taxes

How to Avoid These Common Hidden Fees

Emily Guy Birken — Tue, 03 Mar 2020 09:00:08 +0000

When I found out that my favorite comedian was coming to town, I couldn't wait to buy tickets. Each seat in my preferred section cost $84, which was a little high, but I figured it was worth it to see someone who consistently makes me laugh. But after adding in the service charge, taxes, and a fee to email the tickets to me, the two $84 tickets came to a total of just over $200.

Anyone who has recently bought tickets to a music, sporting, or comedy event has had a similar experience. Hidden fees increase the price of your seat, but you won't even realize until it's time to enter in your payment information. At that point, you're already excited about the event and don't want to back out because of an unexpected cost.

Buying tickets is not the only time you find yourself staring down a hidden fee. Here's what you need to know about the surprise extra charges on common purchases, and how you can either plan for them or fight them.

Events

Buying tickets to events has changed a lot in my lifetime. Back in high school, I actually had to visit a box office or local retailer to purchase tickets to an upcoming event. I even camped out to be among the first in line for a popular band that came to town. When buying them in person was the only way to get tickets, the face value of the ticket was much closer to the amount you would pay for it. In general, you'd only pay sales tax on top of the ticket price.

All of that changed when Ticketmaster became the primary method for buying tickets. The event sales giant started charging everything from service fees to delivery fees to processing fees to facility charges. These additional fees are revealed only after you have chosen your seats at the base ticket price, and while you're watching a clock tick down the amount of time before the tickets are released to another hopeful concert-goer.

These fees add 25% to 35% to the price of your ticket, and the use of the countdown clock and the belated reveal of the fees both work to make you grumble but ultimately fish out your credit card to pay anyway.

For a short time, Ticketmaster held an absolute monopoly on tickets, and it still represents more than 80% of the market share of the ticket-sales industry. However, that doesn't mean you have no choice.

Avoiding the fees

The savvy concert-goer and sports fan has several options available for reducing ticket fees. To start, you can purchase directly from the venue to reduce your fees. Even if you buy the tickets online through the venue's online portal, you can usually get a lower price than you would through the big ticket brokers. This is what I did to buy my comedy tickets. As unhappy as I was paying an additional $32 for them, it represented only a 19% markup. Had I gone through Ticketmaster, the markup was just over 34%.

If you have more time than money, rocking the old school method of buying tickets in person at the box office can save you even more money.

Airline tickets

Within the past 10 years, airlines figured out they could increase profit by reducing the freebies they used to offer. They started by levying a checked baggage fee, which ranges from $10 to $150 per bag, depending on which airline you fly and how many bags you're checking.

From there, travelers started seeing seat selection fees when booking online. While there are always a few "free" seats that are covered by the cost of the ticket, you'll often find they're sparsely spread throughout the cabin and often not next to each other. This means that you (and your traveling companions) will each have to pay a seat selection fee if you'd like to be seated together.

Additional fees may include charges to watch the onboard entertainment and for drinks and snacks. All of these fees can inflate the cost of your flight by as much as 50% or more.

Avoiding the fees

Within the airline industry, fees vary a great deal. That means it's still possible to shop around to avoid extra expenses on top of your airline ticket. Some low-cost airlines allow you to bring up to two checked bags for free, skip seat selection fees, and enjoy complimentary snacks, drinks, and entertainment onboard.

Even if you don't have many airline choices because you don't live near a major airport, you can still keep your fees lower by purchasing your tickets as far in advance as possible. The sooner you buy your tickets, the more likely it is you'll be able to pick your seats for free.

In addition, making sure you understand exactly what fees your airline charges can help you to avoid last-minute surprises. Knowing before you reach the airport that you'll have to pay for a checked bag gives you the option of packing light with just a carry-on. And you can come to your flight prepared with snacks and entertainment to avoid paying for them on the plane. (See also: How to Save Money on Flights Using Fare Alerts)

Hotels

Booking a hotel room online allows you to easily compare room rates so you can find the best deal. Unfortunately, the rates you see online don't necessarily match the amount you pay once it's time to check out. That's because of charges like resort or amenity fees, parking fees, online booking fees, and Wi-Fi.

These fees vary and can be difficult to determine ahead of time. For instance, the resort fee is a daily additional charge levied for your use of the hotel's amenities, from gym and pool access, to using the hotel's private beach or enjoying the breakfast spread. Even if you have no plans to use any of the amenities covered by the resort fee, you're still on the hook for the fee. Most hotels charge a flat daily rate for their resort fee, but some charge a percentage of your room rate or a per person rate per day.

Avoiding the fees

Parking fees and Wi-Fi charges tend to be the easiest fees to determine ahead of time. Calling around and asking what these fees will be can help you decide where to stay. You may also be able to ask for discounts on these fees based on membership to groups like AAA or AARP or a hotel loyalty program.

Many countries prohibit charging undisclosed fees like resort fees and online booking fees, but the United States has no specific prohibition — although deceptive pricing is against the law. This means you can find the information about resort and other fees by either looking on your preferred hotel's website or by calling and asking. However, the fees are not necessarily going to be easy to find or calculate ahead of time.

There are several options for opting out of resort fees. The first is to only book rooms at hotels that do not charge them. You can check if a hotel charges resort fees at ResortFeeChecker.com.

In addition, booking a room using travel rewards points often means that your resort fee and your booking fee are waived. Hotel loyalty programs can also potentially earn you fee-free stays. (See also: How Travel Rewards Cards Can Help You Score Luxury Travel Perks)

Finally, opting out of hotel stays altogether can be another method of avoiding fees. Finding a place to stay through a peer-to-peer homeshare like AirBnB or VRBO can offer you cheaper per-night costs that have no fees tacked on.

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This article is from Emily Guy Birken of Wise Bread, an award-winning personal finance and credit card comparison website. Read more great articles from Wise Bread:

Ask the Readers: Do You File Your Own Taxes?

Ashley Jacobs — Tue, 19 Feb 2019 09:30:08 +0000

Editor's Note: Congratulations to P, Samantha, and Tabathia for winning this week's contest!

You don't want to get your taxes wrong, but if your finances are fairly simple and you're usually pretty organized, it's pretty safe to file taxes on your own.

Do you file your own taxes? What do you think is the most complicated part of the process? What advice would you give to someone who is filing their own taxes for the first time?

Tell us whether you file or own taxes and we'll enter you in a drawing to win a $20 Amazon Gift Card!

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Tell us whether you file or own taxes and we'll enter you in a drawing to win a $20 Amazon Gift Card!

This article is from Ashley Jacobs of Wise Bread, an award-winning personal finance and credit card comparison website. Read more great articles from Wise Bread:

How Paying Attention to Detail Saves Your Finances

Tim Lemke — Wed, 17 Oct 2018 08:00:12 +0000

They say the devil is in the details. When it comes to your finances, this can certainly be true.

Each day, we have the potential to lose money simply because we aren't paying attention. We pay too much for items because we don't notice how much they cost. We lose money in fees or other charges because we don't read the fine print on documents.

We may think this lack of attention to detail costs us just a dollar here or there. But this carelessness can ultimately represent a great deal of money lost over time. Let's examine these ways that being detail-oriented can improve your financial situation.

You'll know a good deal when you see it

If you pay close attention to what items cost, you'll know when you see a good deal. Even if you are not shopping for a specific item, take time to look at its price. That way, when the time comes to make a purchase, you'll have a sense of whether you may be overpaying. If you are keenly aware of pricing, you may learn which retailers consistently have the best deals and which stores to avoid. Depending on who you buy from, you may be able to automate this process by setting up price alerts via email or text. (See also: 10 Shopping Mistakes Even Smart People Make)

You'll notice when a cashier makes a mistake

I used to work as a cashier at an office supply store, and I was not particularly great at it. At the end of the day, I often learned that I had made mistakes when giving change to customers. Few customers ever noticed the errors, so it was their loss. When you pay cash at a store, be sure to count your change before you leave. Take care to remember which bills you used to pay. If the math doesn't make sense to you, don't be afraid to let the cashier know. In addition, be sure to review your receipt to ensure you weren't accidentally charged more than once for an item.

You'll know whether you're paying too much to invest

When we invest, we often pay attention to prices and the basic return on investment. But do we know how much money fund managers takes out as expenses? Are we cognizant of what commissions we pay each time we trade? These costs can take away several percentage points from our overall returns, potentially costing us thousands of dollars over time. To get the maximum return on your investments, it's wise to examine their overall rate of return with fees and expenses included. (See also: 4 Sneaky Investment Fees to Watch For)

You'll see the "catch" when there is one

Congratulations! Your cable company just gave you free HBO. But did you notice that it's only for three months, and then you'll be charged the full monthly fee? Is that "free" cellphone really free, or did they roll the cost into your monthly bill? Whenever a deal appears to be too good to be true, it usually is. Read the fine print on anything you sign and be aware that rarely is anything truly free. (See also: Watch Out for These 4 Sneaky Charges on Your Monthly Bills)

You'll know what's covered by insurance

Several years ago, the basement of my home flooded after our sump pump failed during a heavy rainstorm. I assumed that the damage would not be covered by insurance because I had not purchased extra flood insurance. But, in reading the fine print of my policy, I learned that there was a special provision that covered me in the event of a failed sump pump. If I had not taken the time to read the policy carefully, I may have been on the hook for thousands of dollars in renovations.

