When You Have To Retire due to COVID-19

Here’s a stunning fact: The Bureau of Labor Statistics reports that unemployment during the pandemic for workers 55 and older jumped from 3.3% in March 2020 to 13.6% in April 2020. The numbers settled down in the later months, but the question remains: What happened to those older workers laid off from April to July, when the rate remained a high 8.7%?

This type of extended unemployment or forced retirement can cause people to fall completely off the career ladder in their field, leaving them in a difficult spot where they rely on their limited remaining unemployment benefits as they figure out what’s next.

The exact path forward from forced early retirement isn’t the same for everyone. Some people may choose to completely retire and live off their retirement savings and Social Security. Others may chart some way to re-enter the workforce. Let’s take a look at some of the options available to folks who found themselves in forced early retirement due to COVID-19.

In this article

Six steps to take after getting laid off

This situation presents a spectrum of options, ranging from trying to get back into your previous field, looking for a parallel field into which you can transfer skills, starting over professionally, or simply retiring for good.

Lean in on personal and professional relationships

If you’re hoping to stay in your current field, job searching is an obvious next step, but don’t just spend your time looking at Indeed and other job listing sites. Instead, reach out to people that you have worked with and had a positive relationship with in the past and see what opportunities they may know about.

Do your contacts know of any jobs in your previous field that you might be a good fit for? Are they willing to provide a reference to you if you seek a new job in this field or a related field? Can they recommend you internally for any open positions?

Often, the path out of an unwanted early retirement back into your old career path is through an old contact. That personal connection matters, both between you and that person and between that person and the job you may be able to get.

Consult or freelance

If you want to stay in your current field but there aren’t any employment opportunities available to you, consider using your skills for freelancing or consulting work. While this may not be the outcome you desire, as freelancing and consulting work comes with fewer professional benefits, it does allow you to keep your feet in the field and keep income coming in.

If you’re looking for quick and very simple freelancing opportunities, consider looking at Fiverr, which will provide small but simple freelancing jobs. For more challenging and more lucrative opportunities, take a look at Upwork. You may also want to look at any consulting opportunities with previous employers as a starting point.

Evaluate your skills

If you don’t have any such opportunities available to you, this may be an opportunity to step back and evaluate your skills from the perspective of considering what fields might actually be a good fit for you. What fields are open to you with the skills you’ve acquired in your previous career?

For example, although I was once in the data mining profession, I spent a lot of my professional time on documentation, report writing, and communication with collaborators. Those skills set me up for a new career path as a freelance writer.

Step back and look at the skills you’ve accumulated and ask yourself what career paths those skills might be a great fit for. You might find that the things you’ve learned lead you to a completely different destination.

Start a new career

If it appears as though your old career path is a dead end, it may be time to consider a new career entirely.

A good first step here is to take some skills assessments. Minnesota State University provides a great list of skills assessments for people considering a career path. These will often clearly illustrate what natural talents and skills you have and can point you toward some careers you might be suited for.

From there, you can assess some entirely new career options. Do you need further education? Do you need to go to a trade school? Maybe you just need to do some independent learning.

Downsize your lifestyle

From a practical perspective, unexpected forced early retirement likely means that you need to downsize your lifestyle. In the short term, you likely made a bunch of easy decisions about your spending choices, but if this is a more permanent change or one that will last years, you should start considering bigger changes.

Start with housing. Can you move to a smaller home or into an apartment? Can you share your living space with someone else in order to offset some of the costs? For transportation, do you need a car or can you get by with mass transit options, bicycling, and/or carpooling? Do you need a data plan for your cellphone? What about cable?

When you chop away a bunch of bigger expenses, suddenly the challenge of figuring out how to financially make it on a lower income becomes much easier.

Recalibrate your investments (if you have them)

If you’re fortunate enough to have investments put aside for retirement, the moment at which you’re forced into early retirement is a moment to consider recalibrating your investments into “retirement mode.” The reason is that, in effect, you’ve become a retiree who wants to be able to live off of those investments for as long as possible, and thus retirement requires a different investment strategy than trying to grow wealth over the long term.

How does a retiree approach investing, then? Someone who is more than 10 years from retirement doesn’t plan to withdraw anything over that period, so they’re likely invested in a very aggressive way. A fresh retiree will likely need to make withdrawals in the next 10 years, so that money should be invested in a more stable fashion with less volatility.

We welcome your feedback on this article. Contact us at inquiries@thesimpledollar.com with comments or questions.

Source: thesimpledollar.com

7 Keys to Stress-Free Retirement Investing

Are you lying awake at night, wondering if your retirement money is properly invested? If so, it’s probably not much comfort to know that millions of other Americans are tossing and turning with the same worries.

Although retirement investing may seem complicated, it doesn’t have to be. As with just about anything in life, a little education can go a long way toward success.

Here are some ways to wring the most out of your retirement investing.

1. Get your full employer 401(k) match

Find out if your employer matches your 401(k) contributions. If so, ask about the maximum match the employer will make.

