Let’s face it, there really are no winners in a divorce, but under current tax law, if you are the Payor of alimony, you do receive a break. Currently, the Internal Revenue Code (IRC) §215(a) allows a spouse who pays alimony (“Payor Spouse”) to take a deduction on his or her income taxes for the amount of alimony he or she actually pays. Additionally, the spouse who receives alimony (“Payee Spouse”) must report as income on his or her tax return the amount of alimony he or she actually receives.
As of January 1, 2019 the law changes as follows: the Payor Spouse is no longer entitled to a deduction and the Payee Spouse is not required to claim the payment as income.
If these points are important to you, make sure your get your divorce finalized by year end.
As you can imagine, I am getting a lot of concern from clients about the current markets. The Dow Jones Industrial Average, as well as the S&P 500 Index, are both negative for the year. Let’s look at both sides of this coin to see if the markets are a trick or treat for you.
If you are at the stage of your investing where you are taking withdrawals, you may not be happy right now. Mutual funds that pay dividends have been decreasing in value while paying a higher dividend. While most of my clients are happy with the increased dividend, no one likes to see their values decrease. Trick or Treat? Maybe this is more like getting a bite sized candy bar vs. a full sized one.
If you are on the accumulation side of the equations, you may be looking at the current markets as a Treat. If you are adding funds to your accounts regularly through payroll deductions, or just a systematic investment, you are buying more shares on sale than you could last year. More shares will equal more dividends and capital gains in the future. This is a Treat!
Whichever way you look at the current markets, remember your time in the markets is what is important, not trying to time the markets. Investing should be looked at as long term, you will be much more satisfied if you take a long term approach. It is your full sized candy bar.
I have stuck hard and fast to the rule of not taking Social Security benefits before full retirement age, or better yet, delaying for an annual 8% increase for each year past your full retirement age that you delay. Recently, I have had to realize this rule does not apply to all.
If you take your Social Security benefit between the age of 62, the earliest you can draw benefits, and full retirement age, you will have a permanent reduction of up to 30%, depending on your birth year.* That hurts. I have met with a few people this year who are over age 62, but not at full retirement age yet. What makes them unique is that they have been diagnosed with terminal illnesses.
The reason you shouldn’t wait to file for Social Security when your health is poor boils down to maximizing benefits over the course of your lifetime. Social Security is actually designed to pay you the same lifetime total regardless of when you initially file. The logic is that any reduction you face by claiming benefits early will be offset by the greater number of individual payments you collect in your lifetime, and vice versa — filing later will increase your payments, but you’ll collect more of them. This formula, however, assumes that you live an average life span. But if you pass away at a younger age than the average senior, you’ll come out ahead financially by filing for benefits as soon as you can.
Are you taking the risk that you’ll end up living longer than you or your doctors expect, thereby causing yourself to lose out on some money in your lifetime? Maybe. But you’re probably better off taking that risk than doing the opposite — depriving yourself of money you could use while you’re still alive to make your days more comfortable.
*According to ssa.gov
I have written in the past about the expense incurred when my Father-in-law was suffering from Parkinson’s. He passed away 4 years ago. At that time, we could not believe how much his care cost. Well, those expenses were nothing compared to the expense of long term care now.
A recent study conducted by Genworth Insurance uncovered the following current expenses associated with long term are:
While the U.S. inflation rate was 2.1 percent for the first half of the year, the cost of a one-room assisted living facility grew by 6.67 percent from 2017 to 2018.
There, the annual median cost of a nursing home stay in a private room is $330,873, Genworth found.
Assisted living facilities offer residents more independence and less medical care and assistance than nursing homes.
For individuals who’d like to receive care at home and still live largely on their own, there’s the option of having a home health aide come to visit.
Indeed, home-health aides are expected to be a growing job sector, with a projected growth rate of 41 percent from 2016 to 2026, but median annual wages of $23,210, according to the Bureau of Labor Statistics.
My Father-in-law had some insurance to cover some of his care, the rest had to come out of pocket.
Prepare by identifying how you’d like to receive care.
Helping my clients plan for their retirement by using a comprehensive planning program is a huge part of what I do each day. The amount of data I gather is much more than anyone expects when we first start working together, but the more I know, the more confident I can feel about the planning I provide. I have to ask – what are you doing to your plan? Some of my clients make these mistakes, not many, and some cannot be helped. Please, if it is in your control to not de-rail your retirement, avoid doing the following:
Spending too much on your Grandkids: I know you want to spoil them but do they really need that toy? Talk to your kids to see what would be a wise gift to get, and when.
Supporting your adult children: If you find yourself blindly writing a check every month, reconsider, especially if you’re endangering your own financial well-being. There has to be a time when the bank of Mom & Dad closes.
Skipping senior discounts: My husband has just crossed over to senior discount territory, but he does not like seeing those offers. If you continue to ignore the senior discounts you may be paying an extra 5-20% on a variety of items.
