Strategies to Lower Federal Income Taxes in Retirement

"Anyone may arrange his affairs so that his taxes shall be as low as possible; he is not bound to choose that pattern which best pays the treasury. There is not even a patriotic duty to increase one's taxes. Over and over again the Courts have said that there is nothing sinister in so arranging affairs as to keep taxes as low as possible." ~ Judge Learned Hand

As a retiree, I've learned that I have additional opportunities to minimize our tax responsibility.   I gladly use those opportunities to send less of our hard earned money to the wasteful federal and state governments.  These strategies simply require the capability to shift income and deductions.  By doing so, a retiree can reduce his overall tax responsibility over a two year period.

There are three elements that impact our tax responsibility:  income, deductions and credits.  

• Credits.   Credits are the best way to reduce taxes since they are a direct offset of tax responsibility. So a $1000 credit reduces tax responsibility by $1000.  The tax credits for which we may be eligible are the Saver's credit ($2000 max) and the Child Tax credit ($1000 per child).  Both credits go to zero above certain income thresholds.
• Deductions.  Deductions reduce taxable income.  Sometimes a challenge for retirees is having sufficient deductions to exceed the standard deduction, especially when there is no mortgage deduction.  A solution is to shift deductions to one year and take the standard deduction in the other year.   For example, an option is to pay two years of property taxes and shift contributions into one year to exceed the standard deduction.  Then take standard deduction in the other year. In this example, the total deductions for two years will be greater than two times the standard deduction.
• Income.  Depending on the source of income, the capability to manage income received will vary. Retirees that receive pension payments or regular dividend/interest income probably can't adjust income as easily.  However, those with stock, capital gains and IRA distribution income may be able to choose when to take taxable income.  By managing when to take taxable income, a retiree may be able minimize the part of the funds that are taxable.

By managing income, deductions and credits, I am able to ensure that our household has the minimum tax responsibility, which allows our house to keep more our money.

For more on Reaping the Rewards, check back every Friday for a new segment.
This is not financial, retirement or tax advice. Please consult a professional advisor.

Copyright © 2011 Achievement Catalyst, LLC

Loss of Accountability

"The Buck Stops Here" ~ sign on President Truman's desk

When I was a child, adults took responsibility for their actions.  When I was a new manager, I realized that I was responsible for the organizations results within a month of taking over.  I wasn't going to be able to blame the lack of positive results on my predecessor, no matter how bad the situation I inherited.

Nowadays, the norm is to blame poor results on either one's predecessor or the prior situation, especially if the inherited state of affairs is bad.  Leaders don't seem to take personal responsibility anymore. The latest is Jon Corzine: MF Global Was "Not My Fault' reports that Mr. Corzine "inherited a firm doomed by the risks his predecessors took."     I guess I shouldn't be surprised.  After all, that seems to be seems to be a common excuse in today's world.  If someone can't solve a problem, then it's the predecessor fault.  In some cases, the predecessor is the reason even after almost three years.

Sorry, I just can't  agree.  If someone takes the position, he also takes both  the credit and the blame for the results.  Hopefully, accountability is something we'll be able to teach our daughter to have.

For more on Crossing Generations, check back every Thursday for a new segment.

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

Copyright © 2011 Achievement Catalyst, LLC

Check Whether a Deal is a Deal

In my state, I have the option of purchasing natural gas and electricity from competitive retail suppliers or from the government regulated utility.   On the surface, it would seem purchasing energy from competitive retail supplier versus a regulated supplier.  However, that assumption isn't always true based on a historical analysis I did.

Until recently, I decided keep purchasing natural gas from the regulated utility.  I had heard "horror" stories of people committing to a fixed rate gas cost only to have the market price dip significantly below the competitive fixed rate retail price.  So I always stayed with the regulated market price.  However, last year, a competitive retail supplier offered a variable rate with a maximum cap.  So, the price we pay has a maximum amount but it can decline if the market price drops.  For us, it was a no lose situation so we purchased it

On the other hand, I decided to purchase electric energy from the retail supplier right away.   The offer was either an 18% discount from the variable regulated price or a fixed rate that was a 33% discount from the current regulated price.  For this one, I called our local electric utility and figured out that the regulated price didn't vary much during the year.  So a fixed rate at a 33% discount was likely the best deal, since there was a only a small chance that the price of electricity would decline much.  For the past year,  the 33% discount fixed rate option that we contracted turned out to be the best option.

