the highest taxes on retirees include California, Connecticut, New York, Oregon, Rhode Island and Vermont, according to a 2014 analysis of state taxes conducted by Kiplinger, a publisher of business forecasts and personal finance advice. A financial planner can help you figure out how taxes will impact you in retirement and what strategies you can use to minimize your tax bill.

5. Where will I get my health care?

© REX/Blend Images

Chances are your employer won’t continue providing health care coverage for you in retirement. Only 28% of companies with 200 or more employees offer retiree health coverage, according to the 2013 Kaiser/HRET Survey of Employer-Sponsored Health Benefits.

You are eligible for Medicare when you turn 65. You likely won’t need to pay a premium for Medicare Part A, which covers inpatient hospital stays, care at nursing facilities, hospice care and some home health care. If you want extended health benefits, however, you’ll need to pay a monthly premium for Medicare Part B, which covers most doctors’ services and outpatient services. Medicare Part B typically costs around $104.90.

If you retire early, you’ll have to get an insurance policy on your own. Couples who retire at 62 can expect to pay $17,000 a year for health insurance premiums and out-of-pocket costs until they’re eligible for Medicare, according to Fidelity. A retiree can expect to pay an average of $220,000 in medical expenses over the course of their retirement.

You also need to factor in long-term medical care, which could wipe out your retirement savings if you’re not prepared. The median annual cost of care in an assisted living facility is $43,200, and the average cost of a private nursing home room is more than double that, according to the Genworth 2015 Cost of Care Survey. To curb these types of costs, you can look into long-term care insurance.

6. How much debt do I have?

© JLP/Jose L. Pelaez/Corbis

The more debt you carry into retirement, the more retirement income you’ll need to pay off what you owe. When you’re deciding when to retire, you need to figure you how long it will take to pay off your existing debts. You should pay off any high-interest debts that aren’t tax-deductible first, such as credit card debt, said Bishop. If you have good credit, refinance any high-interest debt that’s tax-deductible, such as a mortgage, to get the lowest rate possible.

7. Am I emotionally ready to retire?

Glum businessman working in office

© Jose Luis Pelaez Inc/Getty Images Glum businessman working in office

Ask yourself what you will do once you retire. If you don’t know — and most people don’t — you might have a problem, said Bishop. Few people still have the traditional view of retirement of doing little more than playing shuffleboard all day. In fact, only around 22 percent of people surveyed by the Federal Reserve Board say they plan to stop working entirely in retirement.

You need to figure out before you retire whether you want to continue working in some capacity. If you initially choose not to work in retirement, you might have a harder time becoming employed after being out of the workforce for a while.

Deciding to retire, much less knowing how to map out a retirement plan, takes work and careful thought. Consider meeting with a financial planner to help you determine how to decide when to retire and to create an action plan for retirement. Knowing how and when you will retire will allow you to look forward to retirement.

Written by Cameron Huddleston of GoBankingRates

(Source: GoBankingRates)