3 COMMON SOCIAL SECURITY MISTAKES (AVOIDABLE)

3 COMMON SOCIAL SECURITY MISTAKES (AVOIDABLE)-Transcript

 

[00:00:01] Good morning guys just out taking the dog for a walk. Just thinking today about what I can give you to help you out. And I think the first thing is oh shoot there's a train coming. Let's get a shot of this train here. OK that was cool. So, I've been getting a lot of questions lately about about Social Security and when to take it. So a couple of big mistakes people make when taking Social Security. One is to take it as soon as they qualify you know take it to 62 can be a really bad idea. It could cost you hundreds of thousands of dollars long term. It can be good to take it at 62. If you have some health issues on the other hand because at the end of the day you may get more payments from Social Security but taking a 62 versus waiting until 70 can be probably about 45 percent difference in your overall payout. And that's for life. So that could hit six figures very easily. Usually the break even point is somewhere between 12 and 18 years on taking early versus delaying. So for example if you were going to live to or if you waited till 70 right so may take you until 82 to break even. But then if you live to 92 you're going to make a whole lot more money long term or have a lot more money that's coming in which means you draw less on your assets. 

 

[00:01:35] So what if you don't feel like you have enough money? So here's mistake number two. People take early Social Security because they don't want to touch their retirement investments. In all honesty it may actually be better to pull from your 401k or IRA instead of taking your retirement invest excuse me to take in Social Security because if you delay so security pass retirement age you're going to get 8 percent per year. And so that may even be a little bit higher before retirement age. So 8 percent per year is a very good return. And that's for life. So that's hard to get from your investments when you're in retirement especially since you want to take a little bit lower risk in those retirement years. Mistake number three is not taking the right strategy. The claiming strategy going to give you the best payoff. So say for example you're married. OK. A lot of times it makes more sense to take the spousal payout now or earlier and then wait until you're 70 or full retirement age to take the primary earners pay out. So these days sometimes it's the man sometimes as a woman. Things have changed in these recent years. But whoever is going to have the higher payout should wait and delay for as long as they can. Up until age 70 so those are three mistakes that I see people making a lot. So hopefully you're not going to do those and if you're thinking about taking that I helped you maybe delay if you want to get some exact numbers because you could actually program all these numbers and calculate them on. OK. What's it going to be if you take early pay out. What's it going to be if you wait. 

 

[00:03:07] And when is the best point to take that you don't want to just have it be a random decision. And you also don't want to rely on a Social Security office that can be mistake number four the social security administration gets things wrong all the time. So you want to make sure you do your own analysis. We can definitely help you out with so if you want help getting your Social Security situation mapped out. Let me know. Feel free to send me an e-mail Jason@kisplanning.com Or you can book a call with me at Jasonjhamilton.com/hello. And we'll spend 45 minutes figuring out where you're at and then we'll share it with the next best. We'll be OK. Talk to you soon. Have a great day. 

Understanding IRA Minimum Distribution Requirements

Many people who have been contributing to Individual Retirement Accounts (IRAs) for years have watched their account balances grow through tax-deferred accumulation. However, did you know the Tax Code mandates that contributions to traditional IRAs are no longer permitted after reaching age 70½ and required minimum distributions (RMDs) must commence no later than April 1 of the year after the year in which you reach age 70½?

Let’s take a look at the following example. Suppose Bob’s 70th birthday was July 15, 2017 and he attained age 70½ on January 15, 2018. Bob will have until April 1, 2019 (the year after reaching age 70½) to begin taking distributions.

It is important to note: The first RMD is actually for the year in which you attain age 70½; however, you are allowed to postpone it until April 1 of the following year. For every year after the first distribution, the RMD must be taken by December 31.

At first glance, postponing the first RMD may seem like a good idea because you can gain additional tax deferral. However, a second RMD would be due by December 31 of the same year (i.e., that year’s required distribution). Not only would this substantially increase your taxable income, but it could also limit some deductions based on adjusted gross income (AGI) and possibly subject your Social Security benefits to taxation.

Consequently, some people find that it makes sense to take the first RMD in the year when age 70½ is reached, rather than to postpone and “double up” the following year.     