Taking Social Security too early: This is one of my biggest concerns for retirees. Often retirees will not wait until full retirement age to start their Social Security benefits. By taking the benefit early, most retirees will subject themselves to a 25% cut in Social Security forever. On the flip side, every year you defer past your full retirement age, you will receive an 8% increase in your benefit.
Underestimating your life expectancy: I often ask what family history dictates for life expectancy, but with advances in science, and better lifestyle choices, many of us are living longer. I like to use age 90 as a minimum life expectancy in my plans and if I am wrong, it generally works in favor of the client and their heirs.
A number of years ago I did a personal cost analysis on eating dinner out vs. my cooking for myself and my husband. At that time, it was a fine line between the costs of eating out vs. cooking at home. I love to cook, I cook dinner almost every night, and it is much healthier to eat at home, but I am learning I am the exception.
I have a friend that never cooks anymore. She cooked the whole time her kids were at home, and was a very good cook, but she hated it. Now, she doesn’t even make breakfast at home. She has determined that for her and her husband, there is not much difference in cost, but the satisfaction factor is significant.
Spending at restaurants and bars has soared since the early spring, rising to the highest yearly pace in 25 years. Sales of food and drinks purchased outside the home leaped 10.1% in the 12 months from August 2017 to August 2018, according to a recent report by MSN Money. This may be a side effect of the empty-nest syndrome, or a sign of a stronger economy with consumer confidence being high.
I will continue to cook at home, but I am certainly the exception among my peers.
I love a sale as much as the next person and some would even say I make a sport of it. October brings about a great time to buy some big ticket items. Here are a few examples:
IPHONE AND ACCESSORIES
Apple’s new iPhone XR, XS, and XS Max were announced Sept. 12. That means now is the time to buy an iPhone 8, 8 Plus, or X at a discount. Along with the release of a new iPhone comes a slew of new cases, headphones, and other accessories. If you have an older model iPhone, you can get accessories for less as retailers look to move them out.
October is prime time for striking a deal on a new car that happens to be stamped with last year’s date. Auto dealers are eager to make room on their lots for 2019 models.
Prices on cruises and vacations typically take a dip in October, the shoulder month between summer vacations and holiday travel. With school is back in session, many destinations aren’t very crowded but still enjoy balmy and temperate weather.
Have fun but be a smart shopper this October.
I recently heard from three different people in one week that their identities had been stolen. Each case was different, but the end result was the same. In one case, the person used their debit card to pay at a restaurant vs. a credit card. When someone is walking away with your card, they have all of the information they need on the back of the card to make purchases online. A credit card provides much more protection than a debit card does in cases of identity theft. Use your debit card sparingly. Another had to present their driver’s license at a medical office. Later that day, they received a call from the driver’s license office stating that someone was applying for a license in their name. This case did not go any further than that, but it could have been devastating. The third person has no idea where they may have gone wrong in the use of their credit to allow their identity to be stolen. We have to be careful as the crooks are way ahead of us. Here are some tips you can follow to protect yourself:Security Center Excerpts
TDAmeritrade Risk Management Dept.
I would guess that when you read the term “financial shock”, you think of the market crash in 2008. Financial shock actually is an event that hits closer to home. Let me give you an example. In 1985, my father was a construction superintendent working on a high rise project. He got up at his normal 4:30AM to get ready for work, stepped into the shower, had a massive heart attack, and passed away. That is financial shock. He was 50, my mother was 48, and they were not prepared. Sudden death, the loss of a job, or costly medical issues can completely derail your life.
This is what we did to make sure the rest of our family was not caught unprepared:
When everyone was together for a happy family event we discussed these issues. One might think it is in bad form to discuss such depressing topics at a happy event, but it is not. We were all together, happy, and healthy, it was the best time to discuss these issues.
Please make sure that you have a good cash reserve, that your life insurance is up to date, beneficiaries are current, and the death benefit is enough to cover the unforeseen events. Make sure that all of your estate planning papers are in order and current.
Dealing with financial shock can take a huge toll on you emotionally, so please make sure it does not take a financial toll also.
I grew up in a suburb of Detroit and the Queen of Soul was a big part of my childhood. Sadly, just days after she passed there was an article reprimanding her for dying without a will. I say “so what.” Her passing without a will may have made little difference to her heirs. Here is why.
If she had qualified retirement accounts, annuities, and insurance, all of those have stated beneficiaries so that those accounts would go directly to the beneficiaries without going through probate.
If she had bank accounts, or non-retirement accounts that had Pay on Death, or similar designation in the title, those accounts would pass to the heirs with a step-up in basis and outside of probate.
If she had any type of Trust set up for her heirs, the assets named in her Trust would pass outside of probate.
There may have been very little in her estate to be probated. While I don’t agree with not having all of the necessary estate planning papers in place, she may have done fine by her heirs without a will.