4 Ways to Protect Your Retirement Investments From Your Emotions

We like to think that we make rational financial choices, but that isn't always the case when it comes to our money. Our personal financial decisions are frequently influenced by our emotions. Due to our inability to think long term and our fear around losing money, we make bad investing decisions all the time. Luckily, you can take some pretty basic steps to protect yourself from your irrational side when it comes to preparing for retirement.

Automate your investing. First, you should automate your investing whenever possible. Automated investing keeps you stashing away funds even when it seems like money is tight in your everyday life. If also keeps you from frittering away your funds on spending that feels good now before you can save that extra cash.

The first step is to enroll in your employer’s retirement plan, which will automatically deposit a portion of your paychecks in an investment account. If you’re self-employed or your employer doesn't provide a 401(k), you can set up an automated deduction to a retirement or investment account at the beginning of each month.

Also, remember to automate increases in your investing. When you get a raise, direct at least part of the “new” money to your retirement account right away. If you never see it hit your checking account, you’ll be much less tempted to spend it frivolously.

Get acquainted with your risk tolerance. Your risk tolerance basically means how willing you are to lose money in the market. If you have a high tolerance for risk, you might be able to get better returns on your investments, but it also comes with the possibility of losing more of your capital.

Everyone needs to find a balance between the risks and rewards of investing. But you need to determine your own personal level of risk tolerance. Will you lose sleep if your portfolio’s value drops dramatically overnight? Or can you ride out the market downturn knowing that things will turn back up eventually?

While some people like to micro manage their investments, a buy and hold strategy typically works best for most people. This means potentially holding some investments as they lose value while you wait for them to regain value.

If you can’t handle watching your investments rise and fall in value – or if you can’t afford to lose money because you’re nearing retirement – select less risky investments. This is why experts recommend shifting your portfolio from stocks into more bonds as you near retirement age. You can never completely eliminate risk from your portfolio, but you can mitigate it.

Consider target-date investing. One way to remove your emotions from your retirement investments is to let someone else make the decisions. Robo advisors offer services that make decisions based on a risk tolerance quiz when you open your account.

Another option is to choose a target-date retirement fund from a traditional investment brokerage. Target-date funds automatically adjust your portfolio based on how long you have before retirement. The gradual shift from stocks to bonds occurs without any input from the investor, which can help you make solid investment choices while being fairly hands off.

Imagine your future. Finally, take time to imagine your future as a retiree. It’s easy to overspend in the moment rather than saving money for later. One way to combat this is to take time to envision your retirement and what you want it to look like. If you want to fulfill a dream of spending retirement on the beach, then you better start saving today.

Source: https://money.usnews.com/money/blogs/on-retirement/articles/2017-10-25/4-ways-to-protect-your-retirement-investments-from-your-emotions

IRS issues 2018 inflation-adjusted tax tables and many other tax provisions

On Thursday, the IRS issued the annual inflation adjustments for 2017 for more than 50 tax provisions as well as the 2017 tax rate tables for individuals and estates and trusts (Rev. Proc. 2017-58). These provisions are used to file tax year 2018 returns in 2019.

Most provisions are increasing for inflation in 2018, including the personal exemption, which increases from $4,050 in 2017 to $4,150 for 2018. The standard deduction for married taxpayers filing joint returns increases to $13,000, $300 more than in 2017. It also increases slightly for single taxpayers and married taxpayers filing separately to $6,500. The standard deduction increases for heads of household, from $9,350 in 2017 to $9,550 in 2018.

Under the new tax table, the income level at which married taxpayers filing joint returns are subject to the highest bracket of 39.6% increases from $470,700 in 2017 to $480,050 in 2018. Single taxpayers are subject to the 39.6% tax rate on income over $426,700 in 2018, increased from $418,400 in 2017.

The limitation above which itemized deductions may be reduced on 2018 individual tax returns begins for single taxpayers with incomes of $266,700 or for married couples filing jointly with incomes of $320,000.

The maximum earned income tax credit amount for 2017 is $6,444 for taxpayers filing jointly who have three or more qualifying children, up from $6,318 for 2017.

The revenue procedure also contains the inflation-adjusted unified credit against the estate tax, which increases from $5.49 million in 2017 to $5.6 million in 2018.

The alternative minimum tax exemption amount for 2018 is $86,200 for married taxpayers filing joint returns and $55,400 for single taxpayers. The Sec. 911 foreign earned income exclusion increases from $102,100 for 2017 to $104,100 for 2018.

The annual deductible amount for taxpayers who have self-only coverage in a medical savings account also increased slightly. For 2018, the plan must have an annual deductible that is not less than $2,300 and not more than $3,450, increased from not less than $2,250 but not more than $3,350 in 2017. For self-only coverage, the maximum out-of-pocket expense is $4,600, $100 more than for 2017. For tax year 2018 participants with family coverage, the floor for the annual deductible is $4,600, up from $4,500 in 2017. The deductible cannot be more than $6,850, up $100 from the limit for tax year 2017. For family coverage, the out-of-pocket expense limit is $8,400 for 2018 up from $8,250 for tax year 2017.

The revenue procedure also includes inflation adjustments for the Sec. 24 child tax credit, the Sec. 25A lifetime learning credits, the gift tax, the adoption credit, the Sec. 221 deduction for interest on qualified education loans, and many other provisions.

Source: https://www.journalofaccountancy.com/news/2017/oct/2018-irs-inflation-adjustments-201717689.html?utm_source=mnl:cpald&utm_medium=email&utm_campaign=20Oct2017

U.S. baby boomers fall behind in paying off mortgages: Fannie Mae

Older American homeowners are trailing the prior generation in paying off their mortgages, complicating their finances if they carry the loans into retirement, a report from Fannie Mae released on Thursday showed.

This lag has persisted even with an improving economy since the last recession and a housing recovery in the aftermath of the housing bust in the late 1990s, Patrick Simmons, Fannie Mae’s director of strategic planning, wrote in the article.

The baby boomer generation, or those born in the 1946 to 1965 as defined by the Census Bureau, amounts to 33.4 million households.

Fewer of the oldest baby-boomer homeowners, who were 65 to 69 years old in 2015, were mortgage-free when compared with their pre-boomer counterparts who were the same age in 2000, according to Simmons.

This group’s outright homeownership without a mortgage was 49.4 percent, 10 percentage points below the pre-boomer group at the same age.

The expected mortgage-free rates among younger baby-boomer homeowners were estimated to run higher than the oldest boomers. For example, the rate for the youngest boomers is estimated at 58.0 percent, just under 2 points below that for pre-boomers.

”However, even with the post-recession acceleration in free-and-clear homeownership, Boomers appear unlikely to attain mortgage-free retirements at the same rate as the predecessor generation,” Simmons said.

The oldest of the baby boomers, who are already past the traditional retirement age, with mortgages were more than three times more likely to experience a housing cost burden than were those who owned their homes outright, he said.

“The relatively high incidence of housing debt among Boomer homeowners has the potential to strain their retirement finances,” Simmons said.

Possible ways for these older borrowers to ease their financial burden include refinancing to pare their monthly payments, shorter-term mortgages that accelerate full loan repayment and moving into a less expensive home, he said.

Source: https://www.reuters.com/article/us-usa-economy/u-s-payrolls-shrink-in-september-after-hurricanes-harvey-irma-idUSKBN1CB0D3