Independence Planning – July 2018 Video Blog (watch video above)
Executive Education forum at Wharton School for Business
Steve and Chris attended an executive education forum at the Wharton School at Penn University in Philadelphia. The curriculum was designed and taught by world-class professors including Richard Marston, professor of Finance; Olivia S. Mitchell, PhD professor of Business Economics; and Michael Useem, PhD professor of management. This comprehensive forum focused on how to address the fluctuating demands of the financial services industry, including helping to identify and implement competent wealth management solutions for individuals, families and businesses.
Continuing Education for our support staff
Please join us in congratulating Jessica Hawley in completing the requirements to receive the Financial Paraplanner Qualified Professional™ (FPQP™) designation from the College for Financial Planning.
On February 7th, 2018, Steve held an impromptu conference call for all clients in light of market volatility during the previous week. We wanted to post it online in case you missed it.
Always remember any questions about your accounts or finances, please reach out the the office and our staff will be happy to help.
A question which often arises among those who are thinking about retirement is, “Will my Social Security income be taxed?” Generally speaking, the answer to this question is yes; however, there are deviations from this. Previously, Social Security income was not taxable. But things have changed. Everyone drawing Social Security gets 15% of their benefits tax-free. After this percentage, things change. If you rely exclusively on Social Security for your income, your entire benefits should be non-taxable. However, if you fall in the bracket of people who receive income from other outlets such as a 401(k), a pension, or a part time job, you are receiving more than the Social Security Administration limit allows for tax free-benefits and therefore up to 85% of your Social Security could be taxed.
IRS Income Limits:
As of 2015, the IRS limits for configuring tax liability of your Social Security income are as follows:
A person filing individually with a combined income (your Adjusted Gross Income + Nontaxable Interest + 1/2 of your Social Security benefits.) within the financial bracket of $25,000-$35,000 must pay income tax on up to 50% of their Social Security benefits. If an individual has a combined income of $34,000 or more, they will be required to pay income tax on 85% of the Social Security benefits.
For married couples who are filing together, if their combined income is between $32,000 and $44,000, they will be required to pay taxes on up to 50% of their benefits. If, however, their combined income is more than $44,000, they must pay taxes on 85% of the Social Security.
As of right now, no one pays taxes on more than 85% of their Social Security benefits no matter their financial bracket.
The monthly Social Security check averages around $1,294. This is an annual income of approximately $15,528. If your benefits are near average and this is your sole income, you will not have to pay any taxes on your Social Security. If you are not sure about your Social Security income you can consult form SSA-1099 for a summary of your benefits.
Federal Taxes on Social Security Income:
For those who have figured out that they will need to pay taxes on their Social Security, the tax rate is the same as regular income. To break it down, for every dollar over $25,000 that an individual makes, $.50 of their Social Security benefits could be subject to federal taxation. This number rises to $.85 when an individual claims an income over $34,000.
If 50% of your benefits are subject to taxation, the amount you include in your taxable income will be the lesser of either (a) half of your annual benefits or (b) half of the difference between your combined income and IRS threshold. However, if you figure out that 85% of your benefits are subject to taxation, things can get even more complicated. In order to help you better understand the tax liability on your Social Security, it is advisable to check into the worksheet and e-file software provided by the IRS. These sheets will help you to better calculate and understand your income tax.
The Impact of Roth IRAs:
Based upon the information above, you may be a little concerned about the taxes you will have to pay once you are in retirement. If this is the case, you might consider saving your money in a Roth IRA. With this type of IRA, you save after taxes. With a traditional IRA you will be required to take Required Minimum Distribution; however, with a Roth you have already paid the taxes on that money.
Because of this, a Roth IRA will not add to your provisional income; therefore, such an account will allow to draw additional income without going over the IRS threshold concerning Social Security.
You Can Make Social Security Taxes a little Simpler:
There are ways to avoid the shock of paying a large amount of taxes in one large lump. First, you can ask the Social Security Administration to withhold taxes from checks. This is simply done by submitting a IRS W-4V form. Second, you can pay your taxes on quarterly basis just like you would taxable investments.
State Taxes on Social Security Benefits:
Another question you may be asking concerning Social Security is how it works with state taxes. Will you have to pay state taxes based upon your Social Security income? This is a rather complicated question due to varying rules throughout the 50 states and the fact that some states offer exemptions and credits based upon age or income.
