by Joe Hearn | Mar 5, 2013 | Taxes
Your tax bill will vary in retirement depending on which state you call home. Some states are tax-friendly to retirees and their income. Others, not so much. Once you no longer have a job anchoring you in place, you have more freedom to evaluate your options. To help do that, here are three questions to ask.
1) What are my sources of retirement income? The typical retiree gets his or her income from a variety of sources. Some of the more common sources include a pension, Social Security, part-time work, IRA distributions and dividend income. Different states tax those income sources differently. States like Alaska, Florida, Texas, South Dakota, Nevada, Washington and Wyoming have no personal income tax at all. More than half of the states exempt Social Security benefits from tax. States like Illinois and Mississippi exclude income from retirement plan distributions. Nearly two dozen states exempt military and government pensions. As you mull over where you want to retire, think about your income sources and then work with your financial and tax advisers to determine your potential tax burden in the states you’re considering.
2) How will I spend my retirement income? Just because a state has low or no income tax doesn’t mean that your tax bill will be low. Some states, like Alaska, have a genuinely low tax burden. Other states, like Arizona, have low income taxes, but high sales taxes. Depending on how you spend money during retirement, a high sales tax (or a high property tax) can be just as much of a burden as a high income tax. In short, beware the tax “shell game” that some states play. Rather than genuinely trying to reduce the tax burden, they simply change which pocket they take it from.
3) What other factors should I be considering? When deciding where to retire, taxes are an important piece of the decision, but they aren’t the only piece. Don’t get so hung up on your tax bill that you forget to consider things like proximity to family and friends, climate, cost of living, quality of medical facilities, entertainment options and outdoor activities (e.g. mountains, oceans, etc.). Make your decision based on all those factors and you’ll not only have a fun, meaningful retirement, but you might even have a little extra money in your pocket to pay for it.
~ Joe
by Joe Hearn | Feb 22, 2013 | Lifestyle Design, Pursuits, Retirement
Note: Welcome to all the new readers who found us from the article I did at MarketWatch this week. I’m glad to have you on board. In today’s post I’m sharing that article with IR readers, so sorry if you’ve already seen it.
I have always looked up to Theodor Geisel, better known to millions as Dr. Seuss. As a writer myself, one of the qualities I admire most was his ability to take complex ideas (e.g. learning to read, racial equality, materialism) and make them engaging and easy to understand for readers (e.g. The Cat in the Hat, The Sneetches, How the Grinch Stole Christmas).
Having read a biography on Seuss, I knew that his birthday was just around the corner (March 2), which got me thinking: If Seuss were still with us, how might he have used his considerable talents to explain a complicated and sometimes boring topic like retirement planning?
Of course we’ll never know, but I thought I’d use his rhyming and poetic meter as inspiration and take a stab at it myself. The result is the poem below called ‘Someday’ is Here!
‘Someday’ is Here! [Click here for an illustrated version]
Finally!
You’ve made it.
After 40 years and a day
Of working and toiling and slaving away.
You’ve got money in the bank
And time on your hands
Now is the time to make some great plans.
There’s only on problem
A big concern, really.
If you want a great life then you really must hurry.
You see, all these years
You’ve heard experts opining
That your primary worry should be money and timing.
Those are vital, for sure.
But, take care to remember
If life were a calendar
You’d be in September.
The clock keeps on ticking
It gets louder each year.
You’ve spent years saying “Someday”
Well, “Someday” is here.
It’s time to stop dreaming
And actually DO.
That is my primary advice for you.
So how does one start?
Where to begin?
Grab a pencil and paper and let’s jump right in.
The first thing to do is to ask yourself this:
What types of things bring retirement bliss?
Don’t try to please others.
We’re talking about you.
What is it that YOU’VE always wanted to do?
Maybe that’s travel or volunteering to help others.
What would it be if you had your druthers?
Once you know that, then you’re well on your way.
But there are a few other things I should probably say.
First, don’t forget friends.
In life they’re the glue.
They hold everything together.
Otherwise it’s just you.
And while friends are important,
Don’t forget about your spouse.
If you’re happy together
You’ll have no reason to grouse.
So work on your friendships and marriage for sure.
What else? Let me think?
There are two or three more.
Oh yes. Now with plans and people in order
You can shift your attention and start to re-order.
Your priorities that is. Your To-Do list is jumbled.
With all sorts of things you should probably fumble.
Get rid of the extra and purge the redundant.
Once you do that life will be more abundant.
So that’s a few things that will get you ahead.
But remember, they won’t help a bit if you’re dead.
So get yourself healthy and lose the spare tire.
If you need a few pointers, call your doc and inquire.
Before we wrap up, a quick review.
What are the things you really MUST do?
Have money and plans. Relationships too.
A good healthy body and priorities not askew.
Do each of those things and you’ll be ahead by a mile.
Because those are the things that make retirement worthwhile.
[Click here for an illustrated version of the poem.]
Enjoy your weekend!
Joe
I originally published this article at MarketWatch.
by Joe Hearn | Feb 15, 2013 | Health, Medicare
It’s no secret that prescription drug costs can put a big dent in your retirement budget. What you may not know is that the cost of those drugs can vary (sometimes drastically) based on which pharmacy fills your prescription.
The assumption is that drugs have set prices and every pharmacy charges the same price for the same drug. The reality is that pharmacists charge what they want. If you have a high deductible health plan or you’re in the “donut hole” on the Medicare Prescription Drug plan, going to the wrong pharmacy can mean much higher out-of-pocket costs. Until recently, there was no tool to compare what different pharmacies were charging for a certain drug in your area.
