Personal Finance Blog

Tips And Stories To Help You With Managing Money

Will You Work Past Retirement?

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social-securityThere’s a new term going around among economy experts. “Unretirement.” It has to do with Americans who have reached ordinary retirement age, but haven’t retired.

Chris Farrell of MarketPlace thinks it’s a good thing that will help in the country’s recovery from the recession that began in 2008. Not only does prolonged working benefit the “unretiree” but it is a boon to younger workers, he argues. Farrell even wrote a book about the phenomenon, titled “Unretirement.”

Geoffrey Norman of the Wall Street Journal is another who thinks working longer can have significant benefits. Too often, fresh retirees find there is too much time, too little money to support the retirement dream, he said.

One benefit of working past normal retirement is that Social Security pays more. The annual benefit increases by 8 percent for each year beyond age 65 until the beneficiary reaches 70.

Advocates of the longer work period also argue that there are health benefits, both physical and mental, for the “unretirees.” The majority (62 percent) of those who follow that path say they are motivated by a desire to stay mentally engaged, according to the research group Merrill Lynch and Age Wave, as reported in the Washington Post.

There is criticism from some younger workers who say the unemployment rate is affected when older folks don’t retire. But Farrell says that when older people are getting jobs, it stands to reason that younger people are too. “We’re all in it together. The pie will continue to grow.”

People who continue to work beyond normal retirement keep contributing to the FICA pool that supports Social Security and help keep the system running, he noted.

The Baby Boom phenomenon will have run its course by 2030, when all the Boomers will have reached 65. The huge bulge of retirees will taper off and a more gradual retirement wave be achieved, Farrell believes.

Not everyone agrees. A writer for the Financial Advisor says that “the retirement of massive numbers of Baby Boomers over the next decade or so will put a drag on the U.S. economy. The number of young people coming into the work place is going down at the same time, which will add to the effect.

Farrell remains optimistic. “We are on the verge of a broad, positive transformation of our economy and society,” he proclaims, partly due to the fact that many Americans are working longer.

Here’s The Scoop on Roth IRAs

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Make saving money automatic every month. The easier it is to save the better for you in the long run.
Make saving money automatic every month. The easier it is to save the better for you in the long run.
Many Americans have a Roth IRA as one component in their retirement scheme, or rely on such an Individual Retirement Account as the mainstay of their plans.

A 19-year-old who began contributing $1,500 to such an account could expect to have some $608,000 by age 65, given 7 percent average annual earnings. That’s a healthy bit of money to support one’s post-employment years.

Of course, not every Roth IRA holder leaves his savings to accumulate that much retirement income, but the prospect of being able to make a large purchase (a down payment on a home, perhaps?) is also enticing.

Money goes into a Roth IRA and accrues interest completely tax free until it can be withdrawn, usually after the holder is age 59½ or older. Studies show that a Roth IRA usually is started by someone 18 to 39. There is no minimum age requirement so young people who have earned income are eligible.

The Roth IRA is one of few savings methods that allow putting after-tax money into an account and withdrawing it tax-free. So, if you began contributing the $5,500 allowable deposit this year, and maintained that level for 25 years at a 3 percent return, you’d accumulate $200,525, with $63,025 in tax-free earnings.

While the original idea behind IRAs was to build retirement security, this method of savings now is used by many individuals to put money aside for purchasing a home or paying for advanced education.

A Roth IRA involves income limits. Single individuals can contribute if their modified adjusted gross income is less than $129,000. The contributions phase out as modified adjusted gross income reaches $114,000. For couples, the limits run from $181,000 to $191,000 filing jointly.

Your Roth IRA contributions are not tax deductible, but the earnings grow tax-free. You don’t pay taxes when you withdraw from your account if it has been growing for at least five years.

Withdrawals usually begin at 59 ½ , when you become disabled or die (in which case the money goes to a beneficiary), or if you are purchasing a first-time home, which allows a $10,000 one-time withdrawal.

Traditional IRAs require that you begin withdrawing money at age 70 ½ , but Roth IRAs do not have that requirement. You can convert from a regular IRA to a Roth IRA, but distributions will be taxed in the year you do.

If you will be in the same or a higher tax bracket during retirement, the Roth IRA is a good option, but if you are in need of tax deductions now, a traditional IRA is probably your best bet.

Small Businesses Also Get Hacked

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Scott Schrober, CEO of Varitronic Systems,
Scott Schrober, CEO of Varitronic Systems,
Everyone has heard, read about or seen the multi analyses of the disastrous computer breaches at JP Morgan Chase, Target and Home Depot, but what about the small businesses that have suffered similar (possibly greater when you consider scale) crises?

About 44 percent of the small companies in the country have been affected by cyber crime, according to a 2013 survey by the National Small Business Association. The average cost of dealing with the damage was $8,700, the association reported.

The small businesses often become part of the damage inflicted on the larger businesses. When JPMorgan Chase data was breached, for instance, 7 million small businesses shared in the fallout, along with 76 million households. Target Corp., Michael’s Stores, Home Depot and Neiman Marcus, who also reported compromised information in the past year, also have small contracting companies as customers.

Businesses lose revenue when they have to shut down their systems to allow the experts to ferret out the harmful viruses that caused the damage. Additional costs are racked up as the affected companies have to notify each company or individual who was affected by the breach. Most states require a compromised business to notify customers. If lawsuits are brought by injured customers, the costs go up again.

Small businesses sometimes become vulnerable to attack because the owners believe they can’t afford the software programs and consulting services that might protect them, or the time to deal with potential attacks. Some small businessmen and women simply are not aware of the risks. They don’t know that they can be attacked by what they believe is a relatively harmless source. An innocent-seeming email from a friend whose computer has been attacked may mean trouble. Not knowing how sophisticated the enemy has become can be fatal.

