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New Year’s Resolutions You Can Keep

Dec 30th, 2013
by jblankenship.
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Gym

Gym (Photo credits: www.mydoorsign.com)

This time of year it’s cliché to make resolutions for the coming year.  Whether it’s to lose weight, stop a bad habit, or begin saving for retirement, many of us set these goals at the beginning of the new year.  And then three weeks into the new year, we’ve left that goal astern – having changed nothing at all.

The problem is in how we set goals for ourselves.  For example, we might make the bold statement that we want to lose weight.  Often, that’s all there is to our resolution – but there’s much more to setting a goal than making a statement about it.  There has to be a plan, and some specifics around the goal.

If the resolution is to lose weight, first of all you need to put some specifics around that goal:

I want to lose fifteen pounds in 2014.

Now, how are you going to do this? Is it going to happen all at once? One fine day you’ll wake up and you’re 15 pounds lighter?  Of course not.  But it’s that “presto” mentality that often derails us.  We dive into our 15-pound goal with much gusto, going to the gym and working out four days a week for the first week. (Have you ever tried to get a treadmill at the gym during the first week of January? Impossible!)

Then, when we don’t see the automatic result after the first couple of weeks, we get discouraged, and we start to fall back into our old routines.  Pretty soon we’ve given up on the goal altogether.  How can you stop this cycle? Incrementalism.

Incrementalism

Instead of focusing on the year-long goal of losing fifteen pounds, look at the goal incrementally – set yourself monthly goals of losing 1¼ pounds each month.  That’s a much more attainable goal, and not one that you have to spend hours on the treadmill each day to achieve.  You might be able to achieve this by taking a walk for 20 minutes, three days a week, and pushing back from the table a bit sooner at mealtime.  Before you know it, you’re incorporating the walks into your daily routine, and you’re not missing the extra helping of taters – and you’ve lost that month’s 1¼ pounds.  Keep up the incremental changes through the year, and voila! you’ve met your yearly goal.

The trick is in looking at shorter-term increments to meet the larger goal. When we look at the larger goal only, we think we’ve got to do something heroic in order to meet the goal.  By taking a short term view, we realize that smaller, incremental changes will help us to get to that short-term goal.

Let’s take saving for retirement as an example: In 2014 you have the goal of saving $5,500 to make a full IRA contribution toward your retirement.  If we focus on the full $5,500 – that can be a significant amount to come up with.  Instead, incrementalize the goal.  Look at it in terms of your regular payroll cycle – every two weeks.  That works out to $211 every paycheck.

That’s not insignificant, especially if you’re on a tight budget already, but it can be done.  There are many places where we’re short-changing ourselves, paying for more things than are necessary.  Most folks have more tax withheld from their pay than is necessary, which results in an over-large income tax refund.  Making a change to your W4 filed with your employer will help to free up some extra cash to make up the $211 each payday that you are looking to save.

Other areas can be reviewed as well – rarely-used gym memberships, rented storage lockers (full of stuff we haven’t thought of for years!), magazine subscriptions that we don’t take time to read, and lunches out while working – all represent places where we can free up cash for the by-weekly $211 contribution to the IRA.

Insurance premiums – for homeowner’s and auto insurance – can be reduced by upping the deductibles on these policies.  For example, a $1,000 deductible on your auto insurance policy (rather than $250) will result in a decrease in the cost of the policy.  Most of the time, if you have minor damage to a vehicle (less than $1,000) you’re better off to pay for it yourself rather than submit a claim, since your insurance company will make up the difference (plus!) by increasing your premium in the coming years.  The same is true for your homeowner’s policy.

Start going through your month-to-month expenses and finding those places to free up the cash on an incremental basis, and soon enough you’ll have that $211 per pay period freed up, and next thing you know you’ve saved that $5,500 for the year.  This is the magic of incrementalism.

Keep in mind that the net result of your $5,500 contribution to the IRA, if it’s a deductible IRA, will be less than the full $5,500 after you’ve prepared your tax return.  If you’re in the 25% marginal tax bracket, the net resulting cost is $4,125, since you are paying $1,375 less tax on your income by making the $5,500 contribution.

So – go forth and make your resolutions for 2014.  But put some more planning into the process, and incrementalize the goals.  You’ll have a much better chance of meeting them.  And if you follow this advice, leave word below about your plans and your successes.  We’d love to hear about them!

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Roth 401(k) Conversions Explained

Dec 23rd, 2013
by jblankenship.
1 comment
Image courtesy of Stuart Miles at FreeDigitalPhotos.net

Image courtesy of Stuart Miles at FreeDigitalPhotos.net

Earlier in 2013, with the passage of ATRA (American Taxpayer Relief Act) there was a provision to loosen the rules for 401(k) plan participants to convert monies in those “regular” 401(k) accounts to the Roth 401(k) component of the account.  Prior to this, there were restrictions on the source of the funds that could be converted, among other restrictions.  These looser restrictions apply to 401(k), 403(b) and 457 plans, as well as the federal government Thrift Savings Plan (TSP).

Recently, the IRS announced that guidance was available to utilize the new conversion options.  As long as the 401(k) plan is amended to allow the conversions, all vested sources of funds can be converted, even if the participant is not otherwise eligible to make a distribution from the account.

This means that employee salary deferrals, employer matching funds, and non-elective payins to the 401(k) account can be converted to a Roth 401(k) account (as long as the plan allows it).  Previously, only employee deferrals were eligible to be converted, and then only if the participant was otherwise eligible to make distributions from the 401(k) account, such as being over age 59½ (if the plan allows) or having left employment.