A majority of States exempt some Social Security income from their taxes, while states such as Alaska do not tax income at all. However, there are a handful of states which tax Social Society benefits to the extent that they are at the federal level. The best way to know the specifics concerning state tax is to check with your local authorities. As with federal taxes, if Social Security is your only source of income, you are exempt from paying taxes on your benefits
Although none of us enjoy paying taxes, there is a bright side: if you are having to pay taxes on your retirement, this means you are doing well. You are receiving income from other outlets
and not relying solely on your Social Security. Even though you may have to pay some taxes, having other financial outlets outside Social Security will provide more security in the long run.
Buying and selling a home is a big deal. There are so many things to consider and work out before you can finally close the deal. This process becomes even more complicated when potential or present homeowners realize that if they are not careful, they could become the victims of real estate scams. Although different attackers use different techniques, they all have the same objective: to walk away from the deal with a handsome profit. Whether you are buying a home or need help paying your mortgage, below are several common scams you need to know about.
1. Timeshare Resale Scams
Oftentimes when owners of a timeshare decide it is time to sell, there are obstacles. Vacation homes can be difficult to sell especially if they are in a location not frequently visited. In the end, most vacation homes sell for a small percentage of what the home was originally worth.
When you become desperate to sell your vacation home, this is the time frauds can step in and take advantage of your situation. Many scammers will con you with promises that they will find the perfect buyer for your home if you are willing to provide a specific fee. In turn, the scammer will disappear, take your money and leave you with no potential buyers or they will tell you they need more money to reimburse what the seller initially lost.
In order to avoid such a situation, make sure to check the background of the person who could potentially sell your timeshare. Additionally, if upfront fees are mentioned, this should be a red flag for a potential scammer.
2. Real Estate Listing Scams
Believe it or not, all the property you see listed may not be for sale. A good scammer can even from time to time allow potential buyers or renters to view a home which is not even available. It is easy for a scammer to put a fraudulent listing up or manipulate real estate advertisement in order add their information. No matter how this scam is formatted, frauds can successfully collect from people who vulnerably fall prey to these scams. Always make sure to be wary of sending money to a real estate or individual whom you have never met face to face.
3. Credit Repair Scams
If you are seriously considering renting or buying, raising your credit score is very important. Such an act can help you receive a better interest rate on your mortgage. Also, in some cases, a bad credit score could potentially hinder you from being able to successfully rent.
Although you may be desperate to lower a bad credit score, be wary of the scammers who prey upon those in need of credit repair. Often scam artist will try to persuade you to create a new identity or even convince you that you are the victim of identity theft and drastic measures need to be taken in order to remove the black marks from your credit history. Others will even promise to wipe your bad credit clean immediately. When bought into, such scams can result in issues greater than a bad credit score.
4. Mortgage Relief Scams
For those who worry about meeting their mortgage and fear a foreclosure looms in their future, there are legitimate organizations such as Home Affordable Refinance Program (HARP) and the Home Affordable Modification Program (HAMP) who help struggling homeowners. However creative thieves can take advantage of desperate homeowners.
Scammers looking for people worried about losing their homes often use the line that if you let go of the title to your home and let someone else rent out the house, it will work to your advantage until you can buy your house back. Another scam often used is convincing you that they can talk with your mortgage lender to negotiate a modification to the terms of your loan. Some thieves will even use the line that if you turn over your home while you try to apply for another loan, your chances of avoiding foreclosure are decreased.
As stated before, the best way to avoid such a scam is to ignore anyone asking for an upfront fee and also do your research into their backgrounds.
5. Dual Agency
A real estate agent or agency who represents the buyer and the seller can be tricky. In some states this is quite legal and has benefits such as convenience and can even help cut costs. Nevertheless, in some states, dual agency is prohibited and can be considered a scam. Because such an arrangement could cause a conflict of interest, this is often seen as unfavorable. In extreme cases, some dual agencies will even try to profit significantly by representing both sides of the transaction. If you decide to embark on such a relationship with your realtor, proceed with caution.
