Questions are part of our Writing Your Retirement Paycheck program. The more common questions are about finances, but every now and then, someone will ask, “How am I going to know when to retire and will I like it?” The question of when is sometimes tied to finances, which is fairly straightforward to discuss, but helping someone like retirement is a challenge.
A number of individuals in the United States practice unretirement. A word being used to describe reentry into the workforce after a formal retirement. In an article published by the National Institute of Health, 80% of near-retirement individuals expect to return to the world of work in some capacity. After 2 years, 25% are working full time. Returning to work is less likely to occur if an individual experiences health issues. Interestingly, financial need does not appear to be a common reason for reentry into the workforce.
Retirement plans are highly individual; one size does not
fit all. The successful transitions all have individual differences, but three
elements are frequently mentioned.
A planned trip or activity to create a bridge
between the everyday routine of going to work and the freedom of setting your
own daily schedule. It creates a distraction and gives a chance for individuals
to refocus on a new lifestyle.
Setting goals to complete in the early years of retirement. If chosen wisely, these goals help with time management, simulate thinking, and can result in enjoyment of new accomplishments.
Developing new relationships with individuals and groups outside of the workplace prior to retirement. New associations can help replace the psychological value individuals gained from their roles in the workplace.
Planning for the transition to retirement is financial, but also includes mental preparation for a new lifestyle. Without that step, we might find ourselves part of the “unretirement” movement.
My husband is retired, so he has more opportunities to spend time in the repair shop waiting for tires to be patched or equipment to be repaired, all the while chatting with his peers. Those conversations result in questions for me when there has been a discussion about finances. The topics of inquiry are usually related to estate planning. The average age of farmers is 57.5 years, so it stands to reason it wouldn’t be about student loans, and he doesn’t need answers when the topic is commodities, livestock or equipment sales.
The most recent ask was the result of a statement concerning a tax liability of 38% if farm ground was sold. “That’s probably wrong” I said, and here is why:
Only property owned for less than a year is subject to regular income tax rates.
The 2019 tax rates on regular income is 10%, 12%, 22%, 24%, 32%, 35%, and 37%
The owner would be able to subtract costs and would only pay taxes on the profit. Farm ground has actually gone down in price or stayed stable during the past year.
Income taxes are graduated and rise as your income increases. All single taxpayers pay 10% on the first $9,700 of taxable income. The 37% income tax is calculated on income greater than $510,301.
If the farm ground was owned for more than a year then profits from sales would be subject to long term capital gains taxes instead of regular income taxes.
Long term capital gains taxes are 0%, 15%, and 20%.
The tax rate would be determined by income. A single taxpayer with income of $39,375 or less pays 0%, 20% is the capital gains rate when a single taxpayer has income greater than $434,551.
If the farm ground had a house on it and the owner lived in it for two of the five years before the sale, then up to $250,000 of profit resulting from the home sale would be exempt from taxes.
There could be an extra tax as a result of the Affordable Care Act. A 3.8% investment tax is collected when a single taxpayer’s investment income exceeds $200,000.
It was suggested that I mail Extension materials from Ag Decision Maker or Money Tips to the repair shop visitor!
I didn’t rush to file my claim for a portion of the $425 million settlement from Equifax. In 2017, when the security breach occurred, I confirmed my information had been compromised multiple times by using the look up tool. As an eligible person, I contacted Equifax to put a freeze in place on my file and enrolled in credit monitoring services for a 12 month period.
Everyone is going to benefit from the settlement. In addition to the 3 free credit reports you can receive each year from the credit reporting agencies (one each Experian, Equifax and Transunion), Equifax will be furnishing 6 additional reports for 7 years. Consumers can use an electronic notification system to remind them at set intervals to check their reports.
As a member of the group of 147 million people impacted by the breach, I could request a $25 @ hour payment for the time I spent setting up safeguards to make my identity more secure. I could also opt to request repayment of the fees paid to put freezes in place. Note: Iowa has since disallowed the $10 fee per reporting bureau, so that won’t be an issue in the future. Recent press releases have indicated that both types of payment requests are likely to be paid at a reduced rate, due to the large number of individuals who have filed claims.
Credit monitoring is also an option. It will result in four years of coverage at all three credit bureaus and 6 additional years of monitoring at Equifax. I can also receive enrollment again in a $1,000,000 Identity Theft Insurance policy. A word of caution here: the original policy offered in 2017 included two key measures that limited the scope of benefits. A claim had to be filed within 90 days of an identity theft event and only one claim could be made in a 12 month cycle. Anyone who selects this option should read the policy.
Equifax is required to offer recovery services for those impacted by their breach. To obtain assistance individuals will need to contact the settlement administrator at 1-833-759-2982.
If you need more details about the Equifax settlement or how to take steps to add more security to your personal credit file, visit the Federal Trade Commission website. A claim can be submitted online or by paper; you have until January 22, 2020.