The converted funds will remain under the purview of the 401(k) plan’s distribution restrictions.  Administrators of 401(k) plans can choose to amend their plan to allow these new conversion options or limit existing conversions as they see fit.

Any conversions will cause the converted funds to be included in your ordinary income for the tax year of the conversion, most likely triggering income tax on the additional ordinary income.  If you don’t have funds outside the 401(k) plan to pay the tax on the conversion, the whole operation becomes less attractive, since you’re having to take a (presumably) unqualified distribution of funds to pay the tax on the conversion.  In the future, qualified distributions from the Roth 401(k) account will be treated as tax-free (as with all Roth-type distributions).

For example, if you have a 401(k) account with $100,000 in it and you wish to convert the entire account to your company’s Roth 401(k) option.  If your marginal tax bracket for this additional income is 25%, this means that you would have a potential tax burden of $25,000 on this conversion.  If you have other sources to pull this $25k from, then you can convert the entire $100,000 over to your Roth 401(k) plan.

However (say it with me: “there’s always a however in life”), if you don’t have an extra $25,000 laying around to pay the taxes, you might need to withdraw the money from your 401(k) plan to pay the tax – which would also trigger the 10% penalty on the withdrawal plus tax which adds up to an additional $8,750.  So now your conversion has cost nearly 34% overall – and the chance of such a conversion paying off due to higher taxes later becomes less likely.

And then there’s the additional rub: most 401(k) plans have significant restrictions on taking an in-plan distribution such as the one mentioned above to pay the tax.  Your plan may allow the Roth 401(k) conversion distribution, but not the regular distribution while you’re participating in the plan, so you’re stuck – and will be stuck with a huge tax bill the following April.

Book Review: How Much Money Do I Need to Retire?

Dec 16th, 2013
by jblankenship.
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howmuchmoneydoineedtoretireThis book, by Todd Tresidder, cuts through much of the extra “stuff” that you find about retirement planning, to help you do some really useful, back-of-a-napkin retirement planning for yourself.

Tresidder, who has a practice coaching folks with financial planning based on his concepts, developed his planning methods in real practice for himself.  Tresidder “retired” from his regular job at the age of 35 using these tactics, and has been helping other folks to use these methods in planning for retirement ever since.

In this book, Todd goes through the conventional methods of planning for retirement savings, which includes gathering some information that is impossible to calculate:

How much money will you need every year for the rest of your life?
What will be the rate of inflation?
When will you die? Your spouse?
What rate of growth will your investments experience over your lifetime?
What will be the sequence of returns that your investments achieve?
When will you and your spouse retire?

In reviewing these questions, Tresidder points out how difficult it is to develop these numbers for yourself, and then he points out flaws in the conventional methods of determining or estimating these numbers.

Upon reaching a conclusion about the problems with the conventional method of retirement planning, the author then goes on to lay out his methods for determining the amount of money required for you to retire.  His methods are definitely different from the conventional methods, and he gives his reasons for believing that they will provide a useful gauge for you.  I don’t disagree with his findings – I believe he has some very good information to pass along here.

One example of Tresidder’s decision-points is determining an appropriate withdrawal rate from your invested assets.  Tresidder says that the primary factor to use in determining the sustainable withdrawal rate on your investments is the price/earnings ratio in the overall market as of your date of retirement.  The higher the PE ratio, the lower your sustainable withdrawal rate.  I won’t ruin the surprise by explaining it all here, you should read the book if you are interested.

One interesting factor about this book is that Tresidder takes great pains to point out that he believes any planning that is based on past information has flaws.  At the same time, his sustainable withdrawal rate conclusion depends entirely upon a back-test of historical information.  I believe that this anomaly just points out that you must have some historical information to work from – and all methods of planning for the future have shortfalls.

I think this is a great book for anyone who is looking for a do-it-yourself method for planning your retirement.  I would also use other methods to test your results against, since all methods of predicting the future have flaws.  Using a few options to test against one another is a great way to help ensure your success in financial dealings.

2014 Mileage Rates for Tax Deductions

Dec 9th, 2013
by jblankenship.
2 comments
Image courtesy of David Castillo Dominici at FreeDigitalPhotos.net

Image courtesy of David Castillo Dominici at FreeDigitalPhotos.net

Recently the IRS published the mileage rates for various classes of deductible miles driven for tax year 2014. This amount is used in place of managing, collecting and tabulating the exact costs involved in operating a vehicle throughout the year.

In order to use the standard mileage rates, you just track the miles you drive for each purpose (see below) and then compute the deductible mileage on your tax return when you file it the following year.  Keep a log of the miles driven and the purpose of the trip to substantiate the deduction.  This can be as simple as a paper calendar with your log notes, or more elaborate (check around, I bet there are apps out there for your iphone or other gadgets to do this).

You have a choice to either use the standard rate or the actual expense of operating your vehicle.  In either case, parking and toll costs associated with the applicable mileage can be an additional deductible expense.

Business Mileage

For business purposes, you’ll take the deduction on your Schedule C as a sole proprietor, on Form 1065 for a partnership, or form 1120 as a corporation, along with your other business expenses.  Commuting from your home to your place of work is not allowed as a mileage deduction, but travel from your home or office to a temporary work location (for example, as a contractor) or to a client’s location (e.g., sales) can be deductible mileage.

As an employee, unreimbursed mileage (same restrictions as above) can be deducted using Form 2106 (Unreimbursed Employee Business Expenses), carrying the deductible expense to your Schedule A, where it will be subject to the 2% floor, along with your other miscellaneous expenses.

