Retirement Insights

News and information for current and future retirees.

10 Things You Need to Know Before Filing Your Tax Return

Here are 10 things every taxpayer needs to know about filing taxes this year.

1. Taxes are due April 15

Believe it or not, federal income taxes haven’t been due on April 15 since the 2019 filing season, thanks to various holidays, quirks of the calendar and other unusual events, (think: pandemic). For the 2024 filing season, however, the deadline is April 15 — with a few exceptions.

If you lived in a declared disaster area, the IRS may have given you an extension. You can find the areas with extensions available through the IRS. Residents of Maine and Massachusetts have until April 17 due to respective state holidays.

2. It’s easy to get an extension

You can get an automatic filing extension for your 2023 tax return until Oct. 15. All you have to do is fill out and file IRS Form 4868 by April 15. The catch – and it’s a big one – is that you must pay your taxes by April 15, even if you have an extension. But you’ll dodge the failure to file penalty, which is much higher than the failure to pay penalty.

The penalty for late filing is 5 percent of the amount due each month, and the failure to pay is 0.5 percent a month, and maxes out at 25 percent. (When both penalties are levied in the same month, the total penalty is 5 percent a month: 4.5 percent for failure to file and 0.5 percent for failure to pay.) You’ll also owe 8 percent interest on the unpaid taxes.

3. There’s a special tax form for seniors

If you’re having trouble reading IRS Form 1040 — your main income tax form — consider IRS Form 1040 SR, U.S. Tax Return for Seniors, which is designed for older taxpayers with aging eyes. The form has larger type than the regular 1040. It also has a chart for calculating your standard deduction — a good way to ensure that taxpayers 65 and older take the larger standard deduction to which they are entitled.

4. You get a higher standard deduction if you’re 65 or older

The standard deduction reduces your taxable income — and by quite a lot. The standard exemption for single filers and for those who are married but filing separately is $13,850 in the 2023 tax year, up $900 from the 2022 tax year. For married filers, the standard exemption is $27,700, up $1,800 from 2022.

The standard deduction gets even better if you’re 65 or older. Each joint filer 65 and older can increase the standard deduction by $1,500, for a total of $3,000 if both joint filers are 65-plus. In total, a married couple 65 or older would have a standard deduction of $30,700. Single filers 65 or older get an extra $1,850 standard deduction.

5. Charitable contributions can be hard to deduct

One thing that’s not so swell about the standard deduction: It makes it harder to claim itemized deductions, such as charitable donations. A married couple who are both 65 or older would need $30,700 in deductions to make itemizing worthwhile.

In the 2021 tax year, a married couple could deduct $600 of charitable gifts without itemizing. Sadly, that deduction has vanished from the tax code.

READ MORE @AARP.ORG

How to Stay Mentally Sharp Into Your 80s and Beyond

There isn’t a silver bullet to maintaining mental acuity or warding off dementia, scientists of aging say. But a combination of genetics, healthy lifestyle habits and factors such as cleaner air and good education have been linked to prolonged mental agility.

Vernon L. Smith, 97, is a very busy man.

The economist at Chapman University just finished writing a book about Adam Smith and works about eight hours a day, seven days a week in his home office in Colorado Springs, Colo. He enjoys chatting with friends on Facebook and attending concerts with his daughter.

“I still have a lot of stuff to do. I want to keep at it,” said Smith, who won the Nobel Prize in economics in 2002.

Recent memory flubs by President Biden, 81, and former President Donald Trump, 77, have kindled debate about how to stay mentally sharp into your 80s and beyond.

There isn’t a silver bullet to maintaining mental acuity or warding off dementia, scientists of aging say. But a combination of genetics, healthy lifestyle habits and factors such as cleaner air and good education have been linked to prolonged mental agility.

Three of Smith’s grandparents lived into their 90s, and an ancestor on his mother’s side lived to 105. But genetics are a small piece of the puzzle, scientists say. Smith has never smoked, eats healthy food, and is physically active and socially engaged—all behaviors linked to longevity and maintaining mental sharpness into later life.