Over the past year, we've reduced our energy utility costs by about 1/3.   So the analysis I did paid off is a great savings.

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

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

Copyright © 2011 Achievement Catalyst, LLC

Links to Carnivals from November 29 to December 5, 2011

Here are the links to the Carnivals in which My Wealth Builder participated from November 29 - December, 2011:

Baby Boomers Blog Carnival One Hundred-twentieth Edition

Cavalcade of Risk #145

Carnival of Financial Planning #213

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

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

Copyright © 2011 Achievement Catalyst, LLC

The Wealth Builder Carnival #56

Welcome to the fifty-sixth edition of The Wealth Builder Carnival. The purpose of this carnival is to collect articles from the blogosphere on building, preserving and keeping enough wealth for a comfortable retirement. For reference, I have tried to keep the carnival content tightly focused on wealth building and did not include submissions that were off topic. For reading convenience, the posts are listed with a brief summary or comment by the submitter and organized into seven categories: Earning, Insuring and Protecting, Investing, Living Frugally, Retiring, Saving and Taxes.

And now onto the Carnival:

Insuring and Protecting

DJ presents Why Do I Need to Assign a Power of Attorney? posted at The Family Wallet, saying, "Everyone should at least consider having a POA. Should you become incapacitated without having a POA, a judge will have to appoint an agent to manage your affairs; agent responsibilities do not automatically default to your closest relative."

Super Saver presents Thinking About Earthquake Insurance posted at My Wealth Builder, saying, "The recent earthquakes in Virginia and Oklahoma have caused me to give consideration to earthquake insurance."

Investing

Dividends4Life presents 9 Low-Risk, High-Yielding Dividend Stocks posted at Dividend Growth Stocks, saying, "If your goal is to accumulate wealth for a comfortable retirement, then there is no risk-free path. Yield and risk tend to follow each other. As risk increases, the investor demands more yield to compensate for that risk. Sometimes it is desirable to accept higher risk for a higher yield. Other times we may be accepting higher risk and are not being adequately compensated for the additional risk."

Jim Tolley (aka Kidgas) presents Warren Buffett, Intel, and Me posted at Cash Flow Mantra, saying, "There are plenty of good ideas out for investing out there. I think the problem comes because there can be too much information for some people to decide. Should I invest in individual stocks or mutual funds or exchange traded funds? Should I use bonds or preferred stocks or CDs for income? How much international exposure should I have?"

Barb Friedberg presents Investing Rule 1: Know Thyself posted at Barbara Friedberg Personal Finance, saying, "Choose an investing path that is not only financially sound, but in line with your personality and risk tolerance."

Living Frugally

Chelsea Prescotti presents Top 10 Things You Should Never Buy New posted at CreditScore.net, saying, "Shiny new toys are always nice to have, even as an adult. While those nifty new items might feel good, they are not always a wise choice. When it comes to new versus used, the following ten items are things you should always buy used, when feasible. You won’t give up value, but you will save cash, provided the items are in good condition."

Matt presents 6 Ways to Control Home Remodeling Costs posted at Living In Financial Excellence, saying, "Diving into a remodeling project without proper preparation, however, is a risky prospect. You need to commit to planning and forethought to make sure that your modest remodeling idea doesn’t become costly. Below are some tips to get you started."

Jon Elder presents 5 Ways People Waste Money on their Cars posted at Free Money Wisdom, saying, "Below are five common ways people waste money on their cars."

Lazy Man and Money presents I’ve Finally Ditched My Cable Box and Cable Modem Rental Fees. posted at Lazy Man and Money, saying, "For some time I've been writing about ending my cable box rental fees, but I haven't been able to pull the trigger. This week I finally did it."