The rate for business mileage for 2014 is 56 cents per mile.  This is a reduction of ½¢ per mile over the 2013 rate.

Medical/Moving Mileage

Certain mileage expenses for auto use when you are moving to a new home can be deducted, using Form 3903, Moving Expenses.  Travel is limited to one trip per person, however, each member of the household can move separately and at separate times. All of the other requirements for moving expenses must be met (time and distance test, and work test).

In addition, mileage driven for medical purposes can be deducted on your Schedule A along with your other medical expenses, subject to the 10% floor and AGI limits (7.5% floor if you’re age 65 or older).  This includes travel for any medical purpose, as long as it’s a legitimate medical purpose.  An example would be to track your regular visits to the doctor throughout the year and deduct the mileage from your income for tax purposes.

The rate for both types of mileage for 2014 will be 23.5 cents per mile, also down by ½¢ per mile over the 2013 rate.

Charitable Mileage

If you use your personal vehicle for charitable purposes, such as hauling your items to donate to the Goodwill store, you can deduct the mileage along with your other non-cash charitable contributions on Schedule A.

The standard mileage rate for charitable purposes for 2014 is 14 cents per mile, which is unchanged from 2013.

Book Review: The Other Talk

Dec 2nd, 2013
by jblankenship.
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A Guide to Talking with Your Adult Children About the Rest of Your Life

This book, a relatively short read at 176 pp before appendices, is a nice guide for folks facing (or in) retirement and dealing with those end of life issues that we all must face at some point in our lives.  As the subtitle implies, this book guides the reader through the process of having the “other talk” with our children.  The first talk is about the birds and the bees, and the analogy between that talk and the “other talk” is apt.  The subject matter is profoundly difficult and emotional for both parties, but avoiding the talk (either one) can have serious impacts for both parties as well – because avoiding either talk will not keep the “event” from occurring.

The author Tim Prosch relies on many personal experiences as well as a great deal of interviews that he conducted with professionals and folks going through or facing the “talk” on a personal level.  From this information he lays out a process that the reader can use to facilitate the “other talk” with his or her children.

The point is that at some time in your life, statistically speaking, you’re going to be in a position where you need to rely on your children (or other younger family members) to help make decisions regarding your life.  These decisions include living arrangements (nursing, assisted living, at-home, or hospice), medical and healthcare (wishes regarding DNR orders or life-prolonging actions), financial, and living your life on your own terms.

Each of the above areas of decisions can have multiple outcomes – and facilitating a talk with your loved ones who will be helping with the decisions will give them a basis for making the decisions.  Of course you cannot know for sure exactly what situations you’ll face, but you can cover the groundwork for the big items.

By doing so – when the time comes that you’re unable to make decisions on your own – your loved ones will have a basis to work from to make those decisions as you would like them to be made.  Without this basis to work from, your children and other loved ones will be left trying to guess what you’d like to do, and (depending upon your state of mind) you may be fighting against the decisions that you disagree with.

I think this book is an excellent guide for folks facing these issues at some stage in the future – because we’ll all face these issues more likely than not.  If you’re not in or near retirement age presently, perhaps a parent or grandparent would benefit from the book as well.

The above book review is part of a series of reviews that I am doing in an arrangement with McGraw-Hill Professional Publishing, where MH sends me books with the only requirement being that I read the book and write a review – like it or not.  If you find the information in this review useful, let me (and McGraw-Hill) know!

Save 1% More This year – Your Future Self Will Thank You!

Nov 29th, 2013
by jblankenship.
1 comment

 

 

Save

Save (Photo credit: Images_of_Money)

Like so many other things, practicing financial awareness has few payoffs in the early stages.  Think about exercising, eating right, putting in the extra effort at work, or taking a class to improve your skills.  All of these things have a future payoff for the extra effort that you put into it today.  Small steps matter in all of these areas, and before you know it you’ll look back and thank your earlier self for putting in the work to get where you are today.

Below is the list of my fellow bloggers who have written articles showing ways that you can start to increase your savings rate, as well as showing what the benefits can be.  Thanks to everyone who has participated so far – and watch for more articles in the weeks to come!

How Much is 1% by Sterling Raskie, @SterlingRaskie

Retire Rich With Only 1 Percent More Savings by Steve Doster, @dosterfinancial

One Percent for the One Percent? Think About Your Future Self Instead by Ken Weingarten, @KenWeingarten

The 1% Mindset – Transformation Beyond Money by Neal Frankle, @NealFrankle

Are You Part of The 1%? by Financial Fiduciaries, @FinFiduciaries

What’s the Worst Thing That Could Happen? by Dana Anspach, @moneyover55

Save just one percent more by Doug Nordman, @TheMilitaryGuid

1% a Small Number with Big Implications by Roger Wohlner, @rwohlner

The Journey of $1 Million Dollars Begins with 1% by Richard Feight, @RFeight

Give Yourself A Raise by Ben Rugg, @BRRCPA

The 1 Percent Solution by John Davis, @MentorCapitalMg

Friday Financial Tidbit-What increasing your retirement contributions 1% can do for your retirement account by Jonathan White, @JWFinCoaching

THE 1% MORE BLOGGING PROJECT by Robert Flach, @rdftaxpro

A Simple Strategy to Maximize Open Enrollment by Jacob Kuebler, @Jakekuebler

Take a Small Step: Increase Your Savings by 1% by Jim Blankenship, @BlankenshipFP

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Social Security Spousal Benefits versus Survivor Benefits

Nov 27th, 2013
by jblankenship.
4 comments
fra la luce

fra la luce (Photo credit: * RICCIO)

I’ve written a lot about Social Security Spousal Benefits and Survivor Benefits on these pages, but oftentimes there is confusion about how they are applied.  There are things about them that are common, but for the most part there are some real differences that you need to understand as you make decisions about applying for one or the other of these benefits.