For example, if your employer matches contributions dollar for dollar up to 6% of your $4,000 monthly salary, you’ll get $240 free in your account for the first $240 you save — every month.

If you don’t take advantage of the employer match, you’re throwing away free money.

2. Bone up on investing

People trying to get the right retirement investment mix typically focus on three vehicles:

  • Stocks: Stocks are basically ownership in a company. They offer the most potential for reward, but they also present the greatest risk.
  • Bonds: While stocks are an “ownership” investment, bonds are “loanership.” You’re lending money to a company (corporate bonds), local government (municipal bonds) or Uncle Sam (Treasury bonds). Generally, bonds pay the holder (you) a fixed rate of interest, are due on a certain date and are backed by the company or government agency that issues them. That’s why they’re considered safer and more stable than stocks, albeit with a lower expected return.
  • Cash: These types of funds don’t earn much, but they are less risky than stocks or bonds.

3. Decide how much to put in each investment type

Here’s a simple rule of thumb often cited by Money Talks News founder Stacy Johnson: Subtract your age from 100. Use the figure you get as the maximum percentage of your savings you should have in stocks.

So, say you’re 20 years old. You could have up to 80% of your savings in stocks. But if you’re 60, keep it to 40%, because stocks are riskier and you’re close to retirement.

Once you’ve figured out how much to invest in stocks, divide the remaining part of your savings into other types of investments. For example, you could divide the money equally between an intermediate bond fund and a cash equivalent fund.

These percentages aren’t set in stone — they’re just a guide. Increase or decrease them to suit your needs and risk tolerance.

4. Keep expenses down

Investment fees can dig deep into your profits. Focus on keeping expenses super low.

Consider this example from “Of All the Fees You Pay, This Is the Worst”:

Say you have a 401(k) plan with a current balance of $25,000. Over the next 35 years, you earn an average return of 7% on that balance. Even if you don’t contribute another penny to your account during those 35 years, here’s how much money you’d have if your account fees were 0.5%, compared with fees of 1.5%:

Beginning balance Annual return Fees Balance in 35 years
$25,000 7% 0.5% $227,000
$25,000 7% 1.5% $163,000

So, the higher fee would cost you an additional $64,000 over 35 years.

5. Use dollar-cost averaging

No one expects amateurs to know when to buy and sell stocks. After all, most of the pros can’t even get that right.

Fortunately, there’s no need to worry about timing the stock market if you use a simple system called dollar-cost averaging. That entails making your investments in fixed amounts and at fixed intervals — for example, $100 every month.

This method gives you insurance against market dips because you’re buying more shares when they’re cheap and fewer shares when they’re expensive.

6. Choose index funds

There are two main types of mutual funds. How these funds are run affects their fees:

  • Actively managed mutual funds, or active funds, are run by financial professionals who decide which stocks or bonds to buy and sell within the fund. They aim to outperform stock market indices — and charge higher fees for their effort.
  • Passively managed mutual funds, or index funds, simply aim to mirror a stock market index such as the S&P 500. Fees are therefore minimal.

Past surveys have found that the average expense ratio of active funds is much higher than the expense ratio of index funds.

7. Consider target-date funds

This popular type of mutual fund is appealing because it takes a lot of the work out of investing. You just choose the date when you want to retire — 2030, for example. The fund is designed to do the rest, rebalancing your asset allocation over time based on your retirement date, or “target date.”

To learn more about the pros — and cons — of this type of investment, check out “5 Questions to Ask When Picking a Target-Date Fund.”

Disclosure: The information you read here is always objective. However, we sometimes receive compensation when you click links within our stories.

Source: moneytalksnews.com

14 Social Security Tasks You Can Do Online

If you’ve ever had the chore of going to your closest Social Security office for, say, a name change or a replacement for your ancient (and MIA) Social Security card. . . well, I’m so sorry. The wait was likely interminable and the experience uncomfortable; at least it was for me.

In pre-internet days, you had no choice but to physically go to a Social Security office for many tasks. These days, you can manage your own Social Security profile and execute many critical moves yourself online. (Note: During the COVID-19 emergency, Social Security offices nationwide are staffed but not open for face-to-face services. Call your local office — they’re typically staffed until 4 p.m. weekdays — if you need help.)

Whether you’re a pre-retiree on the cusp of claiming your hard-earned Social Security benefits or a young worker decades away from retirement, you should set up a free MySocialSecurity account. It’s a good way to protect against Social Security fraud, and it’s a prerequisite for many of the items on our list here.

Once you’ve set up your MySocialSecurity account, take charge of your Social Security benefits by reviewing your earnings history, calculating your benefits, ultimately filing for Social Security and Medicare, and much more. Let us show you how.

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Request a Replacement Social Security Card

a stack of social security cardsa stack of social security cards

If you’re just looking for a replacement Social Security card, there’s no need to trek to a Social Security office and wait, and wait, and wait. You can do it online. The replacement card should arrive within two weeks.

