The halfway point in a fairly uneventful economic year is a good time to assess your finances. You might want to rebalance your investment mix and check on credit reports, taxes and Social Security.
The year is half over, so take a step back and assess your financial situation.(Photo: Getty Images/iStockphoto)
The midpoint of the year can be a good time to step back and assess your financial situation. Here are a few things to consider:
Check up on Social Security
A solid majority of recipients start collecting prior to full retirement age, generally from 66 to 67, even though doing so locks them into lower monthly payments. A bird in hand might be worth two in the bush. But when it comes to Social Security, the bird in the bush is bigger.
Social Security bases retirement benefits on each worker’s average lifetime earnings, extending for up to 35 years. It’s wise to review your personal earnings history and estimate the payments you might receive. You can estimate your potential benefits at socialsecurity.gov/estimator.
You also can check your earnings history and benefits potential on your annual statement at socialsecurity.gov/myaccount. The Social Security Administration no longer mails statements to all covered workers each year, sending them instead at five-year intervals. But you can access your statement at any time online.
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Review tax planning
It’s smart to occasionally review things like the amount withheld from paychecks and your estimated tax payments, if any.
It’s also not too early to start thinking about taxable investment gains or losses. The basic rule is that you can offset capital gains with capital losses. You can use losses to shelter up to $3,000 in ordinary income per year. You have until the end of December to lock in taxable gains or losses affecting your 2015 tax picture, but some planning never hurt.
Home sales are nearing a six-year high. For sellers, a key benefit is the ability to avoid some or all taxes on capital gains — up to $250,000 in profits for singles or $500,000 for joint filers. To qualify, you must have owned and used the home as your main residence for at least two of the past five years.
Planning for same-sex couples
The Supreme Court ruling on the constitutional right of same-sex couples to wed is an opportunity for legally married gay couples, or those considering marriage, to ponder tax planning as joint filers. This has been the case for federal returns since 2013 but now will extend to all states with income taxes. In many cases, filing as a married couple won’t cut taxes and might boost them.
At the federal level, for example, many deductions or credits phase out for married couples at less than double the phaseout ranges for singles, effectively hurting couples, said Mark Luscombe, a principal tax analyst at Wolters Kluwer Tax & Accounting U.S. This includes several tax breaks tied to saving for retirement or college.
Bob Lind, a tax-return preparer in Phoenix, cites the example of an unmarried couple who own a house together, where one partner earns significantly more than the other. If the lower earner takes the standard deduction but the higher-earning partner pays and claims most of the deductible expenses — such as for mortgage interest, property taxes, charity donations and so on — it could translate into overall tax savings for the couple.
But if the couple were married, they wouldn’t have this opportunity. “Many of my newly married couple clients find their taxes going up, sometimes significantly,” Lind said.
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Check rates, fees, credit
It’s wise to review interest rates on your credit cards every now and then, along with various fees, as these things change from time to time. Many economists consider higher interest rates all but inevitable. That would prompt credit card companies to start sending out rate-hike notices and could close the door on attractive deals such as 0% introductory offers.
It’s also smart to assess fees charged by your banks. The latest survey by Bankrate.com noted record high charges for ATM use, overdraft fees and certain account-maintenance charges. While you’re at it, sign up for computer or cellphone alerts that notify you when you’re at risk of triggering a fee, such as when your balance is getting low. Alerts also can signal unauthorized activity in your account.
And be sure to obtain free credit reports through annualcreditreport.com. You’re allowed one free report each year from each of the big three reporting bureaus — Experian, Equifax and TransUnion.
Pay attention to saving, investing
With the economy continuing to grow and more people finding jobs, the opportunity is there for more people to pad their cash reserves and long-term investments. Many Americans are lagging in these areas — for example, 64% of respondents to a survey by the Employee Benefit Research Institute indicated they’re behind in retirement planning.
The first step should be building up cash in a liquid account for unexpected emergencies. Then it’s smart to invest for the long haul. Tax incentives encourage the use of Individual Retirement Accounts and workplace 401(k)-style accounts. With the latter, try to contribute at least enough to take full advantage of employer matching funds. Modest-income workers often can get a subsidy by taking advantage of the federal retirement Saver’s Credit. It’s available to singles earning up to $30,500 in 2015 or married filers making up to $61,000.
If you haven’t rebalanced your investment portfolio lately, don’t worry. The market has been so flat this year that adjustments might not be needed. But stocks eventually will stumble, and bond prices also could get whacked by rising interest rates. The time to assess the riskiness of your investment portfolio is before things get jittery.
Reach the reporter at russ.wiles@arizonarepublic.com or 602-444-8616.
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