Most people do not plan for their taxes throughout the year. They file their taxes and then shunt the whole process aside until next year. In reality, any-
one who earns money and files taxes can save money by planning throughout their life.
The good news is you’re probably not taxed very heavily yet, but the bad news is this is because you are not making very much money. Make sure that you have all your key financial documents organized and identity information like your birth certificate and Social Security card in a secure place. If your parents opened any accounts for you when you were younger, make sure you have all relevant paperwork now. Consider meeting with an accountant or advisor to make sure you set off on the right foot. Tips:
Contribute to a tax-deferred retirement account, like a 401(k) plan or IRA. Take full advantage of any employer-matching contributions, even if you want to pay off student loans quickly. That free money will most likely grow in your account at a higher rate of return than your low-interest loans.
Keep track of your student loan payments. You can deduct the interest you pay on your loans when you file taxes and sometimes can qualify for an income based repayment plan if you owe more than you make.
Make sure you are withholding the correct amount. Getting a big refund at tax time is exciting, but by over-withholding, you have let the government sit on your cash without making it work for you during the year.
Now your finances get significantly more complicated, as your savings increase along with your expenses. Tips:
If you plan to get married or have children, meet with a tax or financial advisor to ensure you are making the best financial decisions for this point in your life. Consider setting up a 529 plan for your children’s future education.
This is when you will probably hit your earning peak. This may bump you into a higher tax bracket, so maximizing possible deductions
(like contributions to a retirement account) is more important than ever. Tips:
Make sure to meet with an advisor before drawing money from taxable investment accounts for large expenses (such as your child’s college tuition), as there may be complicated tax ramifications. Also stay abreast of any tax credits for education: your child’s or your own.
Retirement is edging closer and now you should be focused on saving as much as possible. Tips:
This tax-planning decade is crucial to your retirement years. Tips:
What’s MOST important to you NOW? Covid? The Economy? Or something else?
The first American death from the COVID-19 pandemic occurred on 2/06/20. As of 9am ET on 8/06/21, i.e., 18 months later, 619,158 Americans had died from the pandemic, an average of 7,938 deaths per week. 3,273 Americans died of COVID-19 in the last week (source: NBC News, Meet the Press: First Read).
“The problem in the last few cycles as I see it is we get promoters and insiders and people who have done very well cashing out as retail is buying,” says Jim Chanos. “The game would appear to be rigged against you if you keep coming in and buying things 10x what they are worth.” Squawk Box, Aug. 10, ’21
Good point Mr. Chanos, yet how to protect people from making foolish investments or refusing to get vaccinated? Isn’t this what happened after the Internet Boom of the 90’s led to the TECH WRECK; or the Mortgage Boom led to the DEBT WRECK of ’08? And looks a lot like something that’s going on now with the ‘Gamification’ of the stock market?
“Experience is the name everyone gives to their mistakes.” -Oscar Wilde
To enjoy your retirement without financial worries, make sure you have enough money saved when you retire. This calculation can be a daunting task, since a variety of factors affect your required amount and inaccurate estimates for any factor can leave you with way too little in savings. Some of the more significant factors
You can find various rules of thumb indicating you need anywhere from 70% to over 100% of your preretirement income. On the surface, it seems like you should need less than 100% of your income. After all, you won’t have any work-related
expenses, such as clothing, lunch, or commuting costs. But look carefully at your current expenses and how you plan to spend your retirement before deciding how much you’ll need. If you pay off your mortgage, stay in good health, live in a city with a low cost of living, and engage in inexpensive
hobbies, then you might need less than 100% of your income. However, if you travel extensively, pay for
pay for health insurance, and maintain significant debt levels, even 100% of your income may not be enough. You need to take a close look at your expenses and planned retirement activities to come up with a reasonable estimate.
Your retirement date determines how long you have to save and how long investment returns can compound. You want to make sure your retirement savings and other income sources, such as Social Security and pension benefits, will support you for what could be a very lengthy retirement. Even extending your retirement age by a couple of years can significantly affect the ultimate amount you need.
Today, the average life expectancy of a 65-year-old man is 81 and of a 65-year-old woman is 84 (Source: Social Security Administration). Most people use average life expectancies to estimate this, but average life expectancy means you have a 50% chance of living beyond that age and a 50% chance of dying before that age. Since you can’t be sure which will apply to you, it’s typically better to assume you’ll live at least a few years past that age. When deciding how many years to add, consider your health as well as how long other family members have lived.
A few years ago, many retirement plans were calculated using fairly high rates of return. Those high returns don’t look so assured now. At a
minimum, make sure your expectations are based on average returns over a very long period. You might even want to be more conservative, assuming a rate of return lower than long-term averages suggest. Even a small difference in your estimated and actual rate of return can make a big difference in your ultimate savings.
Even modest levels of inflation can significantly impact the purchasing power of your money over long time periods. For instance, after 30 years of just 2% inflation, your portfolio’s purchasing power will decline by 45%. When estimating an inflation figure, don’t just look at the historically low inflation rates of the recent past. Also consider long- term inflation rates, since your retirement could last for decades.
Especially if you save significant amounts in
tax-deferred investments that will be taxable when withdrawn, your tax rate can significantly affect the amount you’ll have available for spending. You may find your tax rate is the same or higher fter retirement.
Once you’ve estimated these factors, you can calculate how much you’ll need for retirement.
Please call if you’d like help with this calculation.