For one thing – Survivor Benefits and Spousal Benefits are benefits that you may be entitled to that are based on someone else’s record: your spouse (or ex-spouse) to be exact.  No matter what your own Social Security benefit might be, you have access to the Spousal Benefit and Survivor Benefit, if, of course, you have or had a spouse with a Social Security retirement benefit available on his or her record.

In addition, it is important to note that Spousal Benefits and Survivor Benefits are mutually exclusive.  You can’t receive both at the same time – and if you apply for both at the same time, you’ll end up with the higher of the two.  Technically you wouldn’t apply for both at the same time, you’d just find out which one provides the best benefit for you.  This doesn’t mean that you have to take the higher benefit, because it’s possible that you could receive a better benefit later if you delay filing for one or the other until later.  If you are at least at Full Retirement Age (FRA, age 66 if born in 1954 or before, increasing to age 67 if born in 1960 or later), more than likely the Survivor Benefit is the greater of the two, and neither benefit will increase after you’ve reached FRA, so you might as well receive that benefit at this point.

Both the Spousal and Survivor benefit can be reduced by WEP.  They both can also be reduced or eliminated by the GPO.

Differences

One of the first differences between Spousal and Survivor benefits is the relation to your own retirement benefit.  If you have your own retirement benefit and you haven’t filed for it, filing for the Spousal Benefit before FRA will force a filing for your own retirement benefit, and it could wipe out the Spousal Benefit for you.  If you’re at or older than FRA, you can file solely for the Spousal Benefit and have no impact on your own retirement benefit.

At the same time, if you’re eligible for a Survivor Benefit, you can file for it at any time and have no impact on your future retirement benefit (or Spousal Benefit, for that matter).

So – for example, Phil’s wife Joan died this year.  Joan was 65 years old, and had not started receiving Social Security benefits.  Phil has a Social Security retirement benefit available to him when he decides to file for it.  Phil is 65 years old, and his available benefits look like this:

His own retirement benefit will be $2,000 when he reaches FRA next year.

His Spousal Benefit based on Joan’s record could be $900 at FRA, since Joan was due a benefit of $1,800 at FRA had she reached that age.

Phil’s Survivor Benefit based on Joan’s record could be $1,800 at FRA.

If Phil filed for the Survivor Benefit now, at age 65, he could receive a monthly benefit that is reduced 4.7% from Joan’s FRA benefit, or $1,715.40.  This way he could delay receiving his own benefit until at least FRA – possibly even as late as age 70.  He could also wait until next year (his FRA) and file for the full Survivor Benefit of $1,800, again delaying his own benefit until later.

Any other set of choices would result in a lower benefit for Phil.  It’s possible that he could file for his own benefit right now, at age 65.  This would result in a lowered retirement benefit for him for the rest of his life – and since the Survivor Benefit is less than his own benefit, it wouldn’t make sense to ever file for the Survivor Benefit.  Also available is the option for Phil to not file for any benefits at all this year, and then at FRA he could file a restricted application for the Spousal Benefit alone.  This would result in a $900 monthly benefit – half of Joan’s age 66 benefit.  But since the Survivor benefit will not increase beyond Phil’s age 66, he might as well file for the Survivor Benefit at that point, since it’s double the Spousal Benefit.  As mentioned above, he can still file for his own benefit later, even though he’s collected the Survivor Benefit.

If we reverse the circumstances and Joan is the survivor, here are the benefits available to her:

Her own benefit at FRA is $1,800.

The Spousal Benefit based on Phil’s record could be $1,000 at Joan’s age 66.

The Survivor Benefit based on Phil’s record would be $2,000 at Joan’s age 66.

So Joan has the following options available to her right now, at age 65: she could file for her own benefit now and collect a reduced benefit of approximately $1,680 a month.  She could then file for the Survivor Benefit at FRA, and receive a benefit of $2,000 a month.

On the other hand, Joan could file for the Survivor Benefit now, at age 65 and receive a reduced monthly benefit of $1,906.  She could then wait until she reaches age 70 and file for her own benefit, which would have grown to $2,376 due to the Delay Credits.

The third option for Joan is to do nothing at this point.  She could then file for the Survivor Benefit at FRA, receiving a monthly benefit of $2,000, and then wait to file her own benefit later as detailed above.  If she’s waited to FRA to file, any other option would result in a lower benefit for her – if she filed for her own benefit at FRA, she’d only receive $1,800.  She might as well file for the Survivor Benefit at this point and receive $2,000.  This would then leave open the option to file for her own benefit at the delayed, increased amount as mentioned above.

In both cases, the Spousal Benefit doesn’t come into play, since the available Spousal Benefit for both Phil and Joan is less than the other available benefits.

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See How 1% More Can Benefit You

Nov 25th, 2013
by jblankenship.
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saving and spending

saving and spending (Photo credit: 401(K) 2013)

We have a project going to encourage people to increase personal savings by at least 1% more this month.  This means that you would add 1% more of your income to your savings rate – so if you earn $75,000 per year in your household and you currently save around $2,250 per year, that’s 3%.  Adding 1% more would bring that total to $3,000 for the year, which works out to an increase of only $62.50 per month.  Give it a shot!