Justin presents You Don’t Need Money to Do What You Want posted at Money is the root...of all things GOOD!, saying, "I grew up in the 1950″s with gypsy parents – well, they really weren’t gypsy’s – but they claimed to be because they liked to go, go, go. We went. Every year. Two weeks. All over the States. They were poor, but they made it a priority to always travel for two weeks each summer – and take we two kids along. How did they do it?"

Bucksome presents Money saving tips for the holidays posted at Buck$ome Boomer's Journey to Retirement, saying, "Here is my list of money saving tips for the holidays. With a little planning you can save money, reduce stress and have a fun filled holiday."

B.B. presents We Conquered Black Friday posted at Beating Broke, saying, "We stuck to our list, only buying one extra item on Black Friday. We not only kept to our budget, but we beat it! When we were done with our busy morning of shopping, we had everything on our list, and we’d spent less than $150!"

Tyler presents The Best Home Gym Equipment for the Price posted at Weight Training, saying, "I hope you find this article fitting for your readers! Your readers need to know about how to save money by exercising at home!"

misst presents How to Be a Frugal Shopper posted at Prairie Eco-Thrifter, saying, "Are your shopping habits saving you money? If not, it’s time to learn some tricks on how to become a more frugal shopper!"

Lisa presents Money Saving Christmas Gift Ideas posted at Thriftability, saying, "Striking a balance between giving the perfect gift and still staying within budget can be tricky, but with a little ingenuity it’s not so hard to pull it off."

Jonathan from Debt Loans presents Saving Money on Music posted at Wallet Watcher, saying, "Purchasing music can really add up over time. If you’re tacking on another $20 or $30 a month just on music, perhaps you’re missing out on some free and/or very reasonably-priced options. It could be time to take advantage of some possibilities."

Retirement

Beth Montgomery presents Saving for Retirement posted at Credit Cards for Fair Credit, saying, "When you’re just starting your career, it is hard to think about retirement because it feels so far away, but in reality, putting money away when you are young will help you save more in the long run."

Saving

MoneyCone presents If you are happy with your Big Bank, should you still switch to a Credit Union? posted at Money Cone, saying, "Is it worth switching to a Credit Union even if you are happy with your Big Bank? Unless you think this is chump change, I think it is worth it. The good news is you have a choice. Laziness in this case could be costing you dearly."

That concludes this edition. Submit your blog article to the next edition of The Wealth Builder Carnival using our carnival submission form. Past posts and future hosts can be found on our blog carnival index page.

Technorati tags: the wealth builder carnival, blog carnival.  

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

This is not financial, earning, insuring, investing, living, retiring, saving, tax, or wealth building advice. Please consult a professional advisor.

Copyright © 2011 Achievement Catalyst, LLC

A Long and Short Portfolio

A retired colleague of mine has started his a "hedge fund" for his own portfolio.  He is both long and short an equal dollar amount of stocks.  Of course, the long stocks are different from the short stocks.  The idea is to choose long stocks that go up more than short stock in an up market.   Theoretically, the long stocks should also decline less than short stocks in a down market.  The net effect is an investor will make money in both up and down markets.

With the market trading in a range, I think this is a good time to do a long and short portfolio.  It seems the strong stocks keep trending up and the weak stocks keep trending down despite the direction of the market at the moment.

The stocks I'm currently considering for the long side are McDonald's, IBM, Phillip Morris and Stericycle.   The stock I'm I considering for the short side is Shutterfly.     I will need to find more stocks for long and short positions, but this a start.

Disclosure:  Our retirement accounts are long shares of McDonald's and Phillip Morris.

For more on Strategies and Plans, check back every Monday for a new segment.

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

Copyright © 2011 Achievement Catalyst, LLC

New Realities of Retirement

It looks like the retirement dream is being delayed according  to  More Americans Expecting to Retire in Their 80s and 80 is the New 65 for Many Retirees.  People will work less instead of quitting work completely.  Even those that work until 80 will need to slow down.   Also, people will spend more of their savings and have less to leave their children.    