Scott Schrober, CEO of Varitronic Systems, took steps to protect his company after a hacker weaseled $50,000 from his company’s bank account recently, an Associated Press story related. Schrober took steps to prevent any further intrusion by investing $50,000 in security and plans and intends to spend another $20,000. He believes his company was targeted because computer security is his business. The thieves were sending a message.

While there is no security system that will absolutely guarantee immunity from hackers, experts suggests that small business owners take these precautions:

  • Pay a computer security consultant to evaluate your system and make recommendations.
  • Purchase insurance to cover potential losses. Premiums can be as low as $1,000 for a million dollars in coverage.
  • Install free anti-virus and anti-malware software that you can find online. Add firewalls that block attempts to access.
  • Make certain that your email provider has effective security.
  • Use a separate company to process orders to avoid having customer credit card information stolen. Be certain that the company you collaborate with has a secure system.
  • Look into a service that specializes in spotting fraudulent credit card transactions.

Here’s How The Money Goes!

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Many people don't stick to a budget
About 61% of Americans do not budget or keep close tabs on their money.
How Americans get, spend and save (or don’t save) money was the topic of a 2014 Consumer Financial Literacy Survey conducted by Harris Polling. In the March survey, 2,016 adults were questioned about how they handled money.

Budgeting, at the top of the list, seems to be a problem for the majority (61 percent) of Americans. Only 39 percent of those polled say they have a budget and keep close tabs on what they spend. Experts in personal finance consistently argue that the first step toward controlling money is to have and stick to a budget.

The figures relative to saving for retirement also show a lack of planning for the future. One in three Americans are making no provision for post-working years. In fact, when listing their concerns about their financial well being, the lack of “rainy day” cushioning and retirement money topped the list.

The survey asked if the respondents were spending less than they had the previous year. Twenty-nine percent in the 2014 sample said they were, in fact, spending less, but the percentages have been in a steady decline since that question was added to the annual survey in 2009. More than two-thirds of the respondents said they are spending the same or more.

One in three of those polled said they carry credit card debt from month to month. That proportion has been steadily falling since 2009, from 44 percent that year to 34 percent this year. The recent recession likely has made many credit card holders more cautious. Fifteen percent of adults – more than 35 million people – roll over $2,500 or more in credit card transactions each month.

The majority of those surveyed – 59 percent- said they would grade their knowledge of personal finance at an A or B, but an even higher percent (73) admit they could benefit from expert advice.

Ironically, only about one-fourth (27 percent, which would equate to 63 million Americans) said they would seek outside help with financial problems by counseling with a professional non-profit agency. Seventy-three percent said they would rely on themselves to resolve financial difficulties or turn first to friends or family for financial advice.

Be Prepared for 2015 Tax Time

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Start organizing your finances now for tax season.
Start organizing your finances now for tax season.
The annual tax frenzy is months away, but there are things you can do in the interim to prepare for tax season, including possible ways to cut your bill.

The obvious place to begin is with a recap of last year’s return. After analyzing the figures, begin to determine where you might make changes for next year. If you expect to make more money this year, for instance, start now to put more into a 401(k) account, contribute to a charity to increase your deduction, or buy tax-deductible items, such as business equipment, before the end of December.

Look back on recent events. If you had a major life change, it is likely to alter your tax status (think marriage or the acquisition of a small business.) You may be wise to consider some professional advice before the deadline looms. Many CPAs find themselves with more time on their hands after the Oct. 15 deadline for this year’s quarterly tax business. Seek help in analyzing your situation.

Experts say too many small business owners wait too long to get advice. Don’t try to find a professional tax advisor after the first of the year. They advise that when your income tops $75,000 annually, you’re ready for a tax expert in your particular field.

In an article by Teresa Mears, the following steps are suggested:

If you pay estimated quarterly tax, be sure you are current with payments to avoid possible penalties if your estimates are short. The sooner you send the money, the smaller the penalty will be.

Decide before the fact who is going to claim children as deductions if you and an ex-spouse have shared custody. Or if you share responsibility for the support of another relative, decide in advance who can claim the benefit. Consider the Earned Income Credit to determine what makes the best sense for your situation.

If you did not purchase health insurance this year, as required, you could face a penalty. See if you meet the criteria for any of several tax exemptions and file for a number, which you can obtain from the Health Insurance Marketplace.

At the same time, check the Affordable Care Act to see if you are eligible for a subsidy. If you received too much subsidy this year, you may have to pay it back. On the other hand, if your income did not reach expectations, you may receive a subsidy through your tax return. But the time to make changes with the Health Insurance Marketplace is now.

Spend the extra money in your flexible spending account if it exceeds $500. You can carry that amount into 2015, but you should not leave an excess in your account. Re-examine your company’s plan. Evaluate this year’s expenses and compare with what you expect in the coming year and consider adjusting your withholding if necessary.

Some taxpayers may choose to accelerate or reduce income to create the best tax stance. Prepaying mortgage and real estate taxes and undertaking optional business expenses before this year is out rather than waiting for next year may make sense for you.

If you sold stocks at a profit, you can offset the tax expense by selling other stocks at a loss.

Increasing contributions to your 401(k) or IRA if you haven’t reach the maximum will improve your tax picture. Donating cash or goods to charitable causes is a nice way to raise your deductions. You need to provide a written proof of donations worth more than $250 and an appraisal for anything over $5,000.

When you are thinking taxes, don’t forget to consider state and local tax levies. States sometimes change their tax formulas and you don’t want to be caught unawares.

Don’t be lax with your business. Treat it as such and don’t ignore quarterly tax payments. If you have been accustomed to doing your own taxes via a software application, it may be time to consult with an accountant to avoid surprises.