6. Emails Scams
As we all know email hackers are very common. They hack into accounts all the time and not only inhibit your ability to send emails, but they also send scam emails to your family, friends, and coworkers. The same is true with real estate agents. Often times hackers will access a realtor’s account and email individuals asking them to wire money. While professionals try to avoid such happenings by taking precautionary measures such as frequently changing passwords and avoiding unsecure wi-fi, accidents do happen. If you feel an email you have received is not from a real agent, check the verification of their license and find out as much as you can about their professional records.
7. Identity Theft
Identify theft on a real estate level can take many forms. One form can occur when a thief steals the identify of a homeowner in order to gain access to their title. After this, the thief will attempt to profit off the home or tap into the home’s equity. Additionally, an identity thief can use false documents or someone else’s identity to qualify for a loan.
In order to avoid such a disaster, it is a good idea to check your bank statements, bills, and credit reports regularly. Such a check can help you catch something shady before it goes too far. Also, when working with a real estate agent, always make sure they are taking the necessary precautions to ensure your information is kept private.
Although there are many scams out there to which homeowners are susceptible , there are precautions you can take to avoid disasters. By proceeding carefully, and doing thorough research, you can outsmart any scam artist who comes around.
We often hear that car salespeople can be shrewd as they are looking to try and sell you a lemon or trick you into buying something way out of your price range. Although this definition is a little harsh, it is a good idea to keep a level head when walking into a car dealership. After all, they are the only people standing between you and getting your car for the best price. Below are four traps salespeople often use on buyers which can result in you making a huge mistake and paying more than you originally planned.
Trick #1 Negotiating on Monthly Payments:
We’ve all heard the wonders of low-monthly payments. How taking such a route will help us to drive away in a brand new luxury automotive for mere hundreds a month. When a dealer begins discussing this payment method, your red flags should go up.
Although a clever dealer can make you focus on the low payments, they are neglecting to tell you about other financial variables. While monthly payments may sound low, dealers may actually be inflating other factors such as interest and the length of a loan. There are even dealers who use what is commonly known as a four-square chart which is extremely difficult to understand. A former car salesman describes this “game” as putting the buyer on the defense and carefully wearing them down with complex math while the salesperson appears to be lowering payment prices.
In order to avoid this trick, there are three counteractive moves you can make. First, avoid talking about monthly payments. When the dealer begins discussing this, inform them that you will talk financing later, but you first want to know their best price. Second, pay cash for your car or secure your own financing. However, do not inform the salesperson of your plans. They will be less likely to give you a good price if they know they are not going to receive a profit from the financing. Third, if you do have to discuss financing, it is better to wait until you have negotiated the sale price. Once you have an idea of the total price you can then focus on the annual percentage rate versus payments.
Trick #2 Telling You Your Credit is Bad:
If you are unsure of your credit score, a car salesperson is at an advantage. They can easily tell you that due to your credit score you are not eligible for a high rate. For example, a bank may tell you that you qualify for a 5% loan; however, a dealer could easily tell you that 7% is the lowest available to you.
To avoid this, know your credit score before you ever step one foot into a dealership. Pull your credit score for free so you are knowledgeable about whether a dealer is being fully honest. Additionally, as stated before, do research into your own financing as it is better to do this independently versus going through a dealership.
Trick #3 Baiting and Switching:
It is easy for a salesperson to appear to be on your side and lower your guard with humor or statements which ensure you they will help you get a discount or a great trade-in rate. But most of these promises are inevitably pushed to the side. Edmund.com’s “Confessions of a Car Salesman” series revealed that rates and numbers given in the initial negotiation are often “forgotten” by the dealership later on.
The information above really makes salespeople sound bad. Although not all salespeople are out to cheat you, there job is to sell you a car, not be your friend. Be cautious not to fall for their games and make sure to get the numbers they gave you in writing that way you have something fall back on if they try to change things. Also, you are not bound to anything at this point and if they neglect to uphold the deal you agreed upon, walk away.
Dealer Trick #4: Pushing Add-Ons and Fees:
When negotiating for a car, make sure to watch out for additional add-ons dealers will try to throw into the mix. Although their salesmanship is great and an extended warranty of only $40 a month sounds great, it will end up costing you $2,400 more on a 60-month loan. Although add-ons sound great in the moment, they can essentially be just another way for a dealer to jack-up the price of your car.