Insurance policies are complicated. You may think you're covered for certain things when you aren't. You may be covered for things you aren't aware of. Always be sure to read your policy so that when bad things happen, you feel confident that you're properly insured. And be sure to update your insurance plans if your life circumstances change. (See also: 11 Unexpected Things Covered by Homeowners Insurance)

You'll notice errors in your credit report

By law, you are permitted to get one free copy of each of your three credit reports — from TransUnion, Equifax, and Experian — every year. Even if you have no intention of borrowing something, it's good to review your credit reports when you can, because they may have incorrect information about your finances. Your credit reports may also show you've been the victim of identity theft. By conducting a detailed review of your credit reports, you can ensure that lenders have the most accurate picture of your financial situation. (See also: How to Read a Credit Report)

You'll be billed correctly

Have you ever been to the car mechanic and received a multi-page, itemized list of the work performed? Have you ever been billed by a doctor's office and seen a list of unfamiliar charges? Sometimes, bills can show a lot of charges that you weren't expecting. It's best to review these bills and identify each charge. If you don't understand something or an item seems unfamiliar, don't pay the bill until you get an explanation. You should never pay a bill without reviewing the charges first.

You know you'll be paid correctly

If you have your paycheck direct deposited in your bank account, you may not look at your pay stub regularly. But your paycheck is worth reviewing each time, just to be sure that you're being paid the correct amount. It's also important to check if taxes, 401(k) contributions, or health savings account funds are being deducted correctly. Checking paychecks is especially important for hourly or freelance workers who may have inconsistent income. (See also: Are You Withholding the Right Amount of Taxes From Your Paycheck?)

You will pay the right amount of tax

Taxes are annoying, but they are a necessary part of living in a society. And it's crucial to be organized and detail oriented when filing them. Mistakes on your taxes could end up in you paying too little tax, resulting in penalties. Or, you could end up paying too much tax if you're careless. When claiming deductions, be sure to have proper documentation to justify them so you avoid getting in trouble with the IRS.

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This article is from Tim Lemke of Wise Bread, an award-winning personal finance and credit card comparison website. Read more great articles from Wise Bread:

Investing Is Great, But Saving Is Even Better

Tim Lemke — Tue, 24 Jul 2018 08:00:09 +0000

When people talk about investing, they often emphasize getting the most return for their money. If they are getting a 7 percent return on their stock portfolio, they'll strive to get 8 percent. If they are already at 8 percent, they'll push for 9 percent or more.

Shooting for a high return is laudable, but what often gets lost in this discussion is the most powerful element of building wealth: saving as much money as you can in the first place.

It's important to remember that individual investors can't control stock market returns. They also can't entirely control the cost of commissions, fees, taxes, and the like. They can, however, control their own rate of savings. And there is ample evidence that it is the initial savings, not investment gains, that determines how much you end up with over time.

Let's examine this phenomenon further.

Saving more can offset lackluster returns

If you save as much as you can, you don't have to stress as much about getting the optimal return on your investments. In fact, a boost in savings can often be more powerful than a higher rate of return.

Here are two scenarios to illustrate this point.

In the first scenario, you save $5,000 per year for 30 years and get a healthy 10 percent annual return. This results in about $900,000.

In the second scenario, you save $8,000 per year for 30 years, but you only average an 8 percent annual return. You will end up with around $978,000 in this second scenario. In other words, just $3,000 additional dollars each year (or $250 per month) can more than offset a 2 percent difference in return. Bump the savings up to $10,000 per year, and you're looking at more than $1.2 million in the end. (See also: 6 Confidence-Inspiring Facts About the Stock Market)

Saving more can supercharge great returns

In an ideal world, you're able to save a lot and get a great return on your investments. When these things happen together, the results can be amazing.

Let's revisit the scenarios above. Imagine if you were able to boost your contributions from $5,000 to $8,000 annually while also getting that great 10 percent return. You'd be looking at $1.44 million 30 years later. In other words, that additional $3,000 each year results in $500,000 more over time.

Saving more can let you be more conservative

Not everyone is entirely comfortable with the notion of investing. There is always an element of risk when you put money in the markets, and everyone's tolerance for this is different. If you don't save a lot of money up front, you may find yourself trying aggressive and risky investing strategies to make up the difference. That cannot only take you out of your comfort zone, but lead to financial disaster.

If you save as much as you can, you can afford to be more cautious about what you invest in. This is especially true for older investors who are looking to preserve their savings as they near retirement. (See also: 4 Simple Ways to Conquer Your Fear of Investing)

More savings can mean more matching funds

If you have a 401(k) plan through your employer, you are likely eligible to receive matching contributions from the company. For example, the organization may choose to match all contributions up to 5 percent of your salary. Some match even more than that. It's free money, but you don't get that money unless you contribute yourself.

Fidelity reports that one in five 401(k) plan holders don't put in enough to get all potential matching funds. If you are unsure of how much to contribute to your 401(k), the best answer is as much as possible, but at least up to the maximum company match. (See also: 7 Things You Should Know About Your 401(k) Match)

Saving more can give you a bigger tax break

With traditional IRAs and 401(k) plans, any money you contribute is deducted from your taxable income. So let's say you earn $50,000 annually and contribute $5,000 into your 401(k). That means only $45,000 is taxed; under current tax law, that's $1,100 less you would pay in taxes compared to $50,000.

Investors can contribute up to $18,500 annually into a 401(k). With traditional IRAs, you can contribute as much as $5,500 each year. That is a big chunk of money that can grow into an even more massive sum over time and will lead to big tax savings.

You can withdraw Roth IRA contributions early, but not gains

If you have a Roth IRA, it's generally not a good idea to take out money before you retire. But, if you run into a financial crisis, you are permitted to take out your own contributions without paying any penalty or taxes. For this reason, there are some financial advisers who say it's OK to think of a Roth as an emergency fund if you have nowhere else to turn.

If you take out capital gains, however, you must pay tax on that money and a 10 percent early withdrawal penalty. Thus, if you don't put in a lot of money into your Roth to begin with, you may not really have that much available to withdraw. (See also: 7 Penalty-Free Ways to Withdraw Money From Your Retirement Account)

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This article is from Tim Lemke of Wise Bread, an award-winning personal finance and credit card comparison website. Read more great articles from Wise Bread:

How to Revamp Your Budget for Retirement

Alicia Rose Hudnett — Mon, 25 Jun 2018 08:00:29 +0000

Retirement is a major life adjustment for most people. From figuring out how to spend your days, to determining the best way to manage your personal finances, there are many choices to make.

Once you leave the world of paychecks and the daily 9-to-5 behind you, you may also think you're done with budgeting. At this point in your life, you may believe you've got a good handle on your spending and saving habits, and there's no point to budgeting anymore. But that couldn't be further from the truth. Here's a primer on all the ways your post-work budget needs to change.

Pay yourself and the IRS

The first step of building any household budget is figuring out total income. You now have the task of recreating a paycheck for yourself based on your available income sources. In retirement, that may mean a combination of Social Security benefits, a pension, distributions from IRAs and 401(k)s, and personal savings. You'll simultaneously need to cover your monthly living expenses and continually monitor the total balance of your portfolio.

Your Social Security check will be a set amount each month, and any pensions or annuities you have may also be. Once you've established how much money you'll need on top of those benefits, you can determine how much to take out of your tax-advantaged retirement accounts.

Then there are taxes to consider. You may have the option to have federal income taxes withheld from these payments, and while it's not required that you do so, it will save you the hassle of having to file quarterly estimated taxes. In any case, you'll need to factor taxes into your ongoing budget. (See also: Here's How You Should Budget Your Social Security Checks)

Stop saving for retirement

You've spent your entire pre-retirement life saving and accumulating assets so that one day you'd be able to live comfortably without having to work. Now that you're finally in the decumulation phase, you no longer have to save a portion of your monthly income for long-term goals. Monthly retirement contributions are one line item you can remove from your budget.

Increase your emergency fund

During your working and saving years, it's important that you have enough cash saved to cover a large unexpected bill or a job loss in order to prevent having to take early withdrawals from retirement accounts or take on debt.

In retirement, your need for cash savings may be even greater, but for different reasons. You may not have to worry about something like a job loss, but emergencies can still happen. As your home and vehicle age, you may find yourself needing to make major repairs or replacements. A health care crisis could devastate your finances. If you aren't prepared for major unexpected expenses, you risk wiping out a portion of the nest egg you're meant to be living on for the next few decades.

