CURRENT TOPICS

RETIREMENT PLANNING: DON'T LET FEARS OF SOCIAL SECURITY PARALYZE YOU

Who believes Social Security will be around for them? Hands? About 6 out of 100 of the millennial generation raised their hands.

Wealth advisor Scott Hanson would probably be on their side. He says every study shows that Social Security is unsustainable in its current form.

But few people think the program can or will stay in its current form. Instead, young people will probably at some point be taxed more and there might be a means test for the program. That means, if you've prepared well, invested wisely, you might lose your contributions in favor of those who didn't do either.

Hanson advises well healed people to consider taking their social security early, while people who will rely on it for all their retirement living should take it late and try to
accumulate savings.

At Harvard Business School, professor Michael Norton says you can improve the odds of accumulating money. Quoted in Bloomberg Business Week, he says:

"Focus on specific things for which you're saving. How many times a week do you want to eat out when you retire? How about a summer in Paris or a world tour? Forgo new swimsuits now, and you're that much closer to adding a pool. These kinds of goals make saving more enjoyable.

TAX DEDUCTIONS FOR MIDDLE CLASS FAMILIES

There are many tax deductions targeted at middle class families. Taking full advantage of them is important particularly for dual income couples because not taking them creates a good chance they'll get hit by the marriage penalty, when two individuals pay more in taxes as a married couple than as individuals.

  • Buying a home. You'll be eligible for the mortgage interest deduction, mortgage points and real estate taxes. If you borrow against the home with a home equity line of credit, up to $100,000 in interest is deductible, no matter how you use the money.

  • Starting a family. The child tax credit takes $1,000 off your tax bill and you can claim it every year until our child reaches 17. Parents with an adjusted gross income of $110,000 or less are eligible.

  • You may also be eligible for a tax credit for child care. For children under age 13, you can get a tax credit of 20 percent to 35 percent for up to $3,000 in child care expenses, or $6,000 for two or more children. Also deductible are the costs of a nanny, preschool, before or after school, child care and summer day camp.

  • Saving for retirement. One often overlooked tax break is the Saver's Tax Credit. If you're married and have an adjusted gross income of $59,000 or less ($29,000 for singles) you can claim a credit for 10 percent to 50 percent of the amount you save, up to $2,000 for joint filers. Those not covered by a plan at work can deduct an IRA contribution up to $5,500 per year for each spouse, $6,500 if you are 50 or older.

  • Saving for college. Depending on your state, you may be able to deduct a portion of your 529 college savings plan from your states taxes.

HELOCS ARE PREFERRED . . . BORROWERS ARE AGAIN TAPPING THEIR HOME EQUITY

With home values on the rise and interest rates at near record lows, more homeowners are borrowing against their properties. Home equity lines of credit, or Helocs, and
home equity loans were up 8 percent in the first quarter when compared to last year. And banks are marketing them in areas where home prices have risen, according to Inside Mortgage Finance.

At Wells Fargo, Helocs and home equity loans were up by 33 percent in 2013 and are rising strongly again. "That is the number one product that customers want," says Kelly Kockos, Wells Fargo senior vice president of home equity.

During the housing boom, Helocs were used to finance home improvements, buy new cars and boats and to send children to college. This time, lenders seem to be offering Helocs only to borrowers with good credit and who are in locations where home values have risen.

According to the mortgage information site, HSH.com, during the boom, homeowners could borrow up to 100 percent of their home's value. Now the maximum may be 80 percent to 85 percent. Lenders are very conservative.

Some lenders, however, are even bringing back piggyback loans which serve as a second mortgage and cover all or a part of the traditional 20 percent down payment when purchasing a home.


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