Below is the list of my fellow bloggers who have written articles showing ways that you can start to increase your savings rate, as well as showing what the benefits can be.  Thanks to everyone who has participated so far – and watch for more articles in the weeks to come!

The 1% Mindset – Transformation Beyond Money by Neal Frankle, @NealFrankle

Are You Part of The 1%? by Financial Fiduciaries, @FinFiduciaries

What’s the Worst Thing That Could Happen? by Dana Anspach, @moneyover55

Save just one percent more by Doug Nordman, @TheMilitaryGuid

1% a Small Number with Big Implications by Roger Wohlner, @rwohlner

The Journey of $1 Million Dollars Begins with 1% by Richard Feight, @RFeight

Give Yourself A Raise by Ben Rugg, @BRRCPA

The 1 Percent Solution by John Davis, @MentorCapitalMg

Friday Financial Tidbit-What increasing your retirement contributions 1% can do for your retirement account by Jonathan White, @JWFinCoaching

THE 1% MORE BLOGGING PROJECT by Robert Flach, @rdftaxpro

A Simple Strategy to Maximize Open Enrollment by Jacob Kuebler, @Jakekuebler

Take a Small Step: Increase Your Savings by 1% by Jim Blankenship, @BlankenshipFP

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Book Review: How to Give Financial Advice to Couples

Nov 25th, 2013
by jblankenship.
1 comment

How to Give Financial Advice to CouplesSubtitle: Essential Skills for Balancing High-Net-Worth Clients’ Needs

This book, by Kathleen Burns Kingsbury, is a very good book for all financial advisors to read – even if your clientele isn’t “high-net-worth” clients.  I’ve had my share of client-couples who had difficulty in reconciling financial concerns with one another, and (as you probably know) the number of digits on the couple’s bottom line net worth has nothing to do with it.

Author Kingsbury, a wealth psychology expert, has a great deal of experience and knowledge on the subject to share.  She covers the issues that couples face when dealing with monetary subjects, which can range from having opposite but complementary skills and mindsets regarding money to having basic problems in dealing with conflict with one another.  Every couple has areas where they’re not completely in concert with one another – it would be really unusual if everything about a couple fit like a hand in a glove.

These conflicts, no matter how large or small, can cause difficulties in many areas, and financial dealings are no exception.  In fact, it is in financial dealings that these conflicting viewpoints are often manifested (among other places), since dealing with financial issues is an emotional thing for most folks. Being such an emotional area of our lives, when big decisions need to be made it can be very difficult to come together on a compromise.  For many folks, the worldview about money that they have learned over time from family and friends isn’t very helpful – again, because of the emotional nature of money.  Oftentimes in families monetary issues are dealt with in secret and are the source of conflict. The  messages that are passed on to children are not generally useful when the child becomes an adult and needs to deal with similar issues.

This is where the advisor comes in – because, during the course of working out financial plans there are many decisions to be made, client-couples often find it difficult to come to a decision. And if they do come to a decision, it’s often one partner exerting his or her will over the other – and the other partner may exercise his or her learned reaction to the situation.  This could mean acquiescence, stonewalling, or even actively sabotaging the process.  To be successful, the advisor must recognize when a conflict exists and help the couple to work through it.

Ms. Kingsbury then uses the latter half of the book to show how an advisor can help the couple in a situations like this.  She draws on her own experiences with many, many couples through the years, as well as on her own personal experiences in her life.  The examples are excellent illustrations to help the advisor/reader to understand how to help the couple work out their issues.

I recommend this book for any financial advisor – regardless of the nature of your practice, you’re dealing with situations of conflict among couples, it can’t be avoided.  How you deal with these situations depends a lot on your own background – if you don’t have a lot of experience in successfully dealing with couple conflict successfully, this book can be a great help.  With Kathleen Burns Kingsbury’s guidance, you have a much better chance to help couples to deal with the issues and wind up with better results on the long run.  Otherwise, if the advisor doesn’t deal with the conflict, all the effort involved in putting plans together is wasted.

The above book review is part of a series of reviews that I am doing in an arrangement with McGraw-Hill Professional Publishing, where MH sends me books with the only requirement being that I read the book and write a review – like it or not.  If you find the information in this review useful, let me (and McGraw-Hill) know!

You won’t regret it, I promise!

Nov 22nd, 2013
by jblankenship.
No comments yet
regrets

regrets (Photo credit: mayeesherr. (away))

I often have opportunity to speak to young folks who are just starting out with their retirement accounts – this usually happens when we’re looking at ways to reduce taxes, primarily, so we start looking at IRAs and diverting income via 401(k) accounts.  One of the things I point out is that this is an activity that you aren’t likely to look back on in 20 years and say “Gee, I sure wish I hadn’t saved all that money!”  We may have many things we look back on in our lives and wish we hadn’t done them, but I think you’ll agree that saving is rarely in that category.

So take the encouragement of my fellow blogging brethren and sistren (you betcha sistren’s a word, regardless of WP’s spell-checker!) and put aside at least 1% more of your income into your savings, starting right now.  You won’t regret it, I promise.

Below is the list of my fellow bloggers who have written articles showing ways that you can start to increase your savings rate, as well as showing what the benefits can be.  Thanks to everyone who has participated so far – and watch for more articles in the weeks to come!