The main issue is insufficient savings to enable a complete retirement at 65.  Of course, the great recession, low interest rates and stock market decline isn't helping much either.
 
For more on New Realities, check back every Sunday for a new segment.

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

Copyright © 2011 Achievement Catalyst, LLC

Higher Tax Advocates' Hypocrisy

If I were an advocate of higher taxes, I would gladly pay high taxes.  That doesn't seem to be the case for a couple well know higher tax advocates:

Warren Buffet.  He is well known for saying he pays at a lower tax rate than his secretary.  Also, he believes that the wealthy should pay more taxes.  However, Mr. Buffet has contributed most of his wealth to the Gates Foundation, a charitable organization, and will avoid the estate tax of 55%.  When asked why Buffet didn't let his estate be taxed, his response was that the Foundation would be a better distributor of his money than the government.

Also, Mr. Buffet could have paid higher taxes since the Treasury does accept deductible contribution to reduce the U.S. debt.   I'm surprised Mr. Buffet didn't choose to do this given his advocacy of the rich paying more taxes.

Senator John Kerry (D-MA).  Senator Kerry is a proponent of raising taxes on the wealthy, of which he is one   However, when it came to paying sales tax and excise taxes on the family yacht, Senator Kerry docked to the yacht in neighboring Rhode Island which has neither a sales tax or excise tax. 

Senator finally decided to "voluntarily" pay the Massachusetts taxes after the media published the avoidance of his tax responsibility to his home state.

 
I prefer to support those who do as they say, instead of only expect others to do as they say.  Both Warren To me, Warren Buffett and John Kerry rate pretty low in the "do as they say" category.

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

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

Copyright © 2011 Achievement Catalyst, LLC

Working Close to Home is My Preference

Since taking early retirement in my forties in 2007, I've worked seven different part time seasonal jobs and one temporary full time job.   One part time job and the temporary full time job were "work from home."  The rest of the other jobs required a commute from 2 to 10 miles, one way.   While I disliked the 10 mile commute the most, I didn't like working from home the best. To me, working close to home was the best.  Here are the reasons:

Gets me out of the house.   Working from home made it too easy to stay in the house all day.  Working a couple miles away was a reasonably short commute time and got me outstide.

Leaves work at work.  All my commuting jobs allowed me to leave work at the job.  Working from home made my work always available to do.

Separates home and work.   When working from home, my den became both a personal and work place.  I prefer work to more separated from my personal life instead of always connected.

In 2012, I will be limiting my part time retirement jobs to those that are within 5 miles of my house.  That way I get a very short commute and can leave work when it's done.
 
For more on Reaping the Rewards, check back every Friday for a new segment.

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

Copyright © 2011 Achievement Catalyst, LLC

No Longer Relevant

"I'd like to be viewed as something alive and relevant, not some fossil." ~ Brian May

I used to think the worse part of aging was decline of physical and mental capabilities.  Seeing a significant loss in capability versus what I was able to do in my younger days was a depressing thought. However, this year, I realized there was a worse part of aging than the decline of capabilities.  It's the loss of relevance.

The idea of being irrelevant became very clear during the Thanksgiving holiday when I watched the movie Secondhand Lions in which the main character, Hub McCann, expresses his fear about "becoming useless," despite having a glorious career in the French Foreign Legion.   His fear resonated with me.

Yes, I am no longer relevant to younger people due to my age (53) and being early retiree (in 2007).   As my nephew has told me, his world is much harder than the world in which I lived as a child.  Therefore, my past experiences are not meaningful and my perspective is outdated.  For example, my daughter doesn't seem to think I know enough to help with her advance first grade homework :-)

Perhaps, that's why I enjoy tutoring college prep exams.  It may also be why I took on a temporary full time job as the Executive Director of a non-profit.   In these roles, I am still relevant and making a positive impact.   And, for brief moments, I feel much younger than my actual age :-)

For more on Crossing Generations, check back every Thursday for a new segment.

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

 Copyright © 2011 Achievement Catalyst, LLC