Remember, unlike your pre-retirement years, the majority of your savings may now be in tax-deferred retirement accounts. As you build your yearly income stream, you'll also be considering your income tax liability, taking into account your portfolio balance and your expected withdrawal rate. What happens to those numbers if you have a large emergency expense one year? Having to take distributions from your retirement accounts during those times may permanently affect the long-term viability of your nest egg, which is why a cash reserve can help support your overall retirement plan.

Standard financial advice recommends that working people build an emergency fund that can cover at least six months' worth of essential living expenses. In retirement, you should strive to save between 12 and 18 months' worth of those living expenses, including annual insurance premiums. (See also: Yes, You Still Need an Emergency Fund in Retirement)

Assess your changing housing costs

Housing is usually the largest household expense in everyone's budget, regardless of whether you rent or own. But after raising families and possibly paying a mortgage for 30 or more years, you may be in a position to either downsize, eliminate your mortgage payment, move to a new location, or a combination of all of these options — which can all meaningfully affect your budget.

As you prepare for retirement and rethink your income and budget needs, carefully calculate what your new housing and associated costs will be. For example, you may think about moving into a smaller apartment or condo in a trendy part of town, but a more expensive location can unexpectedly increase your other everyday living expenses.

Prepare for a possible increase in medical expenses

If you're used to having employer-sponsored health insurance, be prepared to do your homework on Medicare before you retire. Many people are surprised to learn that Medicare does not cover all health care expenses, such as routine vision or dental care. Nor does it cover some assisted living expenses, which may create a huge financial strain if you didn't purchase a long-term care policy when you were younger. And if you're traveling outside of the United States, Medicare typically won't cover any health care related costs you may incur.

Between purchasing various Medicare coverages, like Part D for prescriptions, and perhaps obtaining a supplemental plan to close the Medicare coverage gaps, you may wind up spending significantly more on making sure all of your health needs are properly insured. Crunch the numbers and make sure your new budget takes all of this into account. (See also: How to Make Sense of the Different Parts of Medicare)

Eliminate work-related expenses

Throughout your entire working career, you've probably spent lots of money on various professional and daily work-related expenses. When you exit the workforce, much of that will change as your lifestyle will be different. Things like business attire and dry cleaning, daily transportation and parking costs, or business certifications and professional dues can all be crossed off your budget.

Adjust for an increase in leisure expenditures

When your schedule is completely free and you no longer have a daily commitment to be at work, every day feels like a Saturday. You may find yourself spending money on things you used to do only on the weekends or when you had some time off. Whether it's spending more time eating out, traveling, or participating in hobbies, you may need to adjust your budget for your increased free time.

Consider your gifting choices

If you have children and grandchildren, you may have started thinking about including financial support for them in your retirement budget. In addition to more substantial gifting opportunities that involve legal documents (like a trust), there are other ways to support your family members. Each year, you are able to gift anyone up to the annual gift exclusion, which is $15,000 for 2018, without having to file a gift tax return. A married couple can gift a total of $30,000 to one individual in one year.

And if you are interested in helping to save for a family member's education, you can open and fund a 529 account, which is a tax-favored education savings plan. The same yearly gifting rules apply, but with a 529 account, you are allowed to front-load five years' worth of the 2018 $15,000 yearly amount for a total of $75,000 in one year. Once again, that is doubled for a married couple. (See also: 4 Things You Need to Know About Gift Tax)

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This article is from Alicia Rose Hudnett of Wise Bread, an award-winning personal finance and credit card comparison website. Read more great articles from Wise Bread:

8 Ways to Preserve Your Net Worth in Retirement

Tim Lemke — Thu, 21 Jun 2018 08:01:16 +0000

We all know the key to a comfortable retirement is amassing enough wealth to last your entire post-work life. But if you truly want to ensure financial security, you should work to maintain or even build upon your net worth as you age. This requires an aggressive level of saving when you are young, and a lot of discipline along the way — but it can be done.

Let's examine some ways you cannot only make your retirement savings last, but also protect all of your net worth throughout your lifetime.

1. Budget and plan wisely

Retirees generally see their expenses decline as they age. The kids are out of the house, college is paid off, homes are owned free and clear. Don't get too cocky, though; you still need to ensure your expenses don't outpace your income. Continue working hard to live within your means. Keep budgets for most expenses, and develop savings plans for any big-ticket purchases. If you want to maintain your net worth, you can't allow your day-to-day cost of living to get out of hand.

2. Downsize

Do you need to live in such a large house? Do you really need two cars? You can reduce your day-to-day expenses and make your retirement funds last longer by simply scaling down your possessions. Considering selling some of your material items and converting them to cash for living expenses or for investing. Or, just donate them to charity and potentially get a tax break on donations.

Even though the footprint of your life may be getting smaller, your net worth can actually increase under these circumstances because you may be converting physical assets (house, car, etc.) to investments that can rise in value and generate new income. (See also: 7 Reasons You Need to Downsize)

3. Never spend your principal

In an ideal world, you are spending your retirement living off the gains and interest from your savings, not the savings itself. If you amass enough savings, that sum can by itself generate its own income in the form of interest, dividends, and capital gains, and it may be possible to live on that income alone. You need a lot of money saved to make this happen, but it's a wonderful feeling to know you are living comfortably without ever tapping into the bulk of your savings.

4. Avoid taking on new debt

You may be tempted in retirement to finally buy that beach house, that luxury car, or that set of his-and-hers personal watercraft. This is fine if these are things you saved for, but you can't let yourself go overboard. The last thing you want is to take on new debt that will add to your expenses at a time when your income is drastically reduced.

Borrowing can lead to interest payments, which can lead to more debt, and then you're seeing your nest egg and net worth drop faster than you ever intended. Avoid debt — especially new debt — and you will be in much better shape financially as you age. (See also: What to Do If You're Retiring With Debt)

5. File for Social Security as late as possible

Anyone can begin accepting Social Security benefits starting at age 62, but if you can wait until you're 67 (what the Social Security Administration considers full retirement age), you'll get 100 percent of your benefits. Accepting benefits before your full retirement age means you'll receive lower monthly payments, costing yourself thousands of dollars annually. (See also: 6 Smart Ways to Boost Your Social Security Payout Before Retirement)

6. Continue to invest

It may seem counterintuitive to consider investing when you're looking to protect the income you have. But there is a growing body of evidence to suggest that it's OK to invest in stocks even as you get older. Why? Because people are living longer and are more likely to outlast their savings.

Continuing to invest smartly in stocks can help you increase your savings and make it last longer. It's certainly wise to move most of your money into safer things like bonds and cash, but setting aside a certain portion for stocks could mean the difference between seeing your net worth shrink and watching it grow.

7. Pay as little tax as you can

Hopefully, you've used tax-advantaged accounts such as a 401(k) and Roth IRA to build your retirement savings. When you retire, you no longer have those vehicles at your disposal. But there are some things you can do to keep the government from taking too much. First, you can work to ensure that any income you have is taxed at as low a rate as possible. This means taking advantage of stock dividends and long-term capital gains, which are taxed at lower rates than normal income. It means purchasing tax-free municipal bonds. It means claiming as many deductions as you can on your taxes. Taxes are necessary to keep our society upright, but there's no reason to pay more than required.

8. Avoid bailing out relatives

This is not an argument against helping out your children or other loved ones with financial expenses. But it's important to be thoughtful about how you help and the impact it may have on your finances. Is the money you are giving to your adult child simply throwing good money after bad?

If you are helping to take care of the grandkids, are you being reimbursed for the child care expenses (food, clothes, etc.) you are taking on? Remember that in order to make your retirement funds last, you can't be giving away your savings carelessly. (See also: Are You Ruining Your Retirement by Spoiling Your Kids?)

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This article is from Tim Lemke of Wise Bread, an award-winning personal finance and credit card comparison website. Read more great articles from Wise Bread:

The Right Way to Withdraw Money From Your Retirement Accounts During Retirement

Alicia Rose Hudnett — Mon, 11 Jun 2018 08:00:17 +0000

If you've been a diligent saver, you've probably recognized the importance of having a mix of retirement accounts: a tax-deferred IRA or workplace retirement account like a 401(k), a tax-free Roth 401(k) or Roth IRA, and maybe even a taxable brokerage account. And you probably already know that one way the government "persuades" you to keep your money in your IRA and 401(k) accounts is by imposing a penalty on most withdrawals before age 59½, at which time you can begin taking penalty-free distributions.

When you're finally ready to retire and start taking your distributions, you may wonder how to do it and which accounts you should draw from first. While avoiding taxes shouldn't be your only focus — after all, you've already spent years sheltering your retirement savings — here are some basic tax strategies that can guide you during the drawdown process.

