MONEY MONDAY 3/19/18
Make sure you're saving enough: As a general rule, Simply Money wants you to be saving 20% of your take-home pay. That means, if you're making $50,000 a year, you should be saving $10,000 a year.
But countless workers today are nowhere close to that goal. The average household aged 56 to 61 has just over $163,000 in savings. How do you stack up?
How much you save is literally one of the only things you can control about your retirement. You can't control markets and the return you get; you can't control what Congress does about Social Security; you can't control the economy. So take this seriously because retirement is all on YOU.
Make sure you're not underestimating your retirement expenses: It's easy to assume your expenses will go down in retirement. And while certain expenses, like commuting, might go away, most of your bills, like electricity, clothing, phone service, and food will stay the same.
In fact, you may come to find that certain expenses go up in retirement -- particularly healthcare. Not only that, but nearly half of U.S. households spend more money during the early years of retirement than they did when they were still working, so don't make the mistake of assuming your bills will automatically shrink.
This is one of the big reasons we at Simply Money believe in paying off your mortgage BEFORE you retire! Your retirement budget will be a whole lot more flexible if you're not forking over $1500 a month to the bank!
Make sure you don't rely too much on Social Security: 1 out of 3 retired workers depend on Social Security to provide 90% or more of their income. And frankly, that's just unrealistic. Those benefits, in a best-case scenario, are designed to replace roughly 40% of your income.
If you're assuming you'll mostly get by on Social Security, and can therefore manage with minimal savings, you're in for a rude awakening. Social Security should be viewed as a SUPPLEMENT to your retirement savings.
And while everyone's situation is different, this is why it makes more sense to wait as long as you can to claim your Social Security benefits: the longer you wait past full retirement age, the higher your monthly check will be - which will help cushion your cash flow in your later, more vulnerable years.
HERE'S THE SIMPLY MONEY POINT
If you can save 20% of your take-home pay, put together a workable retirement budget, and be smart about Social Security, you'll be on your way to a much more successful retirement.
Every Sunday, Simply Money is answering your money questions in the Cincinnati Enquirer.
Susan from Florence: My mom recently passed away and left me with some GE stock. She always told me never to sell it, and I want to honor her wishes, but I know the stock is struggling. I’m not sure what to do. Please help!
Using the wrong filing status: There are five primary ways to file: as single, married filing jointly, married filing separately, head of household and qualifying widow(er) with dependent child. You can’t just pick a filing status that sounds good — you can only use one you actually qualify for.
People who recently married or divorced also are especially prone to using the wrong filing status, which results in botched returns, overpaid or underpaid taxes, and other headaches
If your state has legal separation, which not every state does, that counts as divorce for taxes, but otherwise if you’re technically married on Dec. 31, you’re married and you have to file married.
And single women receiving child support often don’t realize they may be able to use the head of household filing status.
Claiming the wrong dependents: Two people can’t claim the same person as a dependent. Divorced couples mess it up all the time by mistakenly claim the kids as dependents, or neither does
This is also easy to get wrong when your kids leave for college. Depending on the circumstance, you can still claim a college student as a dependent.
Filing late because you can't pay: Sometimes people decide to file their tax returns after the April deadline because they can’t afford to pay to the IRS what they owe. But that just compounds money problems.
Late-filing penalties typically cost 5% of your unpaid tax for each month your tax return is late. And late-payment penalties run 0.5% of your unpaid tax for each month your tax payment is late. That’s just at the federal level, and it excludes interest.
And remember, filing an extension doesn’t get you more time to pay. It’s just an extension of the time to file.
Making really bad assumptions: People often use the same tax software version for far too long. It can be easy to assume that what worked last year also will work this year. But events such as buying a house, having a baby or getting married can create more-complex tax situations. So always make sure your tax software functionality matches what you need.
HERE'S THE SIMPLY MONEY POINT
Doing your taxes yourself can save you money -- just be sure you understand what you're doing!