Since this is the time of year for filing tax returns and paying Uncle Sam is on everyone’s mind, it is a good time to talk about capital gains on investments. Most people know that in taxable accounts when you sell a security for more than you paid for it, you pay tax on the increase. If you hold the investment for more than a year, it is considered a long term capital gain and you pay a lower tax rate than you would on ordinary income, either 15%, 20%, or zero depending on your adjusted gross income.
But what happens if you bought the security over time and not all at once, and then sell part of it? There are a few methods on how you can account for this, and some are more tax beneficial than others. In the past, you kept records of the cost basis and your tax preparer sorted it all out. But in 2011 the IRS started requiring brokerage firms to track cost basis. One consequence of this change is that decisions about which shares to sell need to be made when a security is sold, not at the time your tax return is prepared. It is important that whoever is making the sale of a security (your investment advisor, you, or your broker) understand this and have a strategy on how to sell different “lots” of a security.
Retirement Myths and Realities
We all have some preconceived notions about what retirement will be like. But how do those notions compare with the reality of retirement? Here are four common retirement myths to consider.
1. My retirement won't last that long
The good news is that we're living longer lives. The bad news is that this generally translates into a longer period of time that you'll need your retirement income to last.
Nyhart, the actuarial and employment benefits firm, is a nationally recognized consulting firm located here in Indianapolis. The firm recently made the national news when it published a study of more than 10,000 employee accounts to analyze the readiness of employees to retire by the age of 65.The study found that 81% of adults 18 or older will not be able to retire by age 65. In addition, employees above the age of 55 on average need to contribute more than 45% of income going forward in order to retire by age 65. The average employee relying on the 401(k) as a primary retirement vehicle will not be able to retire until 73 years of age. For this report, Nyhart assumed that the employee would need to replace 70% of the final years' income over their expected life time.
For people who had their will prepared a few years ago, many attorneys used a formula clause to reduce the estate tax to as low an amount as possible. These formula trusts were filled to the maximum estate exemption, thus removing those assets from the survivor's estate. The survivor then received the income from the trust and the heirs receive the principle. This was ok when the exemption was $600,000 or $1 million, but if the trust documents call for the maximum amount to go to the trust, now $5 million, then the survivor could be left with little or no assets in their name. According to Stephen Williams, a partner in an Indianapolis law practice, his firm uses disclaimers in order that the survivor can pick and choose the assets going into the credit shelter trust.
While we pride ourselves in our expertise and experience when it comes to wealth management, we thought we'd share some of our knowledge with you readers. The basic tenets of reaching one's financial goals include:
So you finally made it to retirement. No more pressure, no more daily grind. What a joke. All the things you thought would happen when you were in your forty's were so believable then and you fell for it, hook, line, and sinker. Now, instead of worrying about putting into the retirement pot, you end up worrying more about making it last.
GOLD AND SILVER: METALS FOR LOVERS, NOT INVESTORS
I run into people occasionally that can't wait to tell me how they got into gold and sold out of stocks. I am happy for them. If they made their purchase a year or two ago, they probably made a lot of money and I hope they are smart enough to get out before the speculators beat them out the door. Usually those speculators are the ones that think the country has become dysfunctional and it's just a matter of time before our decline and fall like Rome did many years ago. I usually keep my mouth shut, but if one of them asked me I could tell them that I was an investor in the 70's when a fellow named Howard Ruff published a newsletter called Ruff Times. His advice was to buy gold, stock up with 1 year's food supply, and buy guns and plenty of ammo. The gold was to be used for barter when the world fell into chaos. I googled him and he's still around. And about every 5 years he comes out with a new book on the impending dooms day.