Tax-deferred savings

One of the most popular ways to save for retirement is through the use of a tax-deferred retirement account, such as a traditional 401(k) or traditional IRA. You may have the majority of your savings in these accounts. Contributions to these accounts are made on a pretax basis. This allows you to keep more of your money during the saving and investing years, with the idea being that, although you will eventually be taxed on your withdrawals, you may be in a lower tax bracket than when you contributed the money.

At age 70½, the government requires you to begin withdrawing money from these accounts and to begin paying ordinary income taxes on any untaxed contributions and earnings that you withdraw. This can create a cycle of withdrawing your required minimum distribution (or RMD) or your own determined income need, and then having to withdraw more money to cover the income taxes due, and then having to pay even more taxes on the money you withdrew to cover the taxes due. Anyone inheriting a tax-deferred retirement account will owe taxes on the money as well. (See also: What Every Retirement Saver Should Know About Required Minimum Distributions)

Tax-free savings

Another popular retirement account is a Roth IRA or Roth 401(k), and while there are some significant differences between these two accounts, the fundamental structure of how they work is the same. You contribute after-tax money to the account and, assuming you follow all the rules, your money will grow tax-free and remain tax-free even when you begin qualified withdrawals.

Unlike a traditional IRA, there are no required minimum distributions you must take from a Roth IRA at a particular age. However, a Roth 401(k) does come with RMDs, so it's worth considering rolling this money over to a Roth IRA in retirement, where it will lose the RMD requirement. (Be sure to do this before your RMDs begin because you cannot roll over any amount already required to be withdrawn in the year you're in. So, if you have $10,000 in a Roth 401(k), and are already supposed to take $1,000 as an RMD in 2018, you can roll over $9,000 into a Roth IRA, but will have to take the $1,000 RMD this year.) Because of its tax-exempt and RMD-free status, a Roth IRA can be left untouched to build completely tax-free income for yourself or your heirs for as long as you like. (See also: 3 Financial Penalties Every Retiree Should Avoid)

Taxable savings

To round out your retirement accounts, you may have used a regular taxable brokerage account to invest above yearly retirement contribution limits. When you sell investments in a brokerage account, you may still owe taxes on your earnings. If you sell investments that you've held for more than one year, earnings will be subject to long-term capital gains tax. That rate depends on your tax bracket, but is 15 percent for most taxpayers.

By contrast, when you sell investments that you've held for less than a year, any earnings are considered short-term capital gains and will be taxed at ordinary income tax rates. If your investments have lost money, you may be able to claim those losses on your tax return.

Even though funds withdrawn from your regular investment accounts are taxable, they're still valuable during your retirement years to cover any large expenses or even to pay the income taxes due on RMDs from your other retirement accounts. (See also: Where to Invest Your Money After You've Maxed Out Your Retirement Account)

The years between age 59½ and age 70½

The years between when you turn 59½ and when you turn 70½ can be crucial to your retirement plan. This is the time when qualified distributions are penalty-free, yet it's before you're actually required to take any distributions. If you've left the workforce for full retirement or are working part-time and are now in a lower tax bracket, consider taking distributions from your tax-deferred accounts to both live on and possibly to roll over into a Roth IRA, an account that does not require RMDs.

With little to no income coming in, you can withdraw from your tax-deferred and taxable accounts and pay the ordinary income taxes due at a lower tax rate, or convert some of your 401(k) or traditional IRA funds, which will also be taxable at the time of conversion, to a Roth IRA for further tax-free investment growth. Doing so can help prevent you from being in a position where you have an outsized tax-deferred portfolio from which you have to take those RMDs (or risk paying a 50 percent penalty), whether you need the money or not. (See also: 6 Age Milestones That Impact Your Retirement)

Note that while you can convert a tax-deferred account to a Roth IRA if you're not working, you cannot contribute to a Roth IRA outright unless you or your spouse are earning income from a job.

Figuring out how to spend your retirement savings can be trickier and more complicated than it was saving all of that money, but understanding the different tax implications of your various accounts can assist you in finding the strategy that works best for your situation.

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This article is from Alicia Rose Hudnett of Wise Bread, an award-winning personal finance and credit card comparison website. Read more great articles from Wise Bread:

Stop Believing These 5 Myths About IRAs

Alicia Rose Hudnett — Thu, 07 Jun 2018 09:00:21 +0000

Here's an important life lesson you may not have been told in childhood: You will spend your entire adult working years saving for one main goal — retirement. And one type of retirement account that almost everyone has access to is an individual retirement arrangement, or IRA.

IRAs come in two main formats, the Roth and the Traditional. And while both are valuable, they each bring plenty of confusion regarding some of the rules and regulations about saving in these types of accounts. Here are five IRA myths that may be preventing you from using this valuable retirement-savings vehicle.

1. I can't save in a workplace retirement plan and in an IRA

Even if you currently contribute to an employer-sponsored retirement account at work (such as a 401(k)), you can still direct additional funds into a Traditional or Roth IRA. (See also: 401(k) or IRA? You Need Both)

For Traditional IRAs

Anyone under age 70½ with earned income can make contributions to a Traditional IRA. But if you are covered by a workplace retirement plan, the IRS may restrict the deductibility of your contributions. For 2018, if you are covered by a workplace plan, are single, and make less than $73,000, or if you're married, file taxes jointly, and earn less than $121,000, you can contribute to a Traditional IRA and deduct either all or a portion of your contribution.

If you are single and earn $73,000 or more, or if you are married, file taxes jointly, and earn $121,000 or more, you can still make a nondeductible contribution. When you make a nondeductible contribution to a Traditional IRA, you don't receive an upfront tax break, but your money will still grow tax-deferred in the account.

Note: As an alternative to putting nondeductible dollars into a Traditional IRA, some advisers recommend putting this money into a brokerage account instead. That's because even though money in a Traditional IRA grows tax-deferred, distributions are taxed at ordinary tax rates. Meanwhile, although you receive no tax break for investing in a brokerage account, you may be able to get the more favorable tax treatment on your capital gains when you withdraw those funds in retirement. Having said that, this still doesn't discount the need for an IRA. (See also: Where to Invest Your Money After You've Maxed Out Your Retirement Account)

For Roth IRAs

Whether or not you have a retirement plan at work has no bearing on your ability to contribute to a Roth, but the IRS does impose income limits on who can contribute directly to this type of IRA.

For 2018, if you are single and make $135,000 or more, or if you are married, file taxes jointly, and make $199,000 or more, you are prohibited from contributing directly to a Roth IRA. There is a workaround to this rule called a "Backdoor Roth," which involves making a nondeductible contribution to a Traditional IRA, then converting that to a Roth IRA. This is a common and standard practice, but see a financial planner or tax adviser to determine the tax implications for your own specific financial situation.

2. I don't make enough to contribute to an IRA

Every year that you earn income is an opportunity to save for retirement. The government allows you to contribute a certain amount of money each year into tax-sheltered accounts. If you miss a year, you miss saving for that year forever.

Anyone with earned income under the age of 70½ can contribute to a Traditional IRA, and anyone, regardless of age, with earned income (but within the income limits listed above) can contribute directly to a Roth IRA. Even if you are unable to contribute the maximum allowable amount, make a contribution count every single year. And remember that you have until Tax Day of the following year to make your contribution for the current year. (See also: 5 Dumb IRA Mistakes Even Smart People Make)

3. I can't contribute to an IRA if I don't have my own earned income

Unlike other savings accounts, IRAs must have a single owner and can never be titled as a joint account. And up until now, we've pointed out how the first criteria for contributing to an IRA is having your own taxable compensation. But the IRS does make an important exception to this rule for nonworking or low-income earning spouses by allowing them to piggyback off a working spouse's record of yearly income, whereby all the same rules apply. This is called a spousal IRA. This is a smart way for a couple to continue a diligent savings routine even in a one-income household.

4. I don't need an IRA

Let's get this straight: Everyone needs an IRA. Whether by choice or life circumstances, everyone will retire someday. And retirement is expensive. Even if you are already covered by a workplace retirement plan, an IRA can help you capture and save much-needed excess funds that will help you get by later in life.

If you have extra cash sitting in a savings or checking account (not counting your emergency fund), you can begin transferring that money to fund an IRA. As long as you have earned income for the year, it doesn't matter where the contribution money comes from. (See also: 6 Reasons Every Millennial Needs a Roth IRA)

5. I can't touch my money until retirement

The whole purpose of saving for retirement involves taking a long-term view and allowing your money to grow untouched. And it's true that when you use a tax-sheltered account to save for retirement, there will be penalties if you don't follow all the rules. While you always have access to your own money, there are a few guidelines to keep in mind.

In general, if you are younger than 59½, any money you withdraw from a retirement account will be considered an early withdrawal subject to income tax and a 10 percent penalty. But there are important exceptions to the rule, including for medical reasons or even to pay for some higher education costs.

All direct contributions to a Roth IRA are made with after-tax money, so you always have tax-free and penalty-free access to your original contributions. Note that there are different rules for Roth conversions; but if you follow the rules, you can still gain penalty-free access to your funds after a waiting period and possibly before retirement.