“The healthier you are in the whole body, the better your brain responds to the aging process,” said Dr. David Wolk, a neurologist at the University of Pennsylvania.

Cognitive performance peaks in healthy adults in their 20s and 30s, Wolk said. Over time, the brain shrinks, its outer layer thins, deeper regions become scarred, and communication between neurons can become less efficient.

Stay engaged

These brain changes can cause memory, reasoning and other cognitive skills to erode. But some people can stave off cognitive decline better than others, said Yaakov Stern, a neuropsychologist at Columbia University.

Their brains might be more resilient to change or have better “cognitive reserve,” the ability to adapt to brain changes, Stern said. Genetics is thought to play a role in brain maintenance, as does diet, exercise and a person’s risk of vascular disease. More education, mental stimulation and social connectivity have been associated with improved cognitive reserve.

Better brain maintenance and cognitive reserve might help keep symptoms of dementia at bay. Almost 50% of people 40 and older think they will likely develop dementia, according to a 2021 AARP survey. The actual number of U.S. adults 65 and older with dementia is closer to 10%, a 2022 study found.

Many people don’t know that healthier habits can lower the risk of developing dementia, scientists say. Some 40% of cases globally could be delayed or prevented by lifestyle or environmental changes, including reducing obesity and limiting exposure to air pollution, according to a 2020 report in the medical journal the Lancet.

Try tai chi

Sleeping too little—or too much—can also lead to cognitive problems. Activities including yoga and tai chi, the Chinese martial art, could help improve cognitive function, research suggests.

Hearing loss is a risk factor for dementia, too. Lost hearing might cause the brain to atrophy more quickly and can make people more isolated, said Dr. Dung Trinh, chief medical officer of the Healthy Brain Clinic. Hearing aids can help preserve mental fitness.

“Our brain is like a muscle. Use it or lose it,” he said.

Researchers studying “super agers,” people over 80 who have mental faculties of people decades younger, said strong social relationships are important for keeping brains sharp.

The same is true for people who live beyond 100, said Stacy Andersen, a behavioral neuroscientist at Boston University and co-director of the New England Centenarian Study.

“They have a purpose. They have things they want to go out and do every day,” Andersen said.

Smith says his work and his family keep him motivated and driven.

“I want to go to at least 106,” he said.

READ @MSM.COM

Maintaining a retirement budget

Making a budget may not be the first thing you look forward to in retirement, but it’s one of the most important things to do.

For many people, the budgeting process stalls before it really gets started. That’s often because they worry about the details of their discretionary (nice-to-have) spending instead of looking at the big picture. Start by understanding your essential (must-have) expenses and how you can use guaranteed sources of income, like Social Security, pensions, and annuities, to pay for them. 

Then create your discretionary budget by focusing on categories of spending—such as travel, gifting, and entertainment—rather than trying to account for every dollar you’ll spend. A good practice is to match these nice-to-have expenses with income from individual retirement accounts (IRAs) and other tax-deferred retirement savings accounts.

Get organized

Plan ahead and think about the life you want to live in retirement, based on what you can afford. You need to know the details of your recent spending patterns, and determine whether your overall spending will go up, go down, or stay the same in retirement.

To start, tabulate your average monthly expenses like cable, telephone, and electric bills and know how much money is coming in versus going out. If you use credit cards, go online and look at year-end summaries to see where you spent the most money last year. Do the same with online bank statements. Next, identify your ongoing monthly bills and determine whether you need to continue all these services. Then look through your past bills and online bank statements to identify work-related expenses that you may no longer have to pay now that you’re retired. Lastly, categorize expenses into “essential” and “discretionary” (see below).

Essential expenses

Cover essentials first, starting with health care.

 

According to the Fidelity Retiree Health Care Cost Estimate, an average retired couple age 65 in 2023 may need approximately $315,000 saved (after tax) to cover health care expenses in retirement. An average individual may need $157,500 saved (after tax) to cover health care expenses in retirement.

Health care: You may be covered by Medicare and an insurance plan from your former employer, but even so, your supplemental premiums and out-of-pocket costs may continue to rise, over time.

Find out about health coverage, both before you’re Medicare-eligible and after.