The Social Security Administration is still rolling out this service, and you cannot request a replacement Social Security card online if you live in Alabama, Minnesota, Nevada, New Hampshire, Oklahoma, Oregon or West Virginia. (If you live in those states, find the Social Security office nearest to you to request a new card in person.)

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Request a Replacement Medicare Card

A social security and medicare cardA social security and medicare card

Can’t locate your red, white, and blue Medicare card? You can request a replacement card through the Social Security website. Sign in to your MySocialSecurity account, hit the “Replacement Documents” tab, then tap “Mail My Replacement Medicare Card.” You should receive it in approximately 30 days.

For other Medicare questions and issues, head over to Medicare.gov, where you should also have a My Medicare.gov account because, c’mon.

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Estimate Your Social Security Benefits

A federal checkA federal check

Hey, you’ve been paying into Social Security for years. It’s only fair to want to know how much you’ll have coming your way when you apply for the benefits.

With your MySocialSecurity online account, you can quickly access and review your Social Security statement that the SSA otherwise mails once a year. (Here’s a PDF of what a Social Security statement looks like). Whatever your age, it’s good to keep up with your Social Security benefits projections — for claiming at 62 when you are first eligible to take Social Security (40% of Americans do so at this age), at “full retirement age” (66 or 67, depending on what year you were born), and at age 70 (the age at which benefits cease to increase.

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Review Your Earnings History

a blurred image of George Washington on the dollar billa blurred image of George Washington on the dollar bill

Take a fun stroll down memory lane by looking at exactly how much money you earned each year since you turned 18.

But the fun can stop if you spot an error in your earnings history. If the SSA doesn’t have that record correct, you could be shorted in benefits (and that’s one of the reasons your earnings history is available). Check it out, and if you see something’s wrong, report it to the Social Security Administration. There’s a link to contact them about errors. See our article How to Fix Your Social Security Earnings Record for more.

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Apply for Social Security Benefits

A senior woman on her laptop computer in her kitchenA senior woman on her laptop computer in her kitchen

You’re of age, and you’ve picked your retirement date. Now, it’s time to apply for the Social Security benefits you’ve earned. You no longer need to drive to a Social Security office or make an appointment with a representative. You can apply online to start receiving your retirement benefits. The online process takes all of 15 minutes, according to the SSA. If there are questions about your application, you will be contacted by the SSA by phone or through the mail.

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Apply for Social Security Disability Payments

A view of the sign on the social security buildingA view of the sign on the social security building

If you have a medical condition that leaves you unable to work for at least a year, you may be eligible for Social Security disability benefits.

On the Social Security website, you can click into the disability planner to see if you qualify. You can also apply online for disability benefits.

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Apply for Medicare Benefits

A social security and medicare cardA social security and medicare card

Turning 65 soon? Take advantage of the Social Security website to enroll in Medicare parts A and B. Note that your initial enrollment period starts three months before your 65th birthday and ends three months after your birthday month. Medicare Part A is hospital insurance, and Medicare Part B is Medicare Part B is medical insurance, which you pay for (and can turn down). The Social Security website answers a ton of questions about Medicare options and offers you plenty of links.

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Check the Status of Your Social Security Application

A senior couple on a laptop computer A senior couple on a laptop computer

Have you already applied for Social Security benefits? You can check the status of your Social Security benefits application online, rather than trucking to your nearest Social Security office or trying to raise somebody on the phone.

Within your My Social Security account, you’ll be able to see your re-entry number for an online benefit application or appeal that has not been submitted; the date the SSA received your application or appeal; your scheduled hearing date and time; the location where your current claim or appeal is being processed; and if a decision has been made.

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Appeal a Social Security Decision

A senior man on his laptop computerA senior man on his laptop computer

What? You were denied Social Security benefits when you applied? You can appeal that negative decision online. You have up to 60 days after you hear about that denial to file an appeal (the reasons for the denial will be in that letter). You have several recourse options: You can request a reconsideration; you can ask for a hearing by an administrative law judge; you can seek a review by the SSA’s Appeals Council; or you can seek a federal court review.

For more, see our article Appeal a Decision by Social Security.

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Change Your Address and Telephone Number

A senior couple smile at the camera in front of their homeA senior couple smile at the camera in front of their home

If you’ve bounced around a time or two in your career, make sure the Social Security Administration knows where to find you. You can update your contact information online via your MySocialSecurity account. Log in, click “My Profile,” then click the “Update Contact Information” button, and make and submit your changes. Simple.

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Set Up or Change Direct Deposit

A direct deposit slipA direct deposit slip

New Social Security beneficiaries (since 2013) must receive their benefits electronically. Older beneficiaries can switch to direct deposit at any time.

It’s easy to set up or change your direct deposit of Social Security benefits online if you have a MySocialSecurity account.