Retirement is your most expensive long-term financial obligation, and you'll need to save as much as you can for as long as you can. Don't let myths and misconceptions steer you away from the value of an IRA.

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This article is from Alicia Rose Hudnett of Wise Bread, an award-winning personal finance and credit card comparison website. Read more great articles from Wise Bread:

How a New Marriage Can Survive Student Loan Debt

Matt Bell — Tue, 29 May 2018 08:30:47 +0000

It's a very common scenario. Girl meets boy, they fall in love, and decide to get married. They're excited about starting their new life together, but they're also weighed down by student loan debt — a lot of student loan debt. As they drag that heavy ball and chain into the future, what steps can they take to tilt the odds of marital and financial success in their favor? If that's your situation, read on.

1. Understand the details

Good communication is essential to the success of any relationship, and while money can be a tough topic, you'll get your marriage off to a great start by getting accustomed to talking about your finances. You might as well dive right in and start with your debt.

No matter which one of you is bringing debt into the marriage, both of you should know exactly how much debt. You should also be clear about the interest rate, the monthly payment amount, and how long those payments will continue.

That will help you to both manage your expectations about when you might be able to buy a house, how much you can spend on vacations, and all the rest. (See also: The 7 Worst Money Mistakes Married People Make)

2. Be one in debt

Marriage is about oneness, unity, and teamwork. You're not becoming roommates; you're becoming husband and wife. So, if one of you was wealthy and the other was not before getting married, after you get married, both of you will be wealthy. By the same token, before marriage, if one of you had debt and the other did not, once you're married, both of you will have debt.

When my friends Scott and Karen Coy got married, Karen had more than $50,000 of nonmortgage debt. Scott jokingly referred to it as "a reverse dowry." After getting married, Karen often expressed how bad she felt about "my debt." But from day one, Scott would correct her, saying it was "our debt."

It took them six-and-a-half years to become debt-free. All that time, they rented even though they would have preferred to buy a house. It took great patience and perseverance.

Karen says she will always remember the day they made their last payment. It was as if a huge weight had been lifted from their shoulders. And looking back, she says the way they navigated the journey — together — created an inseparable bond in their marriage.

3. Consider being two in taxes

If you were using an income-based repayment plan before getting married, how you file your taxes after you get married will matter greatly. If you file jointly, your payment amount may go up. That's because income-based repayment plans require you to "recertify" each year by submitting your income tax returns to your loan servicer, who will now make decisions based on your joint income. So, you may want to consider filing separately, in which case most student loan plans will use just the borrower's income as the basis for recertification.

However, filing separately may make you ineligible for certain tax credits, so proceed with caution. It would be best to consult with an accountant or run some what-if scenarios with tax-planning software.

4. Figure out the implications for your budget

Before deciding where you'll live after you get married, create a post-marriage cash flow plan. What works best is to fill in your financial commitments first. How much of your joint income will you save and invest? How much will you give to charity? And how much will you need to devote to debt repayment?

Then you can see how much you can afford for rent or a mortgage. I usually recommend committing no more than 25 percent of monthly gross income to the combination of your mortgage, property taxes, and homeowners' insurance. If you rent, devote no more than 25 percent to your rent and renters' insurance.

A student loan payment, however, changes the math. I recommend that the combination of your housing and your student loans together make up no more than 25 percent of your monthly gross income. So, you should figure out what percentage of your monthly gross income your loan payment amounts to and subtract that from 25 percent. The answer is the percentage of gross income you could devote to housing while you have student loans.

If your student loans amount to an especially large percentage of your gross income, that may end up being overly restrictive. So, you'll have to adjust other spending categories downward, such as entertainment, clothing, or vacations. (See also: 3 Simple Ways to Split Bills With Your Spouse)

5. Prioritize early payoff

The early years of your marriage present a great opportunity to speed up the process of getting out of debt. If you want to have kids one day, your pre-kid days will be the most financially flexible time you may ever experience. Make the most of it by making extra payments on your loans.

Debt can be a roadblock in the pursuit of financial goals such as buying a home, and it can be a hindrance to a happy marriage. So, consider building your lifestyle on just one income and putting most of the other paycheck toward your student loans. By living an especially frugal life in the early years of your marriage, you'll be setting yourselves up for long-term success. (See also: 7 Ways Paying Off Student Loans Early Can Boost Your Finances)

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This article is from Matt Bell of Wise Bread, an award-winning personal finance and credit card comparison website. Read more great articles from Wise Bread:

5 Myths About Money in Retirement

Emily Guy Birken — Fri, 11 May 2018 08:00:21 +0000

Retiring is an amorphous and complicated goal — which means retirement planning attracts more than its fair share of plausible-sounding myths. Unfortunately, these myths, misconceptions, mistakes, and misbegotten rules of thumb can seriously lead you astray on your path to a well-funded and fulfilling retirement.

Don't fall for any of the following common myths about money in retirement.

1. You need $1 million to retire comfortably

This particular myth holds a unique distinction in that it is wrong in both directions: $1 million is both not nearly enough money for the retirement you're dreaming of, and way too high a number for most people to achieve.

How is that possible?

On one hand, $1 million doesn't go nearly as far as it once did. If you plan for a grand retirement that involves traveling, fine dining, entertainment, and general living-it-up, you will probably find that a $1 million nest egg will not cover all you want to do. In fact, depending on your cost of living and other circumstances, it's entirely possible you could exhaust $1 million with relatively modest retirement spending.

On the other hand, $1 million is a number that is out of reach for the majority of workers. According to a 2016 GoBankingRates survey, 33 percent of Americans have nothing saved for retirement at all. For most Americans, the idea of saving $1 million for retirement may sound too overwhelming to even think about, and they may give up on the idea of saving altogether.

The problem with this myth is that it is slapping a blanket generalization over a very idiosyncratic process — preparing for retirement. Instead of focusing on a nice, round number, calculate your best estimate of how much your own dream retirement will cost. Make adjustments to your dream or the number as necessary. (See also: How to Retire With Less Than $1 Million in Savings)

2. The 4 percent rule

This myth actually has a specific start date. Financial adviser William Bengen proposed this rule in 1994 as a potentially safe withdrawal rate for retirees to make sure their money would comfortably last for the rest of their lives. He based his proposal on historical market data and predictions over where the markets would go in the next 20 years.

Here's how the rule works: Historically, the rate of return on stocks generally hovers around 10 percent. That means a retiree can take 4 percent of their assets each year to live on, without ever touching the principal and still seeing growth each year. For a retiree with a $1 million nest egg, that means $40,000 would be available each year for living expenses, without ever dipping into the $1 million itself.

There is no problem with the 4 percent rule when the market is doing well. The problem with this rule is that it doesn't work during market downturns. In 2008, the market saw a 30 percent decrease overall. Any withdrawals a retiree made during that time took a permanent bite out of their nest egg. Such a retiree either had to accept that permanent bite, or learn to live on less (or nothing) until the market bounced back.

This is why it's a good idea to diversify so that you have some more stable and liquid investments you can count on in bad years, as well as long-term investments that can continue to grow (and recover) over time.

3. Social Security will cover your basic expenses

After paying into Social Security all your life, it's natural to expect the benefits to take care of you in retirement. But Social Security benefits are not now and were never meant to be a primary source of income in retirement. The program was begun in order to provide a safety net to keep seniors from abject poverty.

The average monthly Social Security benefit in 2018 is $1,404 — which is barely enough to cover basic expenses in most areas of the country. It is far better to consider Social Security a supplement to your retirement income than count on it for living expenses. (See also: 6 Smart Ways to Boost Your Social Security Payout Before Retirement)

4. Medicare will take care of your health needs

Something that comes as a nasty surprise to retirees is the fact that Medicare covers less than you might think — and health care in retirement costs more than you might realize.

Specifically, Medicare does not cover the following needs:

Long-term care (the nonmedical help that an otherwise healthy senior might need for daily living).
Self-administered prescription drugs.
Routine dental or eye care.
Dentures.
Hearing aids and exams for fitting them.
Routine foot care.

Of these coverage gaps, long-term care can be the most devastating because the costs for such care can add up so quickly. It is in part because of the cost of long-term care that Fidelity calculated the average cost of lifetime medical expenses for a 65-year-old couple retiring in 2017 to be $275,000. (See also: How to Make Sense of the Different Parts of Medicare)

5. Your taxes will be lower in retirement

One of the few benefits of no longer drawing a paycheck is the fact that you don't have to see Uncle Sam take a cut from it. You may think that once you're retired, all your money is yours free and clear, and the taxman will finally leave you alone.

It doesn't quite work that way.

First, you are going to owe taxes on any money you take out from tax-deferred retirement accounts. Since retirees often have fewer federal deductions and dependents to claim, that means you could be paying a greater percentage of your income to taxes. And don't forget that once you reach age 70½, you will have to take required minimum distributions, which means the size of your distribution (and therefore the size of the tax bite) isn't entirely up to you.

