The 12 “Financial” Days of Christmas
November 30, 2011In the spirit of yuletide caroling, allow me to introduce a new song for the holidays.
♪On the first day of Christmas my true love gave to me… one extra annual payment on my mortgage.
ü Did you know that making one extra payment on your mortgage every year can shave almost 5 years off of a 30-year mortgage? That could save you tens of thousands of dollars over the life of your loan. See how extra payments can save you money.
♪On the second day of Christmas my true love gave to me… a 2% reduction in Social Security taxes.
ü The normal Social Security tax rate to employees is 6.2%, but under the current Obama administration tax plan, employees only pay 4.2% Social Security tax (and there are proposals to drop it even further). If you took that extra 2% and put that in your 401(k) or other retirement savings account for the next 30 years, someone making $50,000 a year could have an additional $83,000 in their account (assuming a 6% annual rate of return). See how much 2% a year could mean for you.
♪On the third day of Christmas my true love gave to me… $3k in capital loss deductions.
ü Every year investors claim capital gains and losses on Schedule D, but did you know that if your capital losses exceed your capital gains, you may deduct these losses from income up to $3,000 a year? If your loss is more than this limit, you can carry the loss forward to later years. That could save you up to $750 a year in income taxes (if you are in the 25% tax bracket). See IRS Tax Topic 409 for more details.
♪On the fourth day of Christmas my true love gave to me… a 4% distribution from my retirement accounts.
ü Employees often ask if there is an appropriate amount to plan on withdrawing from retirement accounts after retirement. Many financial experts suggest limiting retirement plan distributions to 4% or less a year. Distributing 4% a year from a nest egg earning 3% annually will deplete the nest egg in 25 years (assuming a 3% rate of inflation). See how long your retirement nest egg could last.
♪On the fifth day of Christmas my true love gave to me… 5 ways to own gold.
ü Sure, you can own 5 golden rings (or any other precious metal for that matter), but physical gold is just one form of ownership. If you’re looking for an easier way to buy and sell this commodity, consider mutual funds, exchange traded funds (ETFs for short), or even individual stock in gold mining companies. For the experienced investor, options (i.e. puts and calls) may be the preferred way to add exposure to your portfolio.
♪On the sixth day of Christmas my true love gave to me… 6 individual income tax brackets.
ü Knowing which tax bracket you fall into may help you decide between a traditional and Roth retirement savings plan (see To Roth, or Not to Roth), but income tax brackets may not be the only reason to contribute to a Roth IRA. Learn why fellow blogger Erik Carter, JD, CFP® loves his in Why I Love the Roth IRA (and You Should Too).
♪On the seventh day of Christmas my true love gave to me… until age 70 to collect my Social Security benefits.
ü Some of you know you can collect Social Security benefits starting at age 62, but what you may not know is that you can defer benefits until age 70. The longer you defer benefits, the higher they will be, and starting next year you will no longer receive a paper statement telling you what you can expect. To request an estimate of your Social Security benefits (at any age), go to http://www.ssa.gov/estimator/.
♪On the eighth day of Christmas my true love gave to me… 8 keys to financial security.
ü From investing in yourself to giving generously, Knight Kiplinger, Editor in Chief of Kiplinger publications, gives his insights on how to live a financially secure life.
♪On the ninth day of Christmas my true love gave to me… a 9-9-9 plan I can really embrace.
ü Herman Cain may have his idea of tax reform, but Forbes contributor and fellow blogger Carter shares his ideas on the 9-9-9 plan we really need.
♪On the tenth day of Christmas my true love gave to me… the rule of 102 for investing.
ü The rule of 100 (I know, 102 is a stretch) simply suggests subtracting your age from 100 to determine the appropriate percentage of assets that should be “at risk” in your portfolio. For example, a 35 year old should have approximately 65% of their assets in investments, such as stocks, which are subject to market risk. Although this is a rule of thumb, the amount you should have “at risk” also depends on your tolerance for market volatility along with other factors.
♪On the eleventh day of Christmas my true love gave to me… 11 financial books to read in 2012.
ü Blogger Trent Hamm offers up the 11 financial books that make up his essential bookshelf.
♪On the twelfth day of Christmas my true love gave to me… 12 years to double my money (at a 6% rate of return).
ü According to the “rule of 72” the time it takes for your money to double in value is approximately equal to your annualized rate of return divided into the number 72. Based on this axiom, if you earn a 6% rate of return, your money should double in value in approximately 12 years.
I don’t expect it to be the next “Jingle Bells,” but I personally find it a lot more valuable than two turtle doves and a partridge in a pear tree. 🙂