June 17, 2018
Every week, Simply Money’s Nathan Bachrach, Ed Finke and Amy Wagner are answering your financial questions in The Cincinnati Enquirer. If you, a friend, or someone in your family has a money issue or problem, please feel free to send those questions to firstname.lastname@example.org
Tom in West Chester: I just saw that Social Security needs to pull money from its trust fund this year. I’m 54. Should I be worried about my retirement?
Answer: You’re referring to the latest news from the Social Security Administration that reveals the program’s costs will exceed its income this year. This means, for the first time since 1982, the program will have to dip into its trust fund to cover benefits. While this move was expected, it was not initially supposed to happen until 2021.
Likewise, the program’s trustees confirm that in just 16 years, Social Security will only be able to pay about three-quarters of promised benefits to retirees if no changes are made to the system. So, for example, if you’re expecting to get $1,200 a month, it would be something closer to $925 a month.
So should you be worried about your retirement? It depends.
If you’re planning to rely on Social Security payments for 100 percent of your retirement income, you need to ask yourself if you can live off three-fourths of what you are expecting if the worst case scenario plays out. That would probably be tough for most people.
Ideally, Social Security should just be one of many retirement income streams at your disposal, so be sure you’re saving and investing now on your own. That way, if you don’t get your full promised benefit, your retirement lifestyle and budget won’t be impacted too severely. If you do get your full promised benefit, it’s like icing on the cake.
The good news is that Social Security can never truly disappear or “go broke” – as long as there are workers paying into the system, you’ll get something. But for the program to function properly, Congress needs to step up and make some necessary (and potentially difficult) changes before 2034.
Here’s The Simply Money Point: As you approach retirement, Simply Money Advisors wants you to rethink the notion of your monthly Social Security benefit being guaranteed no matter what.
Always remember there’s a chance that benefit you’re banking on for retirement could be less than what you’re currently expecting.
Dana from Cold Spring: I have stock holdings that I’m thinking about selling, and if I do, I’ll have some significant capital gains. Is there any way I can reduce these taxes?
Answer: There are two main factors that determine your capital gains tax: your adjusted gross income (AGI) and the length of time you’ve held the stock.
If you’ve owned your stock for less than one year, you’ll have to pay short-term capital gains tax. This means that money is taxed as ordinary income (like your wages). If you’ve held your stock for longer than a year, you’ll be taxed at the long-term capital gains tax rate, which is lower than ordinary income tax rates. Furthermore, if you’re in a low enough ordinary income tax bracket, you’ll pay zero long-term capital gains tax.
If you have any capital gains loss, that could help as well. For example, let’s say you sold a stock for $5,000 in profit and sold another stock for a $5,000 loss. This would essentially mean you wouldn’t owe capital gains tax – the figures cancel out. If you intend on selling your stock for a profit, review your investments and see if you have had any losses that may take the sting away from your capital gains tax.
Another option would be to gift the appreciated stock to charity. It’s a win-win: you’ll get a tax deduction, you won’t have to pay any capital gains taxes, and the charity gets a donation.
The Simply Money Point is before moving forward with selling your stock, speak with a tax professional and a financial planner (we recommend a CERTIFIED FINANCIAL PLANNER™ or Chartered Financial Consultant®) to help you determine all tax implications and how selling the stock plays a part in your personalized financial plan.
Responses are for informational purposes only and individuals should consider whether any general recommendation in these responses are suitable for their particular circumstances based on investment objectives, financial situation and needs. To the extent that a reader has any questions regarding the applicability of any specific issue discussed above to his/her individual situation, he/she is encouraged to consult with the professional advisor of his/her choosing, including a tax advisor and/or attorney. Nathan Bachrach and Ed Finke and their team offer financial planning services through Simply Money Advisors, a SEC Registered Investment Advisor. Call (513) 469-7500 or email email@example.com.