In addition, depending on your retirement income, you may also owe taxes on your Social Security benefits. Altogether, it's good to remember that the taxman always cometh for you.

The truth will set you free

The myths about money in retirement are generally more pleasant than the reality. But as tough as it may be to swallow the truth about how much you need, how much you can withdraw, and how much the government plans to giveth and taketh away, it is far better to be clear-eyed and prepared.

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This article is from Emily Guy Birken of Wise Bread, an award-winning personal finance and credit card comparison website. Read more great articles from Wise Bread:

5 Personal Finance Tasks That Aren't as Hard as You Think

Dan Rafter — Thu, 10 May 2018 09:00:11 +0000

The thought of making a budget or preparing your own taxes makes you want to collapse on the couch and binge watch your favorite TV show. It's understandable: Most people don't consider personal finance to be a fun way to pass an afternoon.

But the truth is, most personal finance tasks aren't nearly as difficult or time-consuming as you think they are. And if you muster up the courage to finally take them on, you can generate a nice financial boost for yourself.

These personal finance tasks aren't as tricky as you think. Give them a go. You'll feel a lot less guilty when you waste three hours streaming old episodes of Battlestar Galactica.

1. Writing a household budget

Drafting a budget is the first step toward making good financial choices. The problem? Making a budget sounds dull and difficult.

The good news, though, is that it doesn't take nearly as much time or effort as many people assume it does. Simply list your monthly expenses that never change — everything from your mortgage or rent payment, to your car payment and insurance costs. Next, list those costs that change each month — such as your utility bill, transportation costs, and grocery spending. Put down an estimate for how much you think you'll spend on these items every month.

From there, list the expenses that are more discretionary, such as eating out or going to the movies. Create a maximum spend for these items each month.

Finally, list the money that comes into your household from salaries, overtime, bonuses, settlements, investments, and any other source that pays out each month. Compare your expenses to your income. Now you know how much leeway you have in your monthly budget and how much you can devote to savings. Best of all? Doing this doesn't have to take more than an hour. (See also: Build Your First Budget in 5 Easy Steps)

2. Building an emergency fund

Financial experts recommend that you have six months' to a year's worth of daily living expenses saved in an emergency fund. That way, if you face an unexpected financial emergency — anything from a $1,000 car repair bill to a job loss — you'll have money set aside and won't have to resort to credit cards.

Building such a large emergency fund sounds intimidating. But if you take it in small steps, you'll find that building this fund isn't nearly as hard as you think.

Start with whatever you can spare each month. If you can only devote $100 a month to your emergency fund, start with that. After a year, you'll have $1,200 saved. If you can save $200 a month, you'll have $2,400 at the end of a year.

The key is to continue depositing whatever you can in your emergency fund. If you do, you'll be surprised at how quickly it grows. (See also: 5-Minute Finance: Start an Emergency Fund)

3. Making a will

Drafting a will not only sounds complicated, it's also not much fun to think about. No one wants to consider their own death. But if you own property and assets, you absolutely need a will to make sure those assets are passed on to your loved ones according to your wishes after you die.

How to do it? Start by titling a blank document with the words "Last will and testament." Then, state your name and write that you are of sound mind and legal age (this is usually 18).

Name the executor of your will — the person who will carry out what your will states after you die — and name a legal guardian to take care of your children if you should pass away.

Your will should include the names of any beneficiaries, the people whom you want to inherit your assets. Usually, this will be your children or spouse. But you can also name friends, charities, other relatives, or organizations.

Finally, list your assets and whom they should go to. This can include your home, your savings, your car, or any other possessions.

Sign the will in front of at least two witnesses. Check with your state; in some, your witnesses can't be beneficiaries. Write down these witnesses' names and addresses. Make sure they sign your will, too. (See also: Here's What Happens If You Don't Leave a Will)

4. Paying your taxes

It can be tempting to hire an accountant or tax pro to do your taxes for you. The truth, though, is that most of us can do our taxes on our own.

Taxes for most people aren't overly complicated. Things only get messy if you rely heavily on freelance income, write off part of your home as an office, or have plenty of deductions that you want to claim. Most taxpayers don't fall into that category. They can file their taxes on their own, especially with the help of easy-to-follow tax preparation software.

So before you spend $600, $700, or more on a professional tax filer, consider doing this on your own. It'll usually take you less than an afternoon. (See also: 12 Things You Should Know About the New Tax Law)

5. Changing your bank

Your bank just closed the only ATM and branch near you. Its online banking function is sluggish and frequently offline. You're ready to make a change — but you don't want the hassle of closing accounts and opening new ones. Here's the good news: Changing your bank doesn't have to be a hassle.

You will have to do the research, of course. You'll have to find a new bank that has branches and ATMs close by. You might even decide to go with an online-only bank. Once you've analyzed your choices and selected a new bank, it's time to open an account. You might be able to do this online, but some banks require you to visit their office in-person. You'll usually need to make a deposit to start your new account.

Once your account is open, you can transfer money from your old bank — hopefully you can do this online — into your new account. But don't close your old account too early: You want to make sure that any checks you've written recently have been cashed before you close that account.

You'll also want to change all your automatic payments before closing your old bank account so that the payments are withdrawn from your new account. Many people have everything from their mortgage payments to their auto loan payments set up as automatic deductions from their checking accounts. Make sure you've switched all of these before closing your old account. And if your paychecks are direct-deposited to your old bank account, you'll have to make that switch, too.

Finally, if you rely on online payment systems such as PayPal, be sure to connect these services to your new bank. If you're lucky, you should be able to set up a new bank account, make these switches, and close your old account mostly from your computer. (See also: Switch to a Better Bank in 5 Easy Steps)

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8 Ways Retirees Can Spring Clean Their Finances

Tim Lemke — Wed, 28 Mar 2018 09:00:07 +0000

So you've finally made the jump out of the working world and into blissful retirement. Congratulations! If you've been careful in your financial planning, you should have plenty of money to sustain yourself for a long time and have a happy post-work life. But even the most well-off retirees could benefit from re-examining their financial situation.

Here are a few ways retirees can get their finances spic and span this spring.

1. Check your spending

After you've spent a large portion of your life amassing a large retirement fund, you may feel like your days of watching every dollar are over. But it's still important to make sure your expenses aren't higher than what your savings can afford. Now that you are home instead of heading to the office every day, you may be spending more on utilities. You may have unreimbursed expenses relating to caring for your grandchildren. That African safari trip may have cost you more than expected.

If you have an annuity or are making regular withdrawals in retirement, it's important to avoid spending more than those payments. Otherwise, you may find yourself lacking in funds down the road. You may be fortunate to live for many more years, but you don't want to go broke along the way. (See also: 6 Ways You Can Cut Costs Right Before You Retire)

2. Meet with a financial adviser

Even retirees who have plenty of money and a good financial plan can benefit from a checkup with an adviser. A good financial planner can help you assess whether your retirement savings are still on track to last and if there are any necessary tweaks. An adviser can also help walk you through any changes to tax laws and explain any changes to the investment landscape. Once you retire, don't just put your head in the sand and assume your money will last as long as you do. A periodic financial check-in with an expert can be hugely valuable to anyone seeking the best retirement possible. (See also: 3 Reasons to Be Picky When Hiring a Financial Planner)

3. Assess your withdrawals

Once you reach age 70 ½, you may be required to make minimum withdrawals from your retirement accounts. The ultimate size of these withdrawals — and whether you decide to start withdrawing sooner — will determine how much you have to live on, and how much you'll have left in your accounts. If you are taking withdrawals already, take some time to determine whether the amount taken out each month is sufficient or too much. (See also: 3 Financial Penalties Every Retiree Should Avoid)

4. Re-examine your will

You remember filling out a will many years ago, but do you remember what it says? Do you still agree with the directives regarding who gets your assets when you pass? These aren't pleasant things to think about, but your family will appreciate it if your wishes are made clear. It may even make sense to discuss this with your children and other family members so there are no surprises or acrimony later. (See also: 6 Times You Need to Update Your Will)

5. Rebalance your portfolio

If you are retired, your investment portfolio should be geared more toward preserving income than growing it. It's OK to own some stocks, but it makes sense to also mix in some bonds, cash, and other more conservative investments. You may think your portfolio is optimized for retirement, but there's a chance it may have gotten out of balance. This is especially true over the last few years when stocks have performed very well.

Everyone, not just retirees, is encouraged to rebalance their portfolios every year. If you haven't taken a hard look at your investments in a while, take the time to see if some smart buying and selling will get you back on the right track. (See also: 7 Reasons to Invest in Stocks Past Age 50)

6. Do a deep dive into your charitable giving

You may finally be in a position to be generous with your money. But are you being smart and strategic about how you are giving to charity?