Housing: If your home is paid for, good for you! But don’t forget to add utilities, maintenance, and possibly larger home repairs. A good rule is to budget at least 1% of your home’s value for annual maintenance. So, if your home is worth $400,000, then budget approximately $4,000 per year for standard repairs, general upkeep, or accessibility upgrades.

Transportation: No longer having commuting costs is a big bonus of retiring, but your transportation costs won’t drop to zero. Most people don’t retire to sit around the house, so remember to include the cost of gas or public transportation for trips to activities, as well as vehicle maintenance expenses. If you are considering buying a new or used car, add that expense too.

Food: Although you may not be eating out at lunch with colleagues, overall expenditures on food will likely remain constant. Now that you’re retired, it might be a great time to do some fun things like taking cooking lessons or entertaining for friends and family.

Discretionary spending

Once you have accounted for your “must-haves,” you can begin budgeting for discretionary items, such as dining out, going to the movies, and those bucket-list adventures you’ve been dreaming of.

Travel: How you budget for travel will depend on the types of trips you’re contemplating—weekend getaways, long vacations, or visits to family and friends. For short jaunts, you can build a monthly expense into your budget, putting the money you don’t use into a pool for spending later. If you are planning for longer vacations, add a vacation fund to the budget.

Entertainment/dining out/gifting: You probably already have a good idea of how much it costs to go to the movies and dine out, but many people forget to include money they use to buy gifts for family and friends. If your budget allows for it, consider larger gifting priorities—such as giving money to future heirs to minimize inheritance taxes or contributing regularly to charities.

Stick to your income plan

A well-designed retirement income plan should be backed by an investing strategy that provides opportunities for your assets to generate earnings and helps your income keep pace with inflation. But investment returns will vary, and that, along with unexpected expenses, may require you to build some flexibility into your budget. One solution is to express your discretionary spending as a range. That way, you can choose to put aside unspent money in months when your costs are at the bottom end of the range and use it during months when your discretionary spending may be higher.

READ @FIDELITY.COM

Want to Travel the World in Retirement?

Could you travel the world in retirement? It’s a daydream that’s crossed just about everyone’s mind at one point or another—quit work, sell the house, pack a suitcase, and head out into a life of travel. But what if you turned that daydream into your retirement reality?

Here’s a look at what it takes to spend retirement not relaxing at home, but discovering a whole new world through travel. Use these steps to think through what this kind of life transformation would truly be like and how well it fits your personality and your reality.

Determine Whether You’re Really Ready

There’s a lot of planning involved before embarking on a life of travel, and that planning starts with an honest assessment of your readiness for this kind of life. While there are no right or wrong answers, you need to ask yourself the following questions:

Do You Really Love to Travel—or just Take Vacations?

It may seem obvious, but there’s a big difference between a week-long vacation and a life based on travel. Do you like packing, flying, finding shelter, and all the other inconveniences involved with traveling? Or is a week or so on vacation enough to satisfy you? Are you willing to “rough it” if that’s what it takes to afford extended travel?

Do You have Obligations that Require You at Home?

If you are caring for elderly parents, disabled children, or grandchildren, you will probably find it very difficult to hit the road indefinitely.

How’s Your Health?

While you don’t need to be in perfect health for a life of travel, you do need to be in good enough health to cope with the stress of life on the road. If you have a serious or chronic health issue, check with your doctor before making long-term travel plans. Because Medicare does not cover health expenses incurred outside the United States, you’ll need travel insurance to cover any medical emergency.

Look at Your Financial Situation

World travel does not come cheap—a one-week-long international trip can cost $5,000 or more for two people. If you’re planning on staying abroad considerably longer than that, you’ll need to take steps to prepare financially. Extensive travel requires a healthy nest egg, but the exact amount depends a great deal on your expectations.

If you want to stay in upscale hotels throughout Europe or North America, you’ll need a hefty bank account before heading out. If you are willing to stay in modest accommodations—hostels, inexpensive motels, rented apartments, or campgrounds—you can travel quite inexpensively. Visiting countries in the developing world is another way to save big—in many places, you can travel on just a few dollars per day.