Are You Part of The 1%? by Financial Fiduciaries

What’s the Worst Thing That Could Happen? by Dana Anspach, @moneyover55

Save just one percent more by Doug Nordman, @TheMilitaryGuid

1% a Small Number with Big Implications by Roger Wohlner, @rwohlner

The Journey of $1 Million Dollars Begins with 1% by Richard Feight, @RFeight

Give Yourself A Raise by Ben Rugg, @BRRCPA

The 1 Percent Solution by John Davis, @MentorCapitalMg

Friday Financial Tidbit-What increasing your retirement contributions 1% can do for your retirement account by Jonathan White, @JWFinCoaching

THE 1% MORE BLOGGING PROJECT by Robert Flach, @rdftaxpro

A Simple Strategy to Maximize Open Enrollment by Jacob Kuebler, @Jakekuebler

Take a Small Step: Increase Your Savings by 1% by Jim Blankenship, @BlankenshipFP

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Social Security Bend Points for 2014

Nov 20th, 2013
by jblankenship.
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"The Bend"

“The Bend” (Photo credit: Wikipedia)

When the Social Security Administration announced the Cost of Living Adjustment (COLA) for 2014, this also allowed for calculation of the bend points for 2014.

Bend points are the portions of your average income (Average Indexed Monthly Earnings – AIME) in specific dollar amounts that are indexed each year, based upon an obscure table called the Average Wage Index (AWI) Series.  They’re called bend points because they represent points on a graph of your AIME graphed by inclusion in calculating the PIA.

If you’re interested in how Bend Points are used, you can see the article on Primary Insurance Amount, or PIA.  Here, however, we’ll go over how Bend Points are calculated each year.  To understand this calculation, you need to go back to 1979, the year of the Three Mile Island disaster, the introduction of the compact disc and the Iranian hostage crisis.  According to the AWI Series, in 1979 the Social Security Administration placed the AWI figure for 1977 at $9,779.44 – AWI figures are always two years in arrears, so for example, the AWI figure used to determine the 2014 bend points is from 2012.

With the AWI figure for 1977, it was determined that the first bend point for 1979 would be set at $180, and the second bend point at $1,085.  Now that we know these two numbers, we can jump back to 2012’s AWI Series figure, which is $44,321.67.  It all becomes a matter of a formula now:

Current year’s AWI Series divided by 1977’s AWI figure, times the bend points for 1979 equals your current year bend points

So here is the math for 2014’s bend points:

$44,321.67 / $9,779.44 = 4.5321

4.5321 * $180 = $815.78, which is rounded up to $816 – this is the first bend point

4.5321 * $1,085 = $4,917.32, rounded down to $4,917 – this is the second bend point

These bend points are then used to calculate your Primary Insurance Amount, or PIA.  With your Average Indexed Monthly Earnings (AIME) figure, we take the first $816 and multiply by 90%.  The amount between $816 and $4,917 is then multiplied by 32%.  Any amount above $4,917 is multiplied by 15%.  These figures are then added together, and the result is your PIA.

Now that we have the bend points, we also know what the maximum reduction for Windfall Elimination Provision (WEP) will be for 2014: it’s equal to 50% of the first bend point.  So, if you’re subject to WEP reduction of your benefits, the maximum amount that your benefit can be reduced for 2014 is $408 – half of the first bend point.

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Add 1% More to Your Savings

Nov 18th, 2013
by jblankenship.
1 comment
saving and retirement

saving and retirement (Photo credit: 401(K) 2013)

Savings rates in America are really not what they should be.  Studies have shown that, in order to achieve the goal of replacing 80% of your average pre-retirement income you should be saving at a rate around 17.5%.  This doesn’t necessarily mean that 17.5% is the right number for everyone, because pensions and Social Security can help out in replacing some of your income in retirement.  But the average savings rate for all Americans is something just south of 5% – so we can definitely do a better job.  So make the effort to apply at least 1% more to your savings rate this November.  It certainly can’t hurt!

Below is the list of my fellow bloggers who have written articles showing ways that you can start to increase your savings rate, as well as showing what the benefits can be.  Thanks to everyone who has participated so far – and watch for more articles in the weeks to come!

1% a Small Number with Big Implications by Roger Wohlner, @rwohlner

The Journey of $1 Million Dollars Begins with 1% by Richard Feight, @RFeight

Give Yourself A Raise by Ben Rugg, @BRRCPA

The 1 Percent Solution by John Davis, @MentorCapitalMg

Friday Financial Tidbit-What increasing your retirement contributions 1% can do for your retirement account by Jonathan White, @JWFinCoaching

THE 1% MORE BLOGGING PROJECT by Robert Flach, @rdftaxpro

A Simple Strategy to Maximize Open Enrollment by Jacob Kuebler, @Jakekuebler

Take a Small Step: Increase Your Savings by 1% by Jim Blankenship, @BlankenshipFP

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Bloggers Are Encouraging Adding 1% More to Your Savings Rate

Nov 15th, 2013
by jblankenship.
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English: Chart of United States Personal Savin...

Chart of United States Personal Savings Rate from 1960-2010. Data source: FRED, Federal Reserve Economic Data, Federal Reserve Bank of St. Louis: Personal Saving Rate [PSAVERT] ; U.S. Department of Labor: Bureau of Labor Statistics; accessed August 14, 2010. (Photo credit: Wikipedia)

In November we financially-oriented bloggers have banded together to encourage folks to increase their retirement savings rate by at least 1% more than the current rate.  It’s a small step, but it will pay off for you in the long run.  Given the poor level of savings rate (less than 5%) these days, even this small step will be a big boost for many people’s savings.

Below is the list of my fellow bloggers who have written articles showing ways that you can start to increase your savings rate, as well as showing what the benefits can be.  Thanks to everyone who has participated so far – and watch for more articles in the weeks to come!

