50% Return on Investment?

People often quote the old adage "If it seems too good to be true, it probably is," without acknowledging the "probably is" part.  "It probably is" doesn't equal "It absolutely is".  Being able recognize the difference is often what separates the "haves" from the "have nots".

DISCLAIMER:  I AM NOT A TAX ADVISOR.  THIS IS NOT TAX ADVICE.  YOU SHOULD CONSULT WITH A TAX PROFESSIONAL REGARDING THIS BEFORE TAKING ANY ACTION.

For those who are in the niche to take advantage of it, here is the not-to-good-to-be-true opportunity of 50% (initial) return on investment (ROI).  This is from the instructions for IRS Form 8880. (Link includes form and instructions.)

Often called, "the saver's credit", it should be available to (again, consult your tax advisor)  a person whose Adjusted Gross Income is under $19,250 (or $38,500 for married filing jointly) for 2019 taxes. Voluntary contributions up to $2,000 result in a tax credit of .5 (50%) of the contributions, with lower credits for those with AGI up to $32,000 for an individual.  Here are a few of my favorite things regarding this:

• It applies to money put into a Roth IRA, not just traditional IRA.  
• Because of filing deadline moved to July 15, deadline to contributing to or opening an account for 2019 tax year has also moved.
• If a person is on the edge of qualifying for a higher credit or for the credit at all, your tax advisor should be able to tell if a contribution would reduce the AGI resulting in a higher credit.
• Once an account is established, it's much easier to contribute for the current and future years.
• Increased retirement savings!

It definitely is a niche since there are a lot of things that would disqualify someone from getting the credit such as being claimed as a dependent or being a full-time student.  And many of those making $32,000 or less are not going to have the money to save.  But here are some situations that may work.  You can probably think of more.

• Semi-retired person who is working but doesn't "need" the money from work.
• Young part-time student or non student with low expenses because of living with parents.
• Person with assets but lower earned income for 2019 (and/or expected for 2020) tax year because of not working part of the year or reduced hours, intentionally or involuntarily.
• Person with intentionally low expenses and intentional low taxable income.
• Person who gets a Covid 19 stimulus payment but doesn't "need" the money.

Bottom line:  If in the right niche, $2,000 contribution to retirement savings gets a $1,000 tax credit, AND the $2,000 is still in the retirement savings.

If your tax advisor says it's a good idea and you need helping set up an IRA or Roth IRA, I am happy to help.  Since it's still the month of 4/20, I'll make the gratuitous Willie Nelson reference.  "If you've got the money, honey, I've got the time".

Money Is Time, Part 2

Do you consistently calculate how much time a purchase costs you?  Try it some time.  Or all the time.  It will definitely change how you spend money when you also consider that you are buying time.

I've heard others talk about this, but the ones I've heard don't do it completely.  They usually say something like, "To calculate how much an item costs you in time, divide the cost of it by your hourly wage.  That will tell you how much time you have to work to earn the item".  So a person making $25 per hour would have to work 4 hours, or half of a work day to pay for a $100 item, right?  Not right.

I'm using estimations and round numbers here, but let's start with sales tax.  It's conservative to put it at 5%, meaning that you need to pay $105 to get it.  Assuming free shipping.  Or if you are going somewhere to buy it, you're going to spend money on gas, wear and tear on the car, or bus fare, or whatever.  Plus the time to get there.  Put that into your calculations too.

If you've ever had a paycheck, you know you don't bring home 100% of your hourly wage.  80% would be a very high percentage, so it would be generous to figure $20 per hour, so 5+ hours of working to cover the item.  If you have an unpaid lunch break your up to at least 6 hours.  If you have a commute, probably add another hour.

So in this case, the real time cost of a  $100 item is more than 1/4 of one of the limited number of days this person has on the earth.  He or she is never going to get that time back.  I hope it's worth it.

Try making the calculations with your own numbers.  It's eye opening.  For me, it's been a great help in getting me to not make frivolous purchases, increase my earnings per hour so things cost me less time, and to get more enjoyment from the smart purchases I make.  It's worth every minute.

I Don't Know Why They Call It "Common Sense"

For day two of 100 days of writing for publication I am publishing this list of common mistakes I see people make regarding retirement.  I have been thinking about doing this for years, but have never decided if I want to make it a series of blog posts, a brochure, a speech, a magazine article, a book, or all or none of those things.  I still haven't decided, but I know I won't get any of them done without getting started, so I'm going to make it a chunk of this 100 days, for a start.


I often tell new customers, "I like to think I'm smarter than everyone else, but my wife and kids will tell you otherwise.  It's not that I'm smarter, it's that I work with this stuff every day, while you are dealing with it for the first time".  One huge advantage I have right now is that I have been working with another agent for several years who is in his 80's.  Supposedly I'll take over his customers when/if he ever retires.  He has customers he has worked with for 30+ years, so I often tap in to their 20/20 hindsight.




I don't want to make it a "Top Ten" type of list because sometimes on those the focus turns to whether #3 should really be # 5 instead of how to solve both #3 and #5, regardless of where they are in the hierarchy.  However, there is a clear #1, so this post will focus on it, and it will be the theme I consistently refer back to when discussing the others.  Speaking of the others, here are the main others, in no particular order.  (I keep thinking of more, but I need to sleep some time.)

• All or almost all of savings tax-deferred
• Unrealistic picture of what will/won't happen when one spouse outlives the other
• Basing decisions on averages
• Lack of communication with children and others
• Lumping everything together instead of separating out "paychecks" and "playchecks"
• Basing decisions on how long they think they will live
•  Basing decisions on how good or poor they think their health will be in retirement
• Spending too much or too little (much more common with people I see) early in retirement
• Doing the same thing that their friends, relatives and/or parents do or did, ignoring how those people's situations vary from their own
• Having only a saving plan, not a spending plan
• No plan for how to take Social Security and/or pension
•  Having way too much or way too little insurance
• Focus on how much money they have (or don't have) rather than how much they can or can't spend after the bills are paid
• Worrying too much about how long they will live instead of how well they will live

The biggest problem by far, however (which could be argued to be the main cause of all the other mistakes), is not having a basic understanding of general principles of finances.  I am constantly amazed how little most people know and understand regarding taxes, interest, dividends, cash flow, insurance, and general accounting.  You don't have to be a genius or an expert, but you do need to at least have a rudimentary grasp of the language so you can converse with the experts you hire.    Without that, you can't even ask the most basic questions to make sure you are doing the right things.  You'll be like the people I often work with who say things like, "I don't really understand this, but I trust you, so I'll just do what you think is best".  Lucky for them, I am honest and do what is best for them, but it is just luck on their part.  Make your own luck.  Educate yourself.


Here are a couple of places to start.  I don't agree with everything these guys say (could be a whole other series of blogs there), but they are fairly easy to read, and you can join groups to learn that way if you aren't a reader.  The nice thing about them is that they've both sold enough books that you can find them at Goodwill for a buck or less.


http://www.daveramsey.com/home/


http://www.amazon.com/Ed-Slott/e/B001IGOQNC


 http://www.amazon.com/Rich-Dad-Poor-Teach-Middle/dp/1612680011