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Print Proof of Social Security Benefits

A senior man takes something off a printerA senior man takes something off a printer

Before you go off and print your proof of benefits — online, people, you don’t have to head to an SSA office — you’ll first probably want to know what Social Security Benefit Verification Letter is. Kinda self-explanatory, this, but here goes: Also known as a benefits letter or Social Security award letter, this document serves as proof of your retirement benefits. It includes your name, date of birth and the Social Security benefits you are receiving. To print it you’ve got to access it and to access it you need (everyone, say it with me) a My Social Security account. Easy peasy.

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Print Your 1099

A senior man on his computerA senior man on his computer

At tax time, you need your documents — and early-bird files may not want to wait for their Form 1099 for any Social Security benefits received in the previous year to arrive in the mail. You can print that Form 1099 from your MySocialSecurity account.

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Get Answers to Frequently Asked Questions About Social Security

A street sign that reads "questions" and "answers"A street sign that reads "questions" and "answers"

Do you have a burning question about Social Security benefits, whether offices are open, how to replace a Social Security card for one of your children or some such? Head over to the Social Security website, and tap the FAQs. They have answers.

Source: kiplinger.com

Washington, D.C. Estate Tax

Washington, D.C. Estate Tax — SmartAsset Blog

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Washington, D.C. does levy an estate tax on the estates of certain people after they have died. Specifically, the D.C. estate tax applies to any estate worth more than $4 million starting in 2021. In 2020, the threshold was $5.7642 million. For anyone who died prior to 2021, the rate of the estate tax is graduated and runs from 12.0% to 16.0%. Estate planning isn’t easy, and if you are planning for your estate or dealing with the estate of a loved one, you may need some help. Consider finding a financial advisor to help you using SmartAsset’s free financial advisor matching tool.

Washington, D.C. Estate Tax Exemption

In 2020, Washington, D.C. lowered its estate tax exemption to $4 million. Previously, it stood at $5,764,200. This means that if a person dies in 2021, any money in his or her estate in excess of $4 million will be subject to the estate tax. If the person died in 2020, it only applies to money in excess of $5,764,200. The estate tax exemption in D.C. is not portable between spouses. When the second of two spouses dies, that person can only apply his or her $4 million exemption, not that plus the $4 million exemption the deceased partner was entitled to.

Washington, D.C. Estate Tax Rate

The estate tax rate in D.C. is progressive, meaning that the rate goes up as the size of the estate increases. The estate tax brackets for 2021 have not yet been published. For this reason, we’ll be presenting here the brackets from the 2020 tax year, which still apply if the person who died passed away in 2020. The major difference, though, is that prior to 2021, the threshold for the estate tax was $5,764,200, while for people dying in 2021, it will be just $4 million. Still, we can use the 2020 numbers to show how calculating an estate tax burden works.

For 2020, the estate tax in Washington, D.C. ranged from 12.0% to 16.0%. The table below shows all of the rates. To figure out how much you will owe, first you’ll need to find your total taxable estate above the threshold in the first column of the chart below. In the second column, you can find the base taxes on money below your bracket. The third column shows the marginal rate you pay. Multiply that rate by any wealth above your tax bracket’s lower threshold. Add that number to the base taxes and you have the total you owe for the Washington, D.C. estate tax.

Here’s an example: Let’s say your total estate is worth $9.5 million. Subtracting the $5,764,200 exemption, you have a taxable estate of $3,735,800. Next, find where that number falls on the chart. The base taxes for the bracket is $436,512. The bottom of the threshold is $3,237,600, so we subtract that from $3,735,800 and get $498,200. That amount multiplied by the marginal rate of 15.2% is $75,726. When we add that number to the base taxes ($436,512), we get a total tax of $512,238 owed on a $9.5 million estate.

WASHINGTON, D.C. ESTATE TAX RATES
$0-$237,600 $0 12.0% $0
$237,600-$1,237,600 $28,512 12.8% $237,600
$1,237,600-$2,237,600 $156,512 13.6% $1,237,600
$2,237,600-$3,237,600 $292,512 14.4% $2,237,600
$3,237,600-$4,237,600 $436,512 15.2% $3,237,600
$24,237,600+ $588,512 16.0% $4,237,600

*The taxable estate is the total above the exemption of $1 million.
**The rate threshold is the point at which the marginal estate tax rate goes into effect.

What Is the Estate Tax?

The estate tax is levied against some estates after someone has died but before the money passes on as directed in the deceased’s will or other legal documents. It generally only applies to estates worth a certain amount as determined by the state government levying the tax. The federal government also has an estate tax.

The estate tax is not the same as the inheritance tax, which is paid by someone receiving money from a person who recently died after they’ve gotten the money.

Washington, D.C. Inheritance Tax and Gift Tax

There is no inheritance tax in Washington, DC. If you are getting money from someone who lived outside of D.C. when he or she died died, though, check local laws. In Kentucky, for instance, all in-state property is subject to the inheritance tax even if the person taking ownership lives elsewhere.