Whether you plan on several big trips a year, or a more permanent life on the road, your itinerary needs to start with an honest look at all of your retirement savings, including money in the bank, investments, Social Security, pensions, and any income from rentals or businesses.

If you haven’t set up your retirement savings and investing plan to accommodate frequent or full-time travel, you’ll need to seriously reexamine your retirement income plan. Once you know what you have to work with, you’ll be able to assess how much you can budget for daily expenses while traveling. A good financial consultant can help you analyze your investments to identify problems or any potential for improvement.

If you are taking a major plunge, such as heading out for a year or more on the road, it’s time to consider the ultimate in downsizing—selling your home and the majority of your possessions to finance your excursions. This is not a decision to make lightly, take at least several months to investigate all the details involved, speak with your family and friends, and consult with your financial advisor.

Another option is renting out your house while you travel, which is a good option if you want to return home eventually. Otherwise, one thing you’ll need to determine is a permanent address for receiving mail and such, while you are on the road.

Consider Budget-Friendly Retirement Travel

While flying first-class to a luxury hotel is certainly enjoyable, it isn’t normally part of a travel-based retirement. Instead, look for options that keep your budget under control. Along with choosing destinations that are known for their low cost of living and staying in inexpensive lodgings, you can cut costs in many other ways.

Try a Repositioning Cruise

Cruise lines offer these discount trips when they need to move a ship from one port to another, usually during the off-season. Unlike typical cruises, the ship will not return to the port of origin but will stop at several ports on the way to the end destination. (Some people even go on to retire on cruise ships, at least for some period of their lives.)

Volunteer 

If you want to do good while seeing the world, consider a volunteer vacation. Options range from two years in the Peace Corps to a few days spent working in the fields of an organic farm, and just about everything in between. Generally, you’ll pay a set price that covers your food and lodging during the volunteer stint, usually much less than the trip would cost otherwise. There are volunteer vacation opportunities all over the world.

Work As You Go

You can replenish your bank account by working during your travels. Teaching English abroad, writing a blog or book based on your experiences, working as a virtual assistant or other online jobs, and starting a small import-export business are all possibilities.

Swap Houses

If you aren’t selling your home, put it to work supporting your travels. The typical house swap involves you and another homeowner moving into each other’s house for a stated period of time. It’s a great way to vacation abroad if you want to stay a week or more in one location. Sites like International Vacation Home Exchange make it easy to find an available home and provide safety measures for your peace of mind.

House Sit

Cover the cost of your lodgings by house-sitting for a family that is doing some traveling of their own. In return for staying in the home for free, you might be expected to take care of pets, water plants, or perform simple maintenance. Check out TrustedHousesitters.com to get a feel for house-sitting jobs around the world.

The Bottom Line

While some retirees are happy to spend time relaxing at home and visiting with friends and family, others long for a more adventurous lifestyle. If you fall into this category, and you’ve always dreamed of seeing the world, a retirement spent circling the globe might be the answer to your dreams. You might even retire abroad for some of that period, perhaps in several different countries over time.

READ @INVESTOPEDIA.COM

 

According to SHRM, a 2021 Employee Benefits Survey conducted by XPertHR showed that roughly 82% of employers studied matched a portion of their employees’ contributions while the remaining 18% didn’t provide any matches at all.

Source: shrm.org, 2021

Did you know?

Looking for the best beach of 2023?

According to Forbes, the best beach of 2023 was St. George Island State Park, the Florida Panhandle. This long barrier island, far from urban areas, is a favorite destination for crystal-clear water and white sand. 

Source: Forbes.com, May 2023

On the Bright Side

Investment Advisory Services offered through Trek Financial LLC., a (SEC) Registered Investment Adviser. Information presented is for educational purposes only. It should not be considered specific investment advice, does not take into consideration your specific situation, and does not intend to make an offer or solicitation for the sale or purchase of any securities or investment strategies. Investments involve risk and are not guaranteed, and past performance is no guarantee of future results. For specific tax advice on any strategy, consult with a qualified tax professional before implementing any strategy discussed herein. DISCLOSURES

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