The Journey of $1 Million Dollars Begins with 1% by Richard Feight, @RFeight

Give Yourself A Raise by Ben Rugg, @BRRCPA

The 1 Percent Solution by John Davis, @MentorCapitalMg

Friday Financial Tidbit-What increasing your retirement contributions 1% can do for your retirement account by Jonathan White, @JWFinCoaching

THE 1% MORE BLOGGING PROJECT by Robert Flach, @rdftaxpro

A Simple Strategy to Maximize Open Enrollment by Jacob Kuebler, @Jakekuebler

Take a Small Step: Increase Your Savings by 1% by Jim Blankenship, @BlankenshipFP

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Social Security Figures Increase for 2014

Nov 13th, 2013
by jblankenship.
1 comment
English: Cardpunch operations at U.S. Social S...

This is a picture of a few of the hundreds of cardpunch operators SSA employed throughout the late 1930s and into the 1950s to maintain Social Security records in the days before the advent of computers.(Photo credit: Wikipedia)

Recently the Social Security Administration released the updated figures for 2014, including the wage base, earnings limits, and the increase to benefits.

For 2014, the wage base for Social Security will rise to $117,000.  This is the maximum amount of W2 wages that are subject to the 6.2% employer- and employee-paid Social Security tax.  This amount represents an increase of $3,300 over the wage base of $113,700 in 2013.

In addition to that increase, benefits to eligible recipients of Social Security retirement will increase by 1.5% in 2014.  This is slightly less than the 1.7% increase to benefits in 2013.  This brings the average monthly benefit for all retired workers up by $19, to$1,294 in 2014.  For the average couple who are both receiving Social Security benefits, the COLA increase is $31 per month, for an average benefit of $2,111 in 2014.

Likewise, there was an increase announced to the earnings limits for Social Security benefits.  When receiving Social Security benefits at during ages 62 through 65, you are allowed to earn up to $15,480 in 2014 before having to forfeit a portion of those Social Security benefits. This is an increase of $360 over the limit of $15,120 for 2013.  For every $2 over the earnings limit, the beneficiary forfeits $1 of Social Security benefits.

In the year that the beneficiary will reach age 66 (but before his or her 66th birthday) the earnings limit for 2014 is increased to $41,400 (up from $40,080 in 2013).  For every $3 earned above that limit, $1 is withheld from your benefits until you reach age 66.  After age 66 there is no earnings limit.

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November is “Add 1% More to Your Savings” Month

Nov 11th, 2013
by jblankenship.
3 comments
November

November (Photo credit: Cape Cod Cyclist)

That’s right, we unofficially declared November to be “Add 1% More to Your Savings” month.  So you can add that to the month-long observances like:

  • No-shave November
  • International Drum Month
  • Sweet Potato Awareness Month
  • and many more (see the list at Wikipedia)

In November we encourage folks to increase their retirement savings rate by at least 1% more than the current rate.  It’s a small step, but it will pay off for you in the long run.

Below is the list of my fellow bloggers who have written articles showing ways that you can start to increase your savings rate, as well as showing what the benefits can be.  Thanks to everyone who has participated so far – and watch for more articles in the weeks to come!

The 1 Percent Solution by John Davis, @MentorCapitalMg

Friday Financial Tidbit-What increasing your retirement contributions 1% can do for your retirement account by Jonathan White, @JWFinCoaching

THE 1% MORE BLOGGING PROJECT by Robert Flach, @rdftaxpro

A Simple Strategy to Maximize Open Enrollment by Jacob Kuebler, @Jakekuebler

Take a Small Step: Increase Your Savings by 1% by Jim Blankenship, @BlankenshipFP

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Flex Spending “Use it or Lose it” is a Thing of the Past

Nov 11th, 2013
by jblankenship.
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Prescription frappuccino

Prescription (Photo credit: quinn.anya)

If you have a Flex Spending Account (FSA) for healthcare expenses through your employer, you are familiar with the “use it or lose it” concept.  Each year during December, it’s a mad dash to get that last-minute eye exam, or fill prescriptions, or what-have-you to use up the Flex Spending money before the end of the year.  That tradition will, for many folks, be a thing of the past if their employers adopt the carryover rule now allowed by IRS.

Traditionally, with a Flex Spending Account (FSA) for healthcare expenses you arrange with your employer to withhold a certain amount of money out of each paycheck and then as you incur expenses for healthcare throughout the year, you can be reimbursed for those expenses up to the amount of your annual withholding for FSA.  The money withheld for the FSA is pre-tax, so it’s to your advantage to take part in such a plan if you know you’ll have medical expenses. Social Security and Medicare tax is taken out before FSA money is deducted, however.

And then, if you haven’t used all of your FSA money by the end of the year, you forfeit access to the money.  Some, in fact many, employers have a 2½ month grace period, allowing participants to claim healthcare expenditures against the FSA up to March 15 of the following year.

Recently the IRS made a change to the “use it or lose it” rule, allowing a participant in a FSA to carryover up to $500 of unused funds to the following year.  Employers must make an amendment to their FSA plan in order to allow this – it’s not automatically available.  But if your employer does amend their plan by the end of 2013, you could carryover unused funds up to $500 into 2014.  The carryover is not accumulative – meaning, if you carryover $500 from 2013 to 2014, you can’t carryover an additional $500 (for a total of $1,000) into 2015.