D.C. also does not have a gift tax. The federal gift tax kicks in at $15,000 in annual gifts.

Washington, D.C. Estate Tax for Married Couples

The Washington, D.C. estate tax is not portable between couples. When both spouses die, only one exemption is applied to the estate.

Federal Estate Tax

The federal estate tax has a much higher exemption level than the D.C. estate tax. The estate tax exemption for 2021 is $11.7 million. Unlike the D.C. estate tax exemption, the federal exemption is portable between spouses. This means that with the right legal steps, a married couple can protect up to $23.4 million upon the death of both spouses.

If an estate tax exceeds that amount, the top tax rate is 40%. A full chart of federal estate tax rates is below. By following the same method described in the D.C. Estate Tax section, you can use the table below to figure out your federal estate tax burden.

FEDERAL ESTATE TAX RATES
$1 – $10,000 $0 18% $1
$10,000 – $20,000 $1,800 20% $10,000
$20,000 – $40,000 $3,800 22% $20,000
$40,000 – $60,000 $8,200 24% $40,000
$60,000 – $80,000 $13,000 26% $60,000
$80,000 – $100,000 $18,200 28% $80,000
$100,000 – $150,000 $23,800 30% $100,000
$150,000 – $250,000 $38,800 32% $150,000
$250,000 – $500,000 $70,800 34% $250,000
$500,000 – $750,000 $155,800 37% $500,000
$750,000 – $1 million $248,300 39% $750,000
Over $1 million $345,800 40% $1 million

*The taxable estate is the total above the exemption of $11.7 million.
**The rate threshold is the point at which the marginal estate tax rate goes into effect.

Overall Washington, D.C. Tax Picture

Washington, D.C. is moderately tax-friendly for retirees. Social Security payments are not taxed, but withdrawals from retirement accounts are fully taxed. The income tax in Washington, D.C. ranges from 4.00% to 8.95%. If you are moving to Washington and want to figure out your take home pay, use the paycheck calculator from SmartAsset.

The average property tax in the District is 0.55%, and sales tax sits at 6%.

Resources for Estate Tax Help

  • If the estate tax seems overwhelming, you should consider finding a financial advisor to help you. Finding a financial advisor doesn’t have to be hard. SmartAsset’s free tool connects you with financial advisors in your area in five minutes. If you’re ready to be matched with local advisors, get started now.
  • If you have a sizable estate, estate taxes on either the state or federal level could be hefty. However, you can easily plan ahead for taxes to maximize your loved ones’ inheritances. For example, you can gift portions of your estate in advance to heirs, or even set up a trust.

Photo credit: ©iStock.com/vistoff, SmartAsset, ©iStock.com/kupicoo

Ben Geier, CEPF® Ben Geier is an experienced financial writer currently serving as a retirement and investing expert at SmartAsset. His work has appeared on Fortune, Mic.com and CNNMoney. Ben is a graduate of Northwestern University and a part-time student at the City University of New York Graduate Center. He is a member of the Society for Advancing Business Editing and Writing and a Certified Educator in Personal Finance (CEPF®). When he isn’t helping people understand their finances, Ben likes watching hockey, listening to music and experimenting in the kitchen. Originally from Alexandria, VA, he now lives in Brooklyn with his wife.
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The 10 Least Tax-Friendly States for Military Retirees

If you spent your career in the military, you’ve probably lived all over the U.S. and around the world. But before you put down roots in retirement, find out how much of your hard-earned pension will be taxed. You’ll pay tax to the federal government on military retirement pay that’s based on age or length of service (disability pensions might not be taxed). With state taxes, though, it isn’t always so clear.

Many states provide special tax breaks for military retirees or for retirement income in general. And, of course, some states don’t even have an income tax. But some other states aren’t so generous when it comes to helping retired veterans at tax time.

We’ve identified the 10 states (including Washington, D.C.) with the least-friendly income tax rules for military pensions. These states can tax at least part of a veteran’s pension…and some tax the entire amount. We’ve listed the least tax-friendly of these states first. Take a look.

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1. California

photo of veteranphoto of veteran
  • Lowest tax rate: 1% (on up to $17,864 of taxable income for married joint filers and up to $8,932 for single filers)
  • Highest tax rate: 13.3% (on more than $1,198,024 of taxable income for married joint filers and $1 million for single filers)

California offers retired military members no way to escape its high tax rates. The Golden State taxes 100% of a resident’s income from military pensions, along with private, local, state, and other federal pensions. This applies to all military pension income received while a retiree is a California resident, regardless of where he or she was stationed while on active duty.

For more information about California taxes on seniors, see the California State Tax Guide for Retirees.

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2. Vermont

photo of veteranphoto of veteran
  • Lowest tax rate: 3.35% (on up to $67,450 of taxable income for married joint filers and up to $40,350 for single filers)
  • Highest tax rate: 8.75% (on more than $248,350 of taxable income for married joint filers and more than $204,000 for single filers)

The Green Mountain State taxes 100% of income from military pensions, along with most other sources of retirement income. The state also has a steep top income tax rate that could nick military retirees who have other sources of income.