Calculating the Distribution

Each year, the RMD amount is be calculated by dividing the IRA balance, as of December 31 of the previous year, by the applicable life expectancy factor from the appropriate IRS table. If an individual has more than one IRA account, the RMD amount must be calculated according to the total balance in all accounts. However, the amount can be taken out of any one (or more) IRA account. For each subsequent year, the RMD amount must be recalculated.

It is important to note: If you fail to withdraw the RMD amount for each year, you may be subject to a penalty tax. This tax is 50% of the difference between the amount actually withdrawn and the amount required to be withdrawn (i.e., the minimum distribution shortfall).

IRAs continue to be valuable vehicles for retirement planning. However, the time of reckoning (i.e., mandatory withdrawals) may be approaching for many IRA owners. Knowledge of the rules may help avoid potential tax problems. Be sure to consult a qualified tax professional for advice specific to your unique circumstances. 

Introduction to Tax Strategy

 

Introduction to Tax Strategy

Nobody likes to pay more taxes than necessary. As you know, tax laws change often and next year may contain some of the largest changes to tax law in a long time. Therefore, lowering your tax bill involves careful planning. In fact, there’s hardly an aspect of your financial situation—savings, education, real estate, investments, retirement funding, and estate planning—that isn’t influenced by changing tax law.

In recent years, historic tax reform has provided significant savings for individuals, families, and investors. However, many of these opportunities are temporary, and unfortunately in a 2015 study by the National Consumer Law Center, after mystery shopping tax preparers, over 93% of tax returns prepared by paid preparers had errors.

We want to help you get what’s rightly yours.

This information has been developed to help you make the most of current, temporary tax breaks. In addition, we offer time-tested tips that cover every aspect of your financial situation in the short- and long-term. Our goal is to help you minimize your tax liabilities and maximize your potential savings.

Life Changes

Have your circumstances changed in the last year? If so, you may be a good candidate for tax planning. As you begin preparing your taxes, take a stroll down the front of Form 1040, and think about the life changes you have experienced in the past tax year.

Have you married or divorced in the past year? Near the top of the form you must declare your filing status (single, married filing jointly, married filing separately, or head of household), which determines your marginal tax rate (the rate at which your last dollar of income is taxed).

Have you had a child, adopted a child, or assumed caregiving responsibilities? If so, the number of exemptions you claim, or dependents you support, may change.

Have you changed jobs, started a home business, or rented out your second home? There are more than a dozen types of income that you must report, as applicable to your situation.

Have you made payments on a mortgage, incurred medical expenses, or donated to charity? At the bottom of the form, you will list any deductions, which in turn reduce your total income to adjusted gross income (AGI).

As you can see, life changes are relevant to planning your tax strategies.

The Importance of Timing

Waiting until just before April 15 to start thinking about your taxes may prove to be a costly mistake. Like your financial strategy, your tax strategy operates in two time frames—now and later. “Now” covers the 12 months of the current tax year.

The specifics of your income and the deductions available to you will certainly change from year to year according to your changing circumstances, and you may be able to save money now by making small changes.

“Later” covers long-range tax strategies that benefit your future, such as maximizing the tax-deferred savings offered by a qualified retirement plan like a 401(k). Either way, timing is critical, and your planning can make a significant difference.

By coordinating your tax strategies with your life changes and financial strategies, you may accomplish a variety of goals, such as buying a home, funding a child’s education, and funding your retirement.

One of the services we offer should you decide to work with us is a tax planning strategy to help you keep more of your hard-earned money.

If you would like to find out if you’re a good candidate for tax planning, book your free call with us today at www.kisplanning.com/apply. During our chat, we will not only help you get clarity on whether you’re a good candidate for tax planning, but also whether there are any other areas of your retirement planning situation that we can help you identify for improvements.

We are here to help. Book your call today: www.kisplanning.com/apply

 

 

 

Keep It Simple Financial Planning is a fee-only fiduciary registered investment advisor located in the heart of Orange County, Santa Ana, CA. We help clients that are concerned about running out of money in retirement create a plan to retire with confidence.