Charitable donations are not only a wonderful thing to do, they can help you financially by saving you on taxes. If you itemize tax deductions, charitable donations can reduce your tax bill. Donating shares of stock to a charity can help you avoid capital gains taxes. If you are considering donating to charity, come up with a smart plan to support the causes you love as part of a broader tax savings strategy. (See also: 5 Ways Giving to Charity Is Good for You)

7. Assess your health insurance situation

Older Americans can benefit from Medicare, but you may not be eligible if you retire early. And even if you do get Medicare, that doesn't cover every medical expense. Most retirees find that they need to purchase a Medicare supplement plan, as well as additional insurance for eyeglasses, hearing aids, dental work, and other health needs. You'll also need to consider whether long-term care insurance is right for you. Don't assume you are properly insured just because you are eligible for Medicare. (See also: How to Make Sense of the Different Parts of Medicare)

8. Hit the gym and eat better

Exercising may not seem like a financial decision, but in many ways it is. Getting and staying healthy will not only help you enjoy retirement more, but it could help reduce medical bills that may not be covered by insurance. Work to lose weight, lower your blood pressure, and make better lifestyle choices. You may find yourself not only healthier, but wealthier too. (See also: 7 Smart Ways to Invest in Your Health)

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How to Research a Home's Location Before You Buy

Carrie Kirby — Mon, 26 Mar 2018 09:30:19 +0000

When searching for the best qualities in a new a home, you've probably heard that location is everything. There's a reason for that. You can change nearly everything about a house except for where it's located.

To make sure you're going to love where you're located, you'd best research the heck out of your future block, neighborhood, city, and region. Here are the criteria to use when evaluating home locations.

1. The home market

You need to look at current home prices in a neighborhood to figure out not only whether you can afford to buy a house there, but also whether a particular house is priced fairly. In addition to current prices, look at the direction prices have moved over the past five years. Are you buying on the upswing or the downswing?

Realtor.com warns that neighborhoods with a number of houses lingering on the market for years, despite multiple price decreases, might be a warning sign of a bad investment. A good tool for researching an area's market history is Zillow's Home Value Index. Enter the ZIP code and get summaries of the price changes for the past five years, and a forecast for the next year. (See also: How to Learn About Your Home's History)

2. Crime

If you ask around, you'll get a wide variety of subjective impressions about whether a neighborhood is safe. But there is data out there that can give you a more realistic picture.

Trulia's City Guides include crime statistics and neighborhood crime maps for some of the biggest cities. Many city police departments have created their own crime data maps. CrimeReports has consolidated data from 1,000 different departments, searchable by ZIP code.

You can also plug an address into the U.S. Department of Justice's sex offender database to find out how many registered sex offenders live nearby.

3. Walkability

Whenever my family drives through a beautiful (and often expensive) mountainous neighborhood in Marin County, California, I shake my head and say, "I could never live here." Why? Because I like to be able to walk out my front door to run my errands, without getting in the car or worrying about being run down on the edge of the road.

If you're like me, check your future neighborhood's Walk Score, which rates the proportion of your errands that can be accomplished on foot. Highly walkable cities such as New York score in the high 80s, while certain neighborhoods, such as San Francisco's Chinatown (Walk Score: 100), qualify as a "Walker's Paradise." (See also: How to Evaluate a Neighborhood Before You Buy)

4. Public transit

The Walk Score website also ranks ZIP codes by the availability of public transit, a consideration that not nearly enough people consider when buying a house. Besides checking the score, look into how a neighborhood's transit would work for you. Does it go to your work? Would you be able to walk or bike to the train or bus, or would you have to drive there? And if you have to drive, how's the parking situation? Is there a backup form of transit if the main system is down or delayed? Get this information by looking up the websites of the local transit systems, asking locals, and — this is important — trying the commute before you commit.

5. Schools

Since I have three children, the quality of public schools has been a major factor both times we have relocated. For every house I've considered, I've looked up the local school on Zillow, and checked GreatSchools, which provides data on test scores, student progress, equity, and disciplinary issues, as well as reviews.

But schools are much more than just numbers. So if we got serious about a house, I'd dig deeper, researching the school by searching local parent bulletin boards and social media, asking local contacts about the school, and finally, touring the school.

Besides the general quality of a school, you should look at whether the school offers programs that are important for your family — for instance, foreign language instruction or a gifted and talented program. Another question to look into: Are there public charter or magnet schools your child could attend if the neighborhood school doesn't work for you?

Often, being in a better school district can explain why one house costs more than a similar house just a few blocks away. Some families may opt to take the cheaper house and use the money they save to send their kids to private school. It's all part of the equation.

6. Climate

My family once considered a move from Chicago to Montreal for a job. My husband and I figured that, having grown up in Wisconsin, we were used to snow and cold. But one statistic gave me pause: Montreal receives an average 82 inches of snow per year. That's more than twice Chicago's annual total. I realized that, while living in Chicago, not once had I wished for twice as much snow. We moved to California instead.

If you are considering a move to another geographical region, make sure you have a realistic idea of what the weather will be like year round and how that might impact you. How will it affect your utility bills? You might have loved the weather in Florida while you vacationed at the beach, but would you love having to run the air conditioner year round if you lived there?

One place to research weather is U.S. Climate Data, which will give you the average high and low for each month of the year, as well as the average sunshine and precipitation totals.

In this era of climate change, it's also worth considering not just the past, but the future. Check with FEMA's Flood Map to figure out if you'll need flood insurance. And if you are anywhere near the East Coast or Gulf of Mexico, check the national hurricane storm surge maps. Also read up on natural disasters in the area in the past few years. Have there been floods? Wildfires? Ask yourself if you are prepared to deal with more intense versions of those incidents in the future. (See also: 7 Other Kinds of Insurance You May Need to Buy for Your Home)

7. Seismic risk

Surprisingly few people seem to consider earthquake risk when buying a home. My own home sits precariously close to the Hayward fault in the San Francisco Bay Area, which some scientists say is overdue for a major earthquake. It didn't dissuade my family from buying, but we did decide to invest heavily in seismic retrofitting, shoring up our old house's foundation and certain walls to help it survive the Big One when it comes.

If you decide to buy in a quake-prone area, you will need to decide whether to purchase earthquake insurance. You may want an engineer to conduct a seismic inspection to see what has been or could be done to strengthen the structure.

Another consideration in seismic activity zones is the type of earth your home sits on. When my husband and I bought our first San Francisco condo, we found out after the fact that it was in a "liquefaction zone" — an area where the ground could act like a liquid during intense shaking. These homes are built on loose sand or landfill, and are much more susceptible to damage than homes built on more solid ground. You can investigate an area's liquefaction risk on U.S. Geographical Survey maps.

8. Taxes

Property taxes and sales taxes vary widely from one region to another — even from one suburb to another. States levy different amounts of income tax, and some (like Florida) have no income tax at all; check your income tax rate at The Tax Foundation. Sales tax is (literally) all over the map; you can look up sales tax rate at The Tax Foundation as well.

9. Homeowners' association

If you are buying a condo or a townhome, or even a stand-alone house in some communities, you may fall under the rule of a homeowners' association, or HOA. If you've never lived in one before, you might be surprised at the amount of power the HOA has over your choices as a homeowner. For instance, certain types of landscaping or pets might be banned, or you might be required to repaint your house even if you think it looks OK. If there are shared amenities, such as a community pool, there will be monthly dues to pay as well.

It's not enough to ask the listing agent if there is an HOA and how much the dues are. Experts recommend you request and review the past two years of meeting minutes; this is where you'll find out if the current homeowners are considering levying a big assessment for deferred maintenance, for example. You should also investigate whether the HOA's reserves are adequate. (See also: What You Need to Know About Homeowners' Associations)

10. Fun

Researching the location isn't all boring adulting. You'll also want to take a turn in the local downtown or arts district to see what's fun to do. Besides an in-person investigation, you can check a website such as NabeWise, which describes individual neighborhoods in select cities, listing their top attributes and areas in which they're weak. Also look at Yelp, which can give you the lowdown on local restaurants and other businesses.

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This article is from Carrie Kirby of Wise Bread, an award-winning personal finance and credit card comparison website. Read more great articles from Wise Bread:

9 Surprising Ways Marriage Can Make You Richer

Tim Lemke — Mon, 19 Mar 2018 09:00:06 +0000

Marriage can be a wonderful thing, and not just because of the potential for lifelong companionship. Tying the knot can be a great financial decision, too.

When you get married, you'll be eligible for some key tax breaks, and there are a number of other advantages that will ultimately help you build wealth. Take a look at these examples of how marriage can make you richer.

1. There's a larger standard tax deduction

Under the 2018 tax law, every married couple filing jointly is eligible for a standard deduction of $24,000. That's nearly double from the previous law and exactly twice the standard deduction for single people. This standard deduction is more important than ever, as the new tax law does not allow for as much itemizing of deductions. (See also: 12 Things You Should Know About the New Tax Law)

2. You may save on taxes if filing jointly

Much has been said about the so-called "marriage penalty" in which couples could face a higher tax rate if they file jointly. But in truth, this was not an issue for most people, and the new tax law makes it even less likely that married couples will be penalized.