For more information about Vermont taxes on seniors, see the Vermont State Tax Guide for Retirees.

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3. Washington, D.C.

photo of veteran at Vietnam Veterans Memorialphoto of veteran at Vietnam Veterans Memorial
  • Lowest tax rate: 4% (on up to $10,000 of taxable income)
  • Highest tax rate: 8.95% (on more than $1 million of taxable income)

Despite the large number of government workers who call it home, Washington, D.C., offers no tax breaks for those who decide to retire there. A $3,000 exclusion for government pensions, including military pensions, was repealed in 2015.

For more information about Washington, D.C., taxes on seniors, see the District of Columbia State Tax Guide for Retirees.

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4. Utah

photo of veteran salutingphoto of veteran saluting
  • Tax rate: Flat tax of 4.95%

For residents still working on their 2020 state income tax return, Utah doesn’t offer any special tax breaks for military retirees, and its retirement-income tax credit is limited. Residents 65 and older are eligible for a retirement-income tax credit of up to $450 per person ($900 per married couple), but the credit is phased out at 2.5 cents per dollar of modified adjusted gross income that’s more than $25,000 for singles or $32,000 for married people filing jointly.

However, beginning with the 2021 tax year, a new tax credit is available for military retirement pay. The credit is calculated by multiplying the Utah income tax rate (currently 4.95%) by the amount of military retirement pay included in federal adjusted gross income.

For more information about Utah taxes on seniors, see the Utah State Tax Guide for Retirees.

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5. Arizona

photo of veteran and his wifephoto of veteran and his wife
  • Lowest tax rate: 2.59% (on up to $54,544 of taxable income for married joint filers and up to $27,272 for single filers)
  • Highest tax rate: 4.5% (on more than $327,263 of taxable income for married joint filers and more than $163,632 for single filers)

Arizona does offer a tax exemption for military pensions — but it’s a relatively small one. The exemption is only good for up to $3,500 of military retirement income. Other states with broad-based retirement income exemptions provide a better tax break for retired veterans. Fortunately, Arizona’s income tax rates are relatively low. That’s the bright side.

For more information about Arizona taxes on seniors, see the Arizona State Tax Guide for Retirees.

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6. Montana

photo of veteranphoto of veteran
  • Lowest tax rate: 1% (on up to $3,100 of taxable income)
  • Highest tax rate: 6.9% (on more than $18,700 of taxable income)

The state provides an inflation-adjusted exemption for pension income (including military retirement pay), but veterans with a robust military pension probably won’t qualify. For the 2020 tax year, the maximum exemption is $4,370. However, the exemption doesn’t apply for veterans with federal adjusted gross income of $38,605 or more ($40,790 or more for joint filers). If both spouses receive pension income, married couples should check to see if each spouse could exclude $4,370 if separate returns are filed.

For more information about Montana taxes on seniors, see the Montana State Tax Guide for Retirees.

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7. New Mexico

photo of veteran in front of American flagphoto of veteran in front of American flag
  • Lowest tax rate: 1.7% (on up to $8,000 of taxable income for married joint filers and up to $5,500 for single filers)
  • Highest tax rate: 4.9% (on more than $24,000 of taxable income for married joint filers and more than $16,000 for single filers) [Beginning with the 2021 tax year, the top rate will be 5.9% on taxable income over $315,000 for joint filers and over $210,000 for single filers.]

The Land of Enchantment affords no special treatment for military pensions. People who are 65 or older may receive an $8,000 general income exemption, but to qualify, their adjusted gross income must be less than $28,500 for singles or $51,000 for married couples filing jointly. If you’re at least 100 years old, all your income is exempt.

For more information about New Mexico taxes on seniors, see the New Mexico State Tax Guide for Retirees.

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8. Oklahoma

photo of veteranphoto of veteran
  • Lowest tax rate: 0.5% (on up to $2,000 of taxable income for married joint filers and up to $1,000 for single filers)
  • Highest tax rate: 5% (on up to $12,200 of taxable income for married joint filers and up to $7,200 for single filers)

Veterans in Oklahoma get some relief when it comes to state taxes on their pension. It just isn’t a lot. The Sooner State lets veterans exclude either $10,000 or 75% of their military retirement benefits, whichever amount is greater, from their taxable income. The exemption only applies, however, to the extent the military pension is included in the federal adjusted gross income.

For more information about Oklahoma taxes on seniors, see the Oklahoma State Tax Guide for Retirees.

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9. Virginia

photo of retired Marine hold glass of beerphoto of retired Marine hold glass of beer
  • Lowest tax rate: 2% (on up to $3,000 of taxable income)
  • Highest tax rate: 5.75% (on more than $17,000 of taxable income)

Congressional Medal of Honor recipients don’t pay Virginia tax on income from a military retirement plan. However, other retired veterans do pay tax on their military pensions. The state does provide an age-based deduction against all income that is available to anyone who qualifies. Seniors born on or before January 1, 1939, can deduct $12,000. For those born after January 1, 1939, who are at least 65 years old, the deduction is reduced by $1 for every $1 that federal AGI exceeds $50,000 (or $75,000 for married filers).