My glove box is full of printed maps and I carry a road atlas with me on vacations. Even when my car was equipped with a navigation system, I still planned my trips with the aid of a printed map.
My experience using electronic navigation aids has been mixed. In the very early days of the programs, our home address was entered on a road one mile south of its actual location. Delivery van drivers had to be warned not to rely on them. We Extension field staff frequently have programs in unfamiliar locations and the apps have been helpful, but I’ve also had experiences with closed roads and wrong locations. This lack of reliability has taught me to allow ample time to search again when I land at the wrong place and ask a local resident for directions.
When it comes to travel, understanding how navigation systems work can help you pick the best one for the job. Examples of features that improve their guidance would be using traffic congestion to direct you to routes that are longer, but less likely to result in a white knuckle drive or traffic jams. Several commercial sites are available that rate the apps and share details about their operation.
Using navigation apps to locate specific nearby businesses and repair services has its own set of problems. One major navigation app has recently come under fire for a serious flaw in its program. Fake business listings are hijacking the names of real businesses, and then providing a phone number that calls a scam artist. The scammer is able to enter the fake business in multiple locations, making it more likely to appear early in the search results.
In the spirit of “buyer beware” it makes sense to use personal sources whenever possible for reliable contact information. Confirm business numbers by cross checking in a local directory or phone book. The Better Business Bureau or local Chamber office is also a source to confirm a location and phone number. Use the police department’s regular phone number if you can find no other source to confirm your information. IMPORTANT NOTE: 911 should only be used for an emergency.
It’s time to buy picnic supplies, watermelon, hotdogs, and buns for the 4th of July. Shopping with a list and a coupon or two would lower the grocery bill. Maybe that is why the $80 HyVee coupon scam is circulating again.
The coupon looks authentic and so does the web page where you land to retrieve your big bargain. In a congratulatory invitation, victims are asked to answer a “customer survey” that gathers their name, birth date, telephone number, and email address. Sharing a social media link is required, expanding the circle of individuals exposed to the scam. The personal information is then used for other scams or sold to scam operations.
The Coupon Information Center lists on their counterfeit notification page over 19,000 fake coupons. Fake coupons are more likely to offer free items or high dollar values. They are also common in bulk coupon sales offers. (Manufacturer’s state on most coupons that the sale of their coupon is a violation of use.)
It’s illegal to modify coupons or use them for products other than identified by the manufacturer. “Limited offer: one per customer” means just that, using multiple email addresses to receive online offers or making photo copies is a violation of law.
Remind yourself when you see a coupon with a value of $80 of the old saying: “IF it’s too good to be true, it probably IS!”
The Tax Cuts and Jobs Act was passed in 2017. The legislation increased the amount that is exempt from federal estate taxation. Between 2018 and 2025 the amount exempt from taxes is $11,180,000 for singles (more than $22 million for couples) and is adjusted for inflation each year after 2018. In 2026 the amount will fall back to $5,400,000. A majority of individuals will never exceed either amount; however, estate planning is more than avoiding estate taxes. Some decisions about property transfer can have other tax consequences. Changes in tax law can make old estate plans obsolete.
One important element of estate transfer is the “step up” in basis of real estate and other property that has gained value over time. An acre of ground purchased for $200 (original cost or basis) in 1984 could have a value of $4000 or more in 2019. If the property were sold it would be subject to capital gains taxes on the $3,800 of appreciated value. If the property is inherited, it passes without taxation and the basis is reset to the market value the day the owner died. This “stepped-up basis” is a key consideration when decisions are made about gifting property, setting up trusts, and developing other estate transfer plans. Example: suppose you gave your daughter that acre of land today. Upon selling the land, she would owe income tax on the $3800 capital gain; if she had received it as an inheritance after your death, the sale would involve little or no capital gain, saving her the tax bill.
Transfer of wealth through estate plans has also resulted in new requirements for reporting and keeping records on appreciated property (real estate, stocks, etc.) with a stepped up basis. New IRS rules define the property subject to appraisal, steps to ensure accuracy, and required reporting to the IRS and beneficiaries. Executors are responsible for date of death appraisals. Appraisals must be kept by the beneficiaries and used if the property is sold. It is wise to complete the date of death appraisal promptly; the IRS is more likely to question an appraisal that is completed a long time after the death of the owner. Details are included in IRS Form 706.
Ag Decision Maker is an Iowa State University Extension source of additional estate planning resources and information. Scroll down the page to find estate planning publications.
A client at the volunteer income tax site asked if we could load her tax refund on a prepaid card. The free volunteer site doesn’t offer a prepaid card option; refunds are direct deposited or sent by paper check. Some prepaid cards restrict deposits of federal funds. A test of prepaid cards was completed by volunteers a number of years ago. The sites raised concerns about the fees and hidden charges associated with the cards. An example was a $25 fee paid to receive a cash withdrawal from refunds loaded on a card.