In order to avoid buying add-ons which are not worth the price you will ultimately pay, make sure you know the add-ons which are necessary and those which are just gimmicks. Additionally, check your financing and sell sheets for fees you should not be charged. Examples of such charges include a hidden loan acquisition fee and other fees, such as “customer service” or document preparation fees.
Your Best Strategy:
To avoid falling for the tricks dealers often use, it is a good idea to do two things to make sure you will come out on top. First, research car prices and second, do comparison shopping. A recent survey showed that knowing the dealer’s invoice prices and visiting at least two dealerships could potentially save buyers an average of $800. Searching websites such as TrueCar, Kelley Blue Book, and Edmunds.com will help you find invoice prices and discover what your trade-in is worth.
Another strategy which is rather ingenious can be found on GetRichSlowly.com. They recommend emailing all the dealers in your area saying, “Hi, my name is so and so. I plan to buy such and such car today at 5pm. I’m going to buy it from the dealer who gives me the best price. What is your best price?” Such an email will help you cut to the chase very quickly and avoid tricks which jack up the price of a car.
Content in this material is for general information only and not intended to provide specific advice or recommendations for any individual.
Saving for retirement is an essential link in the wealth-building chain. Taking in to account the need to save for the future while you are still young will help you avoid many headaches as time progresses. There are numerous rules out there which are said to be crucial for helping you retire successfully. However, some of these rules could potentially be deviated from and result in positive effects in regards to your retirement.
Rule #1 It is Vital to pay off your Mortgage before you Retire
It seems logical to believe that if you plan to reside in the same home after retirement, you should attempt to completely pay off your mortgage beforehand. By doing so, it is assumed that you will have less expenses taken out of your monthly budget. Nevertheless, the extra cash you presumed you would have after the mortgage was paid off may have to go towards other expenses. Without your mortgage, you are no longer eligible for mortgage interest deduction at tax time. If this deduction is gone and you do not have other deductions which can be itemized, you may find yourself paying more taxes than originally thought. This is especially true if you plan for your tax bracket to increase during retirement.
Rule #2 You should Completely Pay off your Debts before Saving
The majority of people who earn a college degree obtain a large debt. As a matter of fact, in 2013, 70% of college students had massive students loans. These loans are something which can potentially hang over your head years after you have left college. Therefore, it stands to reason that ridding yourself of that debt should be a number one priority, even over saving for your retirement. After all, the sooner you pay off the debt, the sooner you can start saving, right?
While it may seem like a good idea to pay off your debt sooner by paying more than the monthly amount owed, this could potentially hurt you in the future. For example, if a college graduate is presently making $40,000 annually and owes approximately $25,000 in student loans, they will need to pay $280 monthly to rid themselves of this debt in 10 years. If their interest rate is 6%, the grand total paid toward their loans will be $33,000. It would seem logical that if an extra $50 per month is paid, you could cut that time down and save almost $2,000 in interest. Thinking about the savings, that seems great.
Hypothetically, if instead that extra $50 was put towards a 401(k), after 40 years, a person would have a grand total of $80,000 saved for retirement. If you decide to wait until your college debt is completely paid off, you will significantly cut down on the money you have saved for your future retirement.
*The hypothetical examples above are not representative of any specific situation. Your results will vary. The hypothetical rates of return used do not reflect the deduction of fees and charges inherent to investing.
Rule #3 A person should save approximately $1 million in order to retire comfortably:
Becoming a millionaire in retirement sounds amazing and many experts say this is the goal to which you should strive. However, the problem with simply striving for a general number is that it doesn’t take into account what you personally will need for retirement. For some people this number would be an abundant amount, but it all depends on the individuals and specific factors which will play into their retirement life.
Things to look at when attempting to set a goal for your retirement fund are factors such as where you want to live, if you will rent or own, your anticipated medical bills, how much you are expecting to receive from Social Security. Analyzing these factors will better help you decide upon a retirement goal that is in line with your future plans.
One Rule to Always Follow:
Although there are some rules concerning saving for retirement which are not concrete, there is one which always remains true. A retirement fund is not something you invest in once, it is something you must commit to invest in on a regular basis. Setting aside a specific amount of money consistently will work toward helping you to create a more financially secure retirement.
*The opinions voiced in this material are for general information only and are not intended to provide specific advice or recommendations for any individual. All performance referenced is historical and is no guarantee of future results. Investing involves risk including loss of principal. No strategy assures success or protects against loss.