For more information about Virginia taxes on seniors, see the Virginia State Tax Guide for Retirees.

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10. Delaware

photo of two veterans shaking hands in front of American flagphoto of two veterans shaking hands in front of American flag
  • Lowest tax rate: 2.2% (on taxable income from $2,001 to $5,000)
  • Highest tax rate: 6.6% (on more than $60,000 of taxable income)

There are no special tax breaks in Delaware for military pensions. However, state law allows a modest exemption of up to $12,500 for pension and other retirement income paid to taxpayers age 60 and older (up to $2,000 for taxpayers younger than age 60). Eligible retirement income includes dividends, capital gains, interest, net rental income from real property and qualified retirement plans (e.g., IRAs, 401(k) plans, Keogh plans, and government deferred compensation plans). The general exemption is smaller than similar exemptions available in other states that do not fully exclude military pension income.

For more information about Delaware taxes on seniors, see the Delaware State Tax Guide for Retirees.

Source: kiplinger.com

Do You Really Need a Financial Adviser?

If you find yourself in a situation where you need financial help, it may be tempting to simply look for a financial adviser in your area and turn the problem over to them. However, before you jump on that option, you should ask yourself an important question: Do I really need a financial adviser?

Let’s start by looking at what a financial adviser actually does.

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What is a financial adviser?

A financial adviser is a broad term referring to any person who can help you manage your money. What does a financial adviser do? They may help you with investment decisions, resolving tax issues, and many other things — if it’s a financial consideration, there’s likely a financial adviser who can help.

The term “financial adviser” is generic, and technically anyone can call themselves a “financial adviser,” including some shady people. To be sure you’re dealing with a reputable one, check their certifications. One key certification to look for is whether they have passed their Series 63 and 65 exams, which most states require before an adviser is legally allowed to make certain moves on behalf of a client.

What about a financial planner? 

A financial planner is a specific type of financial adviser. Financial planners are people who are specifically charged with helping their clients create a plan to meet their long-term financial goals.

How is that different from a financial adviser? A financial planner would not necessarily be a good choice if you need financial help while trying to resolve an immediate financial difficulty, such as resolving an imminent tax situation. You would want a tax-focused financial adviser for that.

Think of it this way: If the situation you want resolved is a long-term situation, such as long-term investments, planning your estate, or other matters that won’t actually resolve for more than a year or two, a financial planner is the type of financial adviser you want. If your situation is more immediate, like a complex tax situation or a confusing inheritance, you would want a different type of financial adviser more suited for your immediate situation.

“Financial planner” is also a generic term. Before hiring one, you’ll want to make sure that they’re certified. A key certification for financial planners is the Certified Financial Planner certification. You can specifically search for Certified Financial Planners using the CFP website.

[Read More: What a Good Financial Planner Does and Doesn’t Do]

When is a financial adviser useful?

Here are three common situations where you might need financial help and might find a reputable financial adviser useful.

Complicated tax situations

For the vast majority of Americans, filing taxes is an easy matter. For about 70% of American households, taxes are so simple that they can be handled by filling out a free online form in just a few minutes. Even if you’re not in that group, most tax situations are easily handled by the IRS’s Free File Fillable Forms.

It’s only when you’re facing more complex situations, with different businesses and lots of different income streams, where you might need help from a financial adviser to get things straight.

Complex estate planning

For most people, the most difficult part of estate planning is just getting started. Most Americans have relatively simple estates that can be handled well with just a few documents, and everything you need to know is just a few Google searches or a trip to the library away.

Things get more difficult if you have a large estate, unusual wishes, or a large number of heirs. In those situations, you may want to contact a financial adviser to make sure that your plans are clear.

Investment planning for large amounts

For smaller amounts, the benefits from hiring a financial adviser are likely outweighed by the costs. While they’re likely to improve your investments to a degree, the expense incurred with a financial planner handling a small amount of wealth may eat up much of what you gain over simply doing it yourself.

Financial advisers become helpful when you have a large number of assets to consider. If you have enough assets that the estate tax is becoming an important consideration (say, $10 million or more), it may be worth discussing matters with a financial adviser or financial planner. For smaller amounts, it’s probably worth your time to at least attempt to manage your investments yourself and only use an adviser if you have difficulty.

What’s the alternative?

The truth is that most financial planning decisions are surprisingly simple. Many financial decisions seem complicated because simple concepts are hidden behind complex-sounding jargon. They also seem risky because media coverage of financial issues tends to focus on very risky investments because they’re exciting, but most financial options are actually relatively low risk and dull. Most ordinary financial situations don’t need outside advice.

For most financial situations that ordinary people face, you only really need two things, neither one of which requires a financial adviser.