In fact, in most cases under the 2018 tax law, there won't be much difference between your taxes if you file separately or jointly. But it could be very advantageous for couples to file jointly if one spouse makes considerably more than the other.

To illustrate this, let's say you earn $37,000 in taxable income. Under the 2018 tax law, you'd be in the 12 percent tax bracket and pay $4,440 in tax if filing separately. Now let's say your spouse earns $190,000 per year and pays $60,080, based on the 32 percent tax bracket, also filing separately. If you file jointly instead, you'd report a combined income of $227,000 and would be in the 24 percent tax bracket. You would pay $54,480 in tax, a savings of nearly $10,000.

3. You have more buying power

When you get married, you are pooling financial resources. If both of you have assets and income, then you have greater ability to make purchases. It means you may be more likely to afford a down payment on a home, and have more ability to handle the monthly mortgage. It means you may become more attractive to lenders, though it is worth noting that you will still each have separate credit scores.

4. You can contribute to an IRA even if you don't work

If you want to contribute to an individual retirement account (IRA), you must have earned income. But there are exceptions, most notably in the form of a spousal IRA. With a spousal IRA, each spouse can have their own IRA, as long as one of the spouses has earned income. For most people, the limit of contributions on each account is $5,500 annually, so the total contributions allowed for married couples doubles to $11,000. The only catch to a spousal IRA is that couples must file their taxes jointly. (See also: 4 Ways Couples Are Shortchanging Their Retirement Savings)

5. You can receive Social Security spousal benefits

When you file for Social Security benefits, you can file for your own benefits or under your spouse's. Even if you did not earn any income during your life, you can receive benefits through your spouse. Usually, spousal benefits are up to half your spouse's normal Social Security benefit. You'll also be able to receive spousal benefits even after your spouse passes on.

6. You may spend less on health care

There is considerable evidence that being married can make you healthier. Married couples look out for one another. They keep each other on track regarding diet and exercise, and a spouse is often the first person to notice when you appear unwell.

The Harvard Health blog reported in 2016 that married people tend to live longer, are less likely to be depressed, and have fewer strokes and heart attacks. The report also cites studies showing that married people have better immune systems. This potentially means that your health care expenses could be less than if you remained single.

7. You can get health insurance through your spouse

If one spouse has access to health insurance through his or her employer, they can add a spouse to their plan. This is very helpful when one spouse is not employed or is not offered health insurance through their job. In most cases, family plans offer savings over plans for individuals.

8. Auto insurance is cheaper

Generally speaking, auto insurance companies will charge less to married couples than single people. That's because they tend to see marriage as something a more mature person does. Of course, it helps if both drivers have good driving records; if your spouse has a worse driving record than you, you may not see any savings.

An analysis from Carinsurance.com revealed that married couples can typically see savings of 10 to 15 percent in most states. It's worth noting that insurance companies will offer discounts for multiple cars, as well.

9. You can inherit assets from your spouse without a will

To be clear, no one is suggesting you should celebrate when your spouse passes away. But it's worth noting that when you are married, you are usually entitled to inherit their assets, even if you don't have a formal will drawn up. Note: Crafting a will is still a very good idea. (See also: Here's What Happens If You Don't Leave a Will)

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This article is from Tim Lemke of Wise Bread, an award-winning personal finance and credit card comparison website. Read more great articles from Wise Bread:

7 Liabilities That Will Ruin Your Net Worth

Tim Lemke — Thu, 15 Mar 2018 09:30:17 +0000

If you're passionate about personal finance, you know about the importance of building net worth. This means accumulating things that will grow in value, while reducing your liabilities. A person with no debt, a home that they own free and clear, and a sizable retirement account likely has a high net worth. A person with thousands of dollars in credit card debt, a burdensome mortgage, and no cash savings has a low or even negative net worth.

Building net worth is about accumulating money and assets, but it's also about reducing liabilities. In short, it's about making sure debt isn't hurting your ability to achieve your financial goals. Here are some big liabilities that can hurt your chances to build a high net worth. (See also: 6 Money Moves to Make If Your Net Worth Is Negative)

1. Credit card debt

Credit cards can be poison to those looking to generate wealth. Interest rates on credit cards are so high that it rarely makes sense to carry a heavy balance on them. The average household with credit card debt owes more than $15,000 on their cards. It's no wonder Americans are, in general, fairly lousy at building net worth.

Having a lot of credit card debt can hurt your credit score, thus making it more expensive to borrow for mortgages and auto loans. This leads to a nasty spiral that virtually guarantees your liabilities will be larger than your assets. If you have credit card debt, start paying it off as soon as possible. Aggressively reduce your expenses, learn to invest rather than spend, and get out from under the pressure of those crippling cards. (See also: The Fastest Way to Pay Off $10,000 in Credit Card Debt)

2. Car loans

Many people live with car payments as a permanent part of their lives. Financing the purchase of a vehicle is a common practice, but is also an easy way to add to your liabilities while adding very little to your net worth (cars almost always decline in value).

Vehicles aren't cheap, but if you can avoid making car payments over the course of several years, you'll be better off financially. Work to save toward the purchase of a vehicle so payments are minimal or nonexistent. Resist the urge to purchase a new car until the one you have is no longer viable. Avoiding several hundred dollars a month in car payments will free up cash to invest and accumulate assets rather than see your net worth stagnate. (See also: Cutting Your Car Payment Is Easier Than You Think)

3. Unpaid taxes

Yeah, taxes are a pain. No one really feels like paying them. But if you don't pay them, they turn into liabilities that can grow as a result of penalties and fines. Failure-to-file penalties only add to your tax bill, and keep increasing the longer you avoid paying.

If you are employed, most of your taxes are taken from your paycheck, but you still may find that you owe some money on your tax return. Self-employed people must be extra diligent to ensure they are paying taxes on any income they receive. It's also important to make sure you are paying proper real estate taxes on your home, as well as taxes for income gained from your investments. (See also: 8 Tax Return Mistakes Even Smart People Make)

4. Medical bills

There will come a time when you or a family member gets hurt or injured. The expense of hospital stays, surgeries, or ongoing care can be devastating. It's driven many families into bankruptcy and can crush any attempts to boost your net worth.

It may not be possible to avoid medical emergencies, but you can protect yourself by being properly insured. If your employer subsidizes the cost of health insurance, take advantage. If you are self-employed, seek to find a reasonably priced plan through a state or federal health exchange. Insurance isn't always cheap, but it will prevent you from taking on costly medical bills that destroy your financial well-being. (See also: How to Handle a Massive Medical Bill)

5. Student loan debt

We often view student loans as investments in our financial future because an education can help us earn more in our career. But until they are paid off, student loans are only liabilities. If you are still in school, you have some time before you have to start making payments; but once you graduate, those loans can become awfully burdensome. Heavy student loans can force you to take on additional debt just to make ends meet, in turn sinking your net worth even further.

To avoid this, it's important for you and your family to save as much money for college as possible in advance. Take cost and value into consideration when making your college choice, and think about getting a job while in school to help pay for tuition. This may require some tough choices, but avoiding student loan debt will help you get on track for building your net worth much sooner. (See also: 6 Questions to Ask Before Taking Out Student Loans)

6. Your mortgage

Owning a home can be a great way to build your net worth, but that may not be the case if you have a bad mortgage. If your payments are so high that you are unable to save money and invest, it's preventing you from boosting your net worth in other ways.

Borrowing money to buy a home is perfectly normal and has helped countless people get on the path to financial freedom. But it's important to have a mortgage that helps you more than hurts you. Put as much money down as you can so the loan itself is not too large. Get a loan with a low, fixed interest rate with a relatively short term (30-year mortgages are OK, 15-year mortgages are even better).

When you begin paying off your mortgage, you may not be paying off much of the principal of the loan at first. But soon, you'll be making a good dent and building real equity. And that's the path to building net worth. (See also: 8 Signs You're Paying Too Much for Your Mortgage)

7. Home equity loans

It's not uncommon for people to borrow money from the equity of their home to pay for major expenses. There are a variety of reasons why this may make sense. But it's important to be careful when doing this. When you are borrowing from your home equity, you are essentially turning an asset — the equity of your home — into a liability. In essence, you are taking away something that adds to your net worth.

In the long run, borrowing from home equity can help build wealth if you make the right financial choices. For example, you could use money from the equity of your home to make repairs or expand the home, thus boosting its value. And when interest rates are low and market returns are high, it may make sense to borrow for major purchases and use your available cash to invest instead. Just be sure to weigh the risks and rewards before borrowing heavily against the equity in your home. (See also: 4 Smartest Ways to Use a Home-Equity Loan)

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This article is from Tim Lemke of Wise Bread, an award-winning personal finance and credit card comparison website. Read more great articles from Wise Bread: