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Retirement planning – using all your tools

 

In recent years with the uncertainty in the economy and Baby Boomers coming into retirement age, Social Security has been a hot topic. 

What is there not to worry about!?  Will it be there when you are ready to retire?  Should you take it early? Should you postpone benefits?

A recent article by Dan Kadlec for Time showed that the number of retirees taking early social security has fallen for the second consecutive year to a 35 year low.  According to Kadlec, this is possibly a return to the downward trend that was broken up by the recession, which caused many workers to opt for early retirement in frustration over their inability to find work.  Social security can be taken as early as 62 with reduced payments, but benefits can by maximized by delaying payouts to age 70.  Social security plays a varying role in retirement planning. For some it is supplemental to 401K and savings, but for others, it may be their only source of income.

In May of 2012, the Social Security Administration announced that the online version of the Social Security Statement was now available on their website at:  http://www.ssa.gov/mystatement/.  You have to jump through a few security hoops to get your statement, but it is there for your convenience.  The statement provides estimates for retirement and disability plus gives the user an opportunity to verify that their income has been properly reported. Setting up an account also helps you with information about qualifying for benefits and allows you to apply for benefits online when you are ready to take that step.

Not quite ready to retire, but looking for some planning guidelines?   

The Social Security Administration also offers a variety of benefit calculators  and tools for estimating retirement benefits.

Even if Social Security is only a supplemental part of your retirement plan, it is important to keep tabs on your account. Keeping the full picture of your retirement in view will give you a clear idea of what to expect.

 

The Mortgage Forgiveness Debt Relief Act is set to expire on December 31, 2012 and has large implications for Nevadans.  Nevada is perennially in the lead, or in the top five in the U.S., in mortgage foreclosures.  When a house is foreclosed upon, the difference in debt owed less the value of the house sold at auction, is considered cancellation of debt income to the IRS. 

This is taxed at the taxpayer’s ordinary income rates with the cancellation of debt income putting the taxpayer in a higher income tax rate bracket.  With the proliferation of foreclosures and short sales starting in 2007, Congress passed The Mortgage Forgiveness Act which allowed this cancellation of debt to be excludable from income if it is from your personal residence.

But with this law expiring at the end of this year, Nevadans better be careful.  If you stop paying your mortgage now and don’t enter into a short sale, it is likely that the actual foreclosure will be put off into 2013 and that means the debts cancelled will be income. If you are $100,000 underwater this could create a tax liability of at least $25,000!

If you currently own one of the 67% of homes in Nevada that is underwater, according to the website Zillow, and are assessing your options be careful. Make sure that your home is sold at auction before December 31 or enter into a short sale to get the cancellation of debt into 2012. Another possible exclusion of cancellation of debt could also be of help to you beyond 2012. If you are insolvent immediately before the cancellation of debt, this will still be excluded from income.

 

Our nation’s founders believed in certain core values that have served as the foundation upon which this great country has survived and thrived – prudence, thrift, limited debt, savings and stewardship. However, in the last several decades, our country and many of its citizens have strayed off course. Our future is now at risk. If we do not address the huge structural debt we face and re-order our nation’s finances, our position as a world leader and our overall standard of living is in jeopardy.

Our policymakers can address our fiscal challenges in a pre-emptive prudent manner OR they can wait for a crisis to provide political cover. Clearly, the preferred choice would be to put our fiscal house in order now, but this will require reasonable compromise and a healthy dose of political courage.

When you combine all our known liabilities with our various commitments, contingencies and unfunded debt, as of September 3, 2010 the U.S. was in a $61 trillion hole! That amounts to over $200,000 per person and over $500,000 per household. Contrast this with an annual median household income in America of about $50,000.

From a comparative standpoint, the U.S. now ranks 28th out of 34 for major nations in fiscal responsibility and sustainability, according to the recent Standard University Sovereign Fiscal Responsibility Index, which is essentially a fiscal fitness index.

It is time for our policymakers to design and implement a plan that will allow the U.S. and its people to move into a better fiscal neighborhood for our collective future.

Information for the preceding was taken from a report published by keepingamericagreat.org

 

Having lived in Nevada for the majority of my adulthood, I have long been acquainted with tipping. It has gotten to the point where I feel guilty for not putting a dollar in the tip jar at Starbucks for a $2 coffee or at my local sandwich shop. While living in Las Vegas I heard stories of people making thousands of dollars a night as a cocktail waitress or doorman at a club and valet drivers earning six figures a year.

Since these tips were usually in the form of cash, I presumed that a lot of income wasn’t being reported to the IRS. I knew that the casino industry had agreements in place with the IRS for years where a fixed amount of tips per hour was reported on their W2s. I’m sure more tip income was earned, but since cash tips are so hard to trace the IRS needed some piece of the pie without being overly burdened.

Recently, my presumption on tip earners not claiming all their tips has come true. According to a Las Vegas Review Journal article, a club co owner and some of his employees recently got busted for not claiming all their tips as income. This particular club owner didn’t pay $141,306 in taxes on $403,732 of tip income in just two years! Three hosts and a doorman plead also plead guilty, although the article doesn’t say what they earned. These employees didn’t have any sort of elaborate scheme; they just didn’t report hundreds of thousands of dollars to the IRS from their tips!

I don’t know this guy personally, but I’m sure he wasn’t living a modest lifestyle and driving around town in a Hyundai. The IRS can easily construct a taxpayer’s income. If someone is driving around in a Porsche, living in a mansion with gardeners and pool guys, and wearing fancy jewelry, the IRS can figure out how much all that costs and calculate how much income would be needed to facilitate this lifestyle. Not being truthful to the IRS is an easy way to land in jail. Just ask Al Capone who got busted for tax evasion!





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