A small amount of learning

The first element is learning. Investing the time to really understand what your options are doesn’t require a financial adviser. It just requires some time to sit down, read a few documents, and use Google to help you figure out what some of the jargon means.

If you don’t know where to start, simply start with a beginner’s guide to whatever financial topic concerns you. For example, if you’re trying to get started with understanding your options for saving for retirement, you might read The Simple Dollar’s guide to retirement planning.

You should always read multiple guides on an issue to get multiple perspectives, so turn to Google to find other beginning guides on that issue, or go to your local library and check out an introductory book on the topic (the “For Dummies” personal finance books are generally quite good for beginner’s guides, for example).

A simple plan

If you read a few beginner’s guides on your financial concern carefully, making sure that you really understand them, you’ll find that most of them walk you through the process of coming up with a simple plan that works for your situation. Most guides will help you customize it for the nuances of your life, and since the vast majority of people have relatively simple financial situations, you’ll usually be able to come up with a simple plan that works for you.

For example, if you’re concerned about saving for your children’s future, you might start by reading through our guide to saving for your child’s college education. This would point you toward some concrete steps you should take, such as opening a 529 college savings plan and using automatic payments to keep the plan on track. How will you afford it? You might start with these 20 ways to painlessly cut your monthly budget.

That’s really all you need. Save the financial adviser for when you run into exceptional and difficult situations that go far beyond what you can pick up from your own learning.

We welcome your feedback on this article. Contact us at inquiries@thesimpledollar.com with comments or questions.

Source: thesimpledollar.com

How to Reassess Your Retirement Plans

Retirement planning is not a “set it and forget it” kind of exercise. Life changes quickly, and it’s important to understand that your retirement plans need to change just as fast. The retirement plan you had in your 20s when you were single is not the same retirement plan you’ll want in your 40s and 50s as your kids look to head off to college. Volatility with the stock market or other investments can also impact your retirement plans. As things change, it’s important to periodically reassess your retirement plans.

When you need to reassess your retirement plans

There are a few different times where you’ll want to reassess your retirement plans. The most crucial times will be when you have major changes to your life or family.

  • Marriage or Divorce
  • Birth or adoption of children
  • Change in employment
  • Moving to a different house

These types of major life events can have a major impact on how much money you need to retire, so you’ll want to reassess your plans. But it’s not only during these major life changes that revisiting your retirement planning makes sense. It’s smart to regularly review where you’re at for retirement, just like you should be regularly reviewing your monthly budget.

Understanding volatility in retirement planning

The one time that you DON’T want to make drastic changes to your retirement planning is during a major stock market downturn. When you see those big negative amounts in your 401k or brokerage account statements, it can be easy to panic and try to sell your stocks in order to stop the bleeding. 

The fact of the matter is that the stock market is extremely volatile. The stock market may average 8% or so over the long-term, but that one number masks a number of huge swings to both the positive and negative. Instead of panicking and selling when the stock market goes down, be proactive and prepare for the inevitable downturn. Sometimes the best thing to do is absolutely nothing.

Get comfortable with risk

Along the same lines of understanding volatility in the stock market, it’s important to get comfortable with risk. In general, the higher return that a type of investment will bring, the higher the amount of risk will also be. Deciding how comfortable you are with risk is an important part of assessing your retirement plans.

Risk is something that should not be feared — after all, hiding all of your money underneath your mattress is a relatively low-risk proposition. But it’s also not likely to lead to a successful retirement. Consider your time horizon — how long you have until you’re likely to retire — and adjust your risk accordingly. If you’re younger and further from retirement, you can afford to invest in relatively riskier investments. The closer that you get to retirement, the less risk that you should be taking on.

Review your portfolio allocation

Understanding and being comfortable with risk can help you as you review your portfolio allocation. Since different types of investments come with differing amounts of risk, it’s important to make sure your portfolio is allocated between investment types in a way that makes sense for your specific situation. 

Generally, the younger you are and the further you are away from retirement, the more it makes sense to have most of your investments in the stock market. The stock market has more volatility but historically has provided the highest returns as well. As you get older and closer to retirement, you will generally want to move a higher and higher percentage of your portfolio away from stocks and into an investment like bonds that has lower returns but also lower risk.

Consider talking with a financial advisor

A financial advisor can be a good resource if you’re looking at making sure you’re on the right road to retirement. A trusted financial advisor can look at where you’re at now, where you want to go, and help ask the questions you need to answer to make sure you’re on the right path. If you don’t currently have one, make sure to find a financial advisor that fits with the type of advice you are looking for.

The Bottom Line

It’s important to regularly reassess your retirement plans. You should review your retirement plans on a recurring basis with your spouse, trusted friends and family, or a financial advisor. You should also review your retirement plans whenever you have a major life change, such as a new child, new job, or when you move to a new home. Following these simple steps can help you make sure that you are on the road to a solid financial future.

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Source: mint.intuit.com