The ease of rules for FSA does not apply to Flex Spending Accounts for family care expenses, however.  This is a similar account where the pre-tax money is used to pay for childcare or adult-dependent care expenses that are not health-related.

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C’mon America! Increase your savings rate by 1% more!

Nov 8th, 2013
by jblankenship.
No comments yet
English: "Joan of Arc saved France--Women...

lithograph(Photo credit: Wikipedia)

This November we’re encouraging folks to increase their retirement savings rate by at least 1% more than the current rate.  It’s a small step, but it will pay off for you in the long run.

Below is the list of my fellow bloggers who have written articles showing ways that you can start to increase your savings rate, as well as showing what the benefits can be.  Thanks to everyone who has participated so far – and watch for more articles in the weeks to come!

THE 1% MORE BLOGGING PROJECT by Robert Flach, @rdftaxpro

A Simple Strategy to Maximize Open Enrollment by Jacob Kuebler, @Jakekuebler

Take a Small Step: Increase Your Savings by 1% by Jim Blankenship, @BlankenshipFP

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Retirement Plan Contribution Limits for 2014

Nov 6th, 2013
by jblankenship.
3 comments
United Way tax prep volunteers help hard-worki...

United Way tax prep volunteers help hard-working families avoid tax prep fees (Photo credit: United Way of Greater Cincinnati)

The IRS recently published the new contribution limits for various retirement plans for 2014.  These limits are indexed to inflation, and as such sometimes they do not increase much year over year, and sometimes they don’t increase at all. This year we saw virtually no increases for most all contribution amounts, but as usual the income limits increased for most types of account.

IRAs

The annual contribution limit for IRAs (both traditional and Roth) remains at $5,500 for 2014.  The “catch up” contribution amount, for folks age 50 or over, also remains at $1,000.

The income limits for traditional (deductible) IRAs increased slightly from last year: for singles covered by a retirement plan, your Adjusted Gross Income (AGI) must be less than $60,000 for a full deduction; phased deduction is allowed up to an AGI of $70,000.  This is an increase of $1,000 over the limits for last year.  For married folks filing jointly who are covered by a retirement plan by his or her employer, the AGI limit is increased to $96,000, phased out at $116,000, which is also a $1,000 increase over last year’s limits.  For married folks filing jointly who are not covered by a workplace retirement plan but are married to someone who is covered, the AGI limit for deduction is $181,000, phased out at $191,000; this is an increase of $3,000 over 2013’s limits.

The income limits for Roth IRA contributions also increased: single folks with an AGI less than $114,000 can make a full contribution, and this is phased out up to an AGI of $129,000, an increase of $2,000 at each end of the range.  For married folks filing jointly, the AGI limits are $181,000 to $191,000 for Roth contributions, up by $3,000 over 2013.

401(k), 403(b), 457 and SARSEP plans

For the traditional employer-based retirement plans, the amount of deferred income allowed has remained the same as well. For 2014, employees are allowed to defer up to $17,500 with a catch up amount of $5,500 for those over age 50 (all figures unchanged from 2013).  If you happen to work for a governmental agency that offers a 457 plan in addition to a 401(k) or 403(b) plan, you can double up and defer as much as $35,000 plus catch-ups, for a total of $46,000.

The limits for contributions to Roth 401(k) and Roth 403(b) are the same as traditional plans – the limit is for all plans of that type in total.  You are allowed to contribute up to the limit for either a Roth plan or a traditional plan, or a combination of the two.

SIMPLE

Savings Incentive Match Plans for Employees (SIMPLE) deferral limit also remains unchanged at $12,000 for 2014.  The catch up amount remains the same as 2013 at $2,500, for folks at or older than age 50.

Saver’s Credit

The income limits for receiving the Saver’s Credit for contributing to a retirement plan increased for 2014.  The AGI limit for married filing jointly increased from $59,000 to $60,000; for singles the new limit is $30,000 (up from $29,500); and for heads of household, the AGI limit is $45,000, an increase from $44,250.  The saver’s credit rewards low and moderate income taxpayers who are working hard and need more help saving for retirement.  The table below provides more details on how the saver’s credit works (Form 8880 is not updated yet for 2014, so the figures for the 50% and 20% limits will likely change):

Filing Status/Adjusted Gross Income for 2014
Amount of Credit Married Filing Jointly Head of Household Single/Others
50% of first $2,000 deferred $0 to $35,500 $0 to $26,625 $0 to $17,750
20% of first $2,000 deferred $35,501 to $38,500 $26,626 to $28,875 $17,751 to $19,250
10% of first $2,000 deferred $38,501 to $60,000 $28,876 to $45,000 $19,251 to $30,000
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Annual Gift Tax Exclusion Amount Remains the Same for 2014

Nov 5th, 2013
by jblankenship.
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Greenfleet Gift Certificates

Greenfleet Gift Certificates (Photo credit: Greenfleet Australia)

All individuals have the opportunity to give gifts annually to any person, and as many persons as they wish, without having to file a gift tax return.  For 2013, the amount of the annual exclusion is $14,000; it remains the same for 2014.

This means that anyone can give a gift of up to $14,000 to any person for any reason without worrying about possible gift tax implications.  A married couple can double this amount to $28,000.

In 2014, this annual exclusion amount will remain the same at $14,000 ($28,000 for couples).

For amounts given in excess of the annual exclusion amount, every individual has a lifetime exclusion amount, against which the excess gifts are credited.  For 2013, the lifetime exclusion amount is $5,250,000.  For 2014, the lifetime exclusion amount for giving is increased to $5,340,000.  These are the same exclusion amounts as for estates in 2014.

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