Last Minute Tax Items

The last week of the year is generally packed with last minute items to minimize taxes owed.  Here's what we are doing:

• Paying property taxes due next year.   The IRS typically doesn't allow deductions of prepayment of taxes owed in future years.  However, in our state, taxes are paid a year in arrears, meaning that we pay taxes for 2016 in 2017.   Our 2017 taxes are billed in 2018.   So it is OK for us to pay the 2018 tax bill before the end of 2017 and deduct the payment on our 2017 tax return.  
• Charitable contributions.   We're making last minute charitable contributions that will include contributions that we were planning to make next year.  Unlike taxes, charitable contributions, even those pledged for future years, are deductible in the year paid.
• Minimize capital gains.   If needed, we will sell some stocks with losses to offset any gains we may have this year.   We probably won't do this since I already took this step earlier in the year.
• Medical expense.   The tax law lowers the medical expense deduction to the amount exceeding 7.5% of AGI for 2017 and 2018.   The limit goes back to 10% in 2019.   Since we have already exceeded 7.5% of AGI in 2017, any additional  medical expenses will be deductible.
• IRA contribution.  Although we have until the April 16, 2016, I like to make our IRA contributions earlier, so that I don't forget.
• Last estimated tax payment.   If I needed to pay estimate taxes, I would make my last state payment, which is due in January 2018, in 2017 so that I could deduct it this year.

 I will need to complete most of these by this Friday, since that is the last business day of 2017.

For more on  The Practice of Personal Finance, check back Wednesdays  for a new segment.

This is not financial or tax  advice. Please consult a professional advisor.

Copyright © 2017 Achievement Catalyst, LLC

Maybe It's Time to Believe

"Believe in the magic..." ~ Christmas adage

The Princess Bride character Vizzini often said, "Inconceivable" for an event he didn't believe was possible. Vizzini's refusal accept the facts and believe in the "inconceivable" eventually resulted in his demise.

Donald Trump winning the election.   The economy improving and exceeding 3% GDP growth.  The stock market advancing significantly despite being in the eighth year of a bull market.  All "inconceivable" as Vizzini would say.

Maybe it's time to acknowledge the facts and invest accordingly.  

For more on Ideas You Can Use, check back Tuesdays for a new segment.

This is not financial or investment advice. Please consult a professional advisor.

Copyright © 2017 Achievement Catalyst, LLC

Selling the News

Once tax reform passes, I expect the market to react by going down.  

Reasons:

• Tax reform has already be priced in.   Rotations into stocks that benefit has been occurring for the past few weeks.  Investors will want to lock in these short term profits.
• Investors will want to delay large gains until 2018.   Tax rates will be lower in 2018 which gives some incentive to take profits in January.   However, if selling drives down the price, more people will be selling to maintain profits.
• Avoiding a government shutdown will be challenging.  Congress only has until Friday to avert a shutdown and tax reform has limited any negotiations on avoiding a shutdown.

I'm ready for and expect at least a correction over the next few months.

For more on New Beginnings, check back Sundays for a new segment.

This is not financial, investment or tax advice. Please consult a professional advisor.

Copyright © 2017 Achievement Catalyst, LLC

Ten Years Later - Is the Market Higher?

In Staying Calm in a Volatile Market posted on December 12, 2007, my financial advisor said, "I know the market will be higher 10 years from now."  It gave me confidence to stay invested in the market.   However, the 08/09 bear market came and was devastating.

So is the market now higher 10 years later?

The answer is yes.  On December 12, 2007, the S&P 500 closed at  1413.21. On December 12, 2017, the S&P closed at 2664.11,  87.1% higher despite the significant decline in 08/09.     So the answer is yes.

In fact, the U.S. Stock Market has recovered from every bear market and subsequently reached new highs.

So when the market declines, I am going to stay invested and add more funds to participate in the inevitable recovery.

For more on The Practice of Personal Finance, check back Wednesdays for a new segment.