Doug Hirsch and Scott Marlette have changed that. They were early employees at Facebook until eventually moving on to pursue other ventures. One day Doug had a prescription that he needed to have filled. The price of the drug at his regular pharmacy seemed really high, so he shopped around and found that the cost varied significantly. Long story short, they figured out a way to create a huge database of drug prices from all over the country and launched a new website called GoodRX where people can enter a drug name and their location and get a comparison of what pharmacies are charging.
To get an idea of the diversity of prices, I went to GoodRX and compared prices on a variety of different drugs. For some drugs, the prices were very consistent from pharmacy to pharmacy. For others, there was a huge difference. For example, I looked up a variety of drugs used in the treatment of colon cancer. The high and low for my area are listed below.
Leuprolide—High: $436.17, Low: $188.52
Taxotere—High: $640.61, Low: $275.12
Flutamide—High: $50.14, Low: $29.20
As you can see, those are some pretty wide swings. If you visit the site, you’ll notice that there are coupons available for many drugs and there is also a mobile App available so you can check prices while you’re actually in the pharmacy.
Have a great weekend!
Joe
Photo by Wil Taylor. Used under Creative Commons License.
by Joe Hearn | Feb 13, 2013 | Lifestyle Design, Pursuits, Travel
It may seem counterintuitive, but spending your money can help you be a better saver. Let me show you what I mean.
How successful would Olympians be if the Olympics were held every 40 years instead of every 4? Not very, right? Most athletes would burn out long before they made it to the actual competition. That’s because it’s impossible to always be in “preparation” mode without experiencing some sort of “payoff.” For athletes, the training and sacrifice needs to be counterbalanced by cheering crowds and medal stands.
Relating that to retirement planning, it’s tough to sacrifice, save and be disciplined with your planning decade after decade without having some sort of payoff along the way. I don’t think it’s a coincidence that Americans work longer and take fewer vacation days than almost any other developed country and we’re also woefully underprepared for retirement. We’re asking people to be all wind up and no pitch.
Taking a break can remind you why you’re saving in the first place. After spending a little time at the beach or touring around Europe you might find yourself saying “I could get used to this.” When you get a taste of the reward, you’ll probably be more likely to put in the effort.
So take that vacation. Have a little fun and enjoy life now. It will probably give you the incentive you need to save for the long haul.
Incidentally, I try to eat my own cooking here at IR. The photo in today’s post is the sunrise in the Cayman Islands last week. I finished up the test I mentioned in the last post (I passed!) and got on a plane the next day for a trip with some friends. After a week of 80 degree weather, sand volleyball and scuba, one of the first things I did when I got back was to increase my 401(k) contributions. 🙂
Have a great week!
Joe
by Joe Hearn | Jan 24, 2013 | Happiness
Quick note: As you may have noticed, I’ve been writing a little less frequently the last several weeks. I’ve been burning the midnight oil studying for an exam I need to take for work. That will be out of the way soon and I’ll be back to posting a few times per week. Onward to today’s article.
Since happiness is an almost universal goal (especially for retirees), I periodically write about what, according to the latest research, makes us happy. Today is Part 3 in that series. Feel free to go back and check out Part 1 and Part 2 if you missed them.
I was browsing through Netflix recently looking for something to watch and I came across a documentary with the eye-catching title of “Happy.” The filmmaker interviewed researchers as well as regular people from all walks of life in 14 different countries in order to get an idea of what makes people happy.
According to the research our individual happiness is attributable to three areas:
- Genes: 50%
- Circumstances: 10%
- Intentional Activity: 40%
Looking at the glass half empty, we have very little control over a majority of our level of happiness. We don’t control our genetic makeup and our circumstances are often the result of what Warren Buffett calls the ovarian lottery (for example, being born in the U.S. instead of the slums of Kolkata).
Looking at the glass half full, we can still have a huge impact on our level of happiness by being intentional with how we spend our time. [Side note: This site is called Intentional Retirement for a reason.] With that in mind, what kinds of activities can we focus on that will help increase our happiness level? The film lists several:
- Focus on activities that release dopamine. Dopamine is the chemical in our brain that is responsible for feelings of pleasure. Our bodies naturally produces less dopamine as we age, but you can boost those levels through diet, exercise, game playing and cultivating happy relationships. In other words, you will be happier if you cut out the junk food, go hiking, play chess (or engage in other fun activities) and spend time with family and friends.
- Vary what you do. Sometimes having a routine makes life routine. Vary your day. Try new things. Learn new things. Meet new people. That variety leads to increased happiness.
- Get off the hedonic treadmill. I talked about this concept in Part 2. Rather than spending your money on more stuff that you will quickly get used to, spend your time and money on experiences that have a longer happiness shelf life.
- Have a close, supportive family. Every happy person the film studied had a close, supportive family. It wasn’t a perfect family and they didn’t get along with everyone in the family, but they had key family relationships that were healthy, loving, and encouraging.
- Work on something bigger than yourself. Focusing exclusively on your own wants and needs can be fun for awhile, but it eventually grows stale. Have a mission that is bigger than just you and involves things like helping others or volunteering.
- Focus on Intrinsic Goals rather than just Extrinsic Goals. People focused on Extrinsic Goals (e.g. money, image, status) reported less happiness and more depression than those focused on Intrinsic Goals (e.g. personal growth, relationships, a desire to help others).
So it turns out that achieving happiness shouldn’t be that hard. The things we love doing—play, experiences, friends, good food, meaningful activities, being thankful, helping others—are also the things that are the building blocks of happiness.
~Joe
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