The Consumer Finance Protection Bureau proposed rule changes for the popular cards in 2016. They are used by employers to issue paychecks, government agencies for benefits, and colleges/universities for financial aid. The new rules took effect on April 1, 2019.
Primary changes include simple upfront details of fees for store purchased cards; expanded access to account activity and balances at no charge; and registration options that afford protections if the cards are used for unauthorized transactions, lost or stolen. These rule changes also apply to electronic wallets.
Employers, government agencies, and colleges/universities must offer an alternative method of funds transfer. If a card option is used there must be access to monthly account transactions and fees.
Social Security numbers have to be correct on tax returns. At the Volunteer Income Tax Assistance sites we receive an immediate reject on the return if the name and numbers don’t match Social Security records. We also receive a reject code when a social security number has already been used on a tax return. Individuals must still file a return, but with the electronic submission blocked, it must be a mailed copy.
The IRS and Iowa Department of Revenue will send you a letter saying more than one return was filed in your name. Be sure to respond to the letter promptly. Use the internet to validate the IRS phone number and address (scam artists are now creating very good look alike letters). Call and discuss the evidence needed to support your tax return submission.
A letter will also be sent if the IRS or Iowa Department of Revenue has a record of earned income that you didn’t report on a return. It may mean your SSN was used by someone else so they could avoid paying taxes on their earnings.
Social Security numbers can be obtained through scams or by buying numbers that were stolen in a security breach. If you have been notified that someone has committed tax-related identity theft with your personal information, report it promptly. Go to identitytheft.gov to complete and send the IRS Identity Theft Affidavit. By doing this, you will also file a complaint with the Federal Trade Commission and obtain an ID Theft Recovery Plan.
After your identity is falsely used for tax purposes, the IRS will send you an annual PIN number (a new number each year). This PIN number will be added to your tax return to verify your identity to the IRS, and will prevent anyone else from continuing to use your social security number on false claims.
It’s strange to hear marketing promoting the use of e-cigarettes. Legislation has restricted campaigns promoting tobacco products for many years. A frequently-used e-cig marketing approach targets smokers who feel their habit has forced them into self-imposed isolation to hide their habit or protect others from second hand exposure. Web sites declare the product is for individuals who already smoke, offering them a safer alternative.
Nicotine is an addictive substance and e-cigarette ads or commercials clearly state its presence. E-cigarette use often leads to use of tobacco products. Among individuals who smoke, nine out of ten started as teens.
A 2016 report by the Surgeon Generals Office pointed to data indicating a rapid increase in the use of e-cigarettes (also known as “vaping”) by teens and young adults. In research designed to measure whether youth understand the risks, the findings clearly indicate that teens and young adults view e-cigarettes as safe. Flavor options are attractive, and natural curiosity are reasons given to try e-cigarettes.
Tobacco product use in any form, including e-cigarettes, is unsafe for adolescents. Lifelong addiction is costly, not only in health terms, but also in financial terms. E-cigarette pods, equivalent to a pack of cigarettes, cost $4-$5. The device to use the pods is around $35. When a substance is addictive, as e-cigarettes are, users will typically increase consumption over time. This is a bonus for the companies selling the products. Even with low use (2 pods a week), the habit will cost $500 a year.
Running a calculation of what $500 a year could become if it was saved provides an argument against vaping. A modest $50 deposited monthly into an account earning 3% a year with annual compounding (I’m being intentionally conservative here…) from the age of 16 until age 65 would result in cash assets of $65,000. Unfortunately it’s hard to make this example exotic enough to hook individuals on saving instead of vaping.
Early returns prepared at the Volunteer Income Tax Assistance (VITA) site where I volunteer are resulting in similar refunds or taxes due from previous years. VITA serves individuals with incomes at or below $55,000.
Dependents listed on returns are the biggest factor resulting in similar results. The child tax credit increased to $2000, the refundable portion of the child tax credit has increased to $1,400, and there is a non-refundable credit of $500 for dependent individuals who are 17 or older on December 31st of the tax year.
At the tax site, parents often state they won’t claim a dependent, even when they are eligible. If someone can be claimed as a dependent on your return it should be done; the IRS doesn’t allow a choice. Income deductions don’t increase and the $500 credit may be lost.
Lower withholding hasn’t been a problem with clients we’ve seen, but it has resulted in slightly higher incomes on the state returns, due to reduced deduction on Line 31. While most individuals won’t exceed the federal standard deduction, it makes sense to gather and record allowable deductions so they will carry over in software to the state return. Iowa has a standard deduction of $2,030 for single and $5,000 for couples, so it’s much easier to itemize on the state return.
If you aren’t setting up your refund to be deposited directly into your checking or savings account, this would be the year to start. As one client stated, ” The Federal government could shut down again. It’s hard to tell when I would get my refund, if I have a check mailed. Here is my bank information!”