This is not financial or investing advice. Please consult a professional advisor.

Copyright © 2017 Achievement Catalyst, LLC

Our Social Security Maximization Strategy

Last week, I had a discussion with a Social Security expert and have revised our strategy for when to take Social Security benefits.   Until this call, I was analyzing option on how to maximize our total benefits received based mainly on when I started taking Social Security benefits.   The analysis showed that it was financially superior for me to start taking benefits at 62..

The expert offered a different strategy: Maximize the higher income benefit first and then maximize total benefits received.   Her point was that the higher income benefit would be the ONLY benefit if one of the couple passed away.  Therefore, it would be important to ensure the higher benefit is as close to the maximum as possible.  From her experience, the surviving spouse (often the woman) was shocked when she learned how low the survivor's benefit was because the retirement benefit was started at 62.

However, while waiting to maximize benefits, my spouse can start her Social Security benefits at 62, and thereby enabling us to collect auxiliary benefits due to minor children.  I had not considered this approach prior to consulting with the expert.

So my new strategy is to wait until 70 before starting my retirement benefits.    This will maximize our retirement benefits when one spouse passes away.  In addition, we will plan to have my spouse start her reduced benefits at 62, which will give us some Social Security income prior to me turning 70.

For more on New Beginnings, check back Sundays for a new segment.

This is not financial, retirement or Social Security advice. Please consult a professional advisor.

Copyright © 2017 Achievement Catalyst, LLC

Not Feeling Brilliant

"Don't confuse brains with a bull market." ~ Humphrey Neill

I'm feeling pretty good this year about the growth in our retirement accounts.   However, I realize the returns are due primarily to a great bull market, and not because I made brilliant stock picks.

So rather than put more money in the market, I've been taking a wait and see approach.  If the market continues to decline, I want to wait until there is at least a 10% correction before adding funds.   If the market resumes it's advance, I will continue to take some profits and keep the value of my holdings constant.

So for now, I will continue to wait.

For more on The Practice of Personal Finance, check back Wednesdays for a new segment.

This is not financial or investing advice. Please consult a professional advisor.

Copyright © 2017 Achievement Catalyst, LLC

Retirement Finances May Become Challenging ... Again.

When I retired early in 2007, the stock market made the future look bright.  We were about 80% invested in equities.  I expected our investments to perform extremely well.  Instead, the 08/09 bear market reduced are retirement account by 44%, which was catastrophic.  We spent until late 2013 clawing our savings back to the 2007 levels.  It was a very challenging time.

Fast forward 10 years to 2017.   Again, the stock market is making the future look bright.  However, this time I am much less optimistic and more cautious about our investments.  We can't afford another downturn of 44% in our retirement savings.   I no longer have the wherewithal nor stamina to withstand the decline and make the subsequent recovery.

So, I am consciously not adding any additional funds to equities, and taking profits in specific positions, where possible.   Still, we are not exiting the stock market, but targeting for only 25% exposure to equites.  That way a 50% decline will only result in a 12.5% decline in our retirement savings.

A 12.5% decline, while not desirable, will be challenge that is not insurmountable.

For more on New Beginnings, check back every Sunday for a new segment.

This is not financial advice. Please consult a professional advisor.

Copyright © 2017 Achievement Catalyst, LLC

Lions and Tigers and Bears, Oh My!

"If it's too good to be true, it probably is." ~ old adage

Our accounts are at or near all time highs and keep going up.     My investments are making me look brilliant.  Nothing seems to cause the stock market to fall significantly.

It feels like 2007 all over again.    And I still feel the pain of how that ended.

So instead of putting more money into the market, I am still taking profits.   And waiting for the inevitable correction before I put additional funds into the market.

I may be waiting a long time, but I'll be able to sleep at nights in the meantime...

For more on Reflections and Musings, check back Saturdays for a new segment.

This is not financial advice. Please consult a professional advisor.

Copyright © 2017 Achievement Catalyst, LLC