June 30, 2013

Tax Preferred Retirement Plan Possibly Being Eliminated


The leaders of the Senate tax-writing committee are trying to reform our current tax system by putting every tax break embedded in the tax code up for review – including retirement-savings incentives. Nothing wrong with this, I personally think that there are many tax breaks that are in fact a waste and should be eliminated to help in increasing revenues.
 
However, I question if putting tax preferred retirement plans in the chopping block is a smart idea from our beloved Senators. I am in favor of a fairer tax code that promotes economic growth. However, will eliminating the tax deferral status provided to retirement plan accounts address this goal? I am not convinced. 
We must be keep in mind that the tax breaks for retirement plans are in reality tax deferrals instead of permanent tax write offs. Therefore, workers who put money into retirement plans will have to pay taxes on the funds when they're withdrawn in retirement.Should they be lumped with all of the tax deductions and credits currently overloading our tax code?
I think that we must promote all forms of financial independence now more than ever, instead of creating more dependency in government subsidized programs. Americans should be encouraged to save, specially for the older years, and if there is a tax incentive that makes sense to me is this one. We provide tax breaks to move jobs out of United States, allow companies to defer U.S. tax on their foreign income, and allow companies to siphon profits they earn in the U.S. to overseas subsidiaries, all of these tax incentive are destroying our nation. We have bigger problems than the tax preferred treatment of retirement plans.
I believe that without the tax deferral incentive provided to retirement accounts Americans would not be encouraged to save for their older years and increasing the dependency on being supported by the government. Why penalize good behavior?



June 23, 2013

Five Mistakes to Avoid Near Retirement


1. Trying to make up for lost time - if you have seen your retirement portfolio reduced and feel tempted to take unnecessary risk to make up for losses, resist. With the recent surge in the stock market you may think that is time to invest aggressively to make up for lost time, right? Keep in mind that a more aggressive allocation gives you the potential for higher returns, lower returns and negative returns. An agrresive allocation does not guarantee that you will meet your retirement goals, it could help, but it's far from a sure thing. Before increasing investment risk, consider options that will deliver a more reliable outcome: like working longer, spending less
and saving more.

2. Avoiding tax planning - One of the best investments you can make is tax planning. Meet with your tax professional to design projected tax liabilities during your retirement years and make decisions that can help you reduce the taxes. Developing a solid retirement planning now
can make a big difference down the road.

3. Claiming Social Security Without a Plan - Many Americans are potentially leaving dollars on the table due to poor planning when claiming their social security funds. A good financial advisor can help you determine when is the right time and how to maximize your benefits. While some people are simply uninformed, others are dangerously misled by the “conventional wisdom” surrounding Social Security.


Retirees often apply for Social Security benefits early then find themselves regretting the reduced checks for the rest of their lives. There’s a financial penalty for claiming Social Security benefits between age 62 and your full retirement age (66 for people born between 1943 and 1954, between 66 and 67 for those born between 1955 and 1959 and 67 for those born in 1960 and later).

4.Overspending - Many times you may feel tempted to buy that extra toy. As the economy improves you may feel that you need to show it (aka "wealth effect") and it can be a dangerous thing. Increases in your retirement portfolio because the market did well last year doesn't
mean there's now room for the latest model car — unless of course that was part of your original plan. 


Many people fail to adequately address increased longevity. The reality is that we are living longer than ever. Outliving ones' assets should be a primary concern when envisioning
the type of retirement lifestyle that one desires, and then to plan accordingly.

5. Assuming Medicare Covers all Your Health Care Costs - Assuming that you wont have health care expenses during your retirement years because you have Medicare can lead you to a rude awakening. You should estimate that Medicare will cover about 50% of your health care expenses in retirement. Also, you should not overlook the possibility for long-term care. And I'm not talking just insurance policies, though these may be important depending on your financial situation and disposition of assets. Discussions among family members are especially important ahead of time, because the emotional and financial hardships of a long-term illness can be devastating.

June 2, 2013

5 Insurance Policies To Avoid

Fear of the future and uncertainty is one of the best selling tactic used by insurance sales people. Insurance companies understand this fear and use it against you. Before I go any further, I will tell you that insurance must be included in your financial planning strategies. The key is to chose the correct insurance for your situation.

Insurance is about transferring risk - risk that you cannot take or do not want to take. Unfortunately many people waste money on insurance products that they do not need and never will use. Here I share five insurance products that you should avoid:

  • Extended warranties - how many times when you go to the electronics store you are asked to buy an extended warranty. These type of policies are rarely used, particularly on small items. If you purchase a product from a reputable manufacturer, must likely it will work as advertised. So do not take the bait!
  • Flight insurance - This one is completely unnecessary. Your life insurance policy should already cover you in the event of catastrophe. If you are not certain and you travel a lot, contact your insurance agent.
  • Accidental death & dismemberment (aka AD&D) - Unless you are a driving calamity (constantly involved in car accidents), the use of this policy would be near zero. The coverage provided by these policies are covered by most of the reputable health and/or life insurances. Also, the manner these policies are written makes it difficult to collect.
  • Mortgage life insurance - they pay off your mortgage in the event of your death. A valid concern, the desire to avoid leaving our families with debt burden. However, you accomplish this through other methods in your financial plan. If you still want to have an insurance to specifically address this concern, then go for decreasing term insurance
  • Credit card insurance - another money waster, this one pays your credit card bills in the event you cannot pay. Interesting concept. I have a better idea, avoid running your credit cards and becoming a debt slave. This way you do not need to worry about the credit card bills.
There are a variety of insurance policies to choose from, and they all cost money. While it is prudent to maintain certain levels of insurance protection, you must be careful in selecting the right coverage. The goal is to provide your family the greatest protection against risk at the lowest cost possible. Remember the more risk you transfer to the insurance company the more you have to pay in premiums. Always read your insurance policies and ask questions to make sure you understand what you are purchasing and understand its limitations.