Social Security is America’s retirement system for most retirees. Advisers recommend that Social Security should comprise 40% of your retirement income. That’s just economic ideology that isn’t rooted in reality. For most of the middle class, Social Security benefits represent over half of their retirement income. That wouldn’t be so bad if Social Security benefits weren’t subject to ordinary income tax. To many American retirees, taxing Social Security is a broken promise. As recent as three years ago, many politicians promised not to alter Social Security benefits for the Baby Boomers. But in the stealth of night the Congress, shut down the “file and suspendâ€� option for most Boomers and transferred the monies to support the near bankrupted Social Security disability fund. Many Boomers lost between $20,000 and $30,000 dollars due them. Social Security benefits generally paid a cost of living increase, but over the last seven years, the increase was either slight or none at all, i.e. not keeping pace with the real cost of living. To protect Social Security benefits from being taxed, you have to defend two access points: one is Social Security income itself and other investments that are includable in the provisional income test for   Read more…

Cash Value Life Insurance designed as a Non Modified Endowment Contract (non MEC) can generate tax-free collateralized policy loans and withdrawal of basis tax-free as long as the policy is kept in force for the life of the policy insured. Therefore cash value life insurance in this scenario is a life-long buy and hold position, beyond the traditional long-term horizon timeline. There are four types of cash value policies to choose from based on your risk tolerance and product suitability for your financial goals: Participating Whole life, Universal Life, Indexed Universal Life and Variable Universal Life. The crediting methods for each policy type have advantages and drawbacks. You should seek out an insurance professional who understands the rules of engagement to generate tax- free income from these types of cash value polices.  Home Equity Conversion Mortgage (HECM) is an FHA insured HUD program for seniors over age 62. HECM has several options to choose from in using home equity. One of those options is tax-free income from collateralized equity loans from your home, which can generate a lump sum or an annual payout. The payout schedule can be for a limited time as an income strategy to delay Social Security   Read more…

Health Savings Accounts are the most under utilized tax advantaged funding vehicle available for tax-deductible contributions up to $3,400 for individuals, $6,750 married couples and an additional $1,000 for those over age 55. The IRS also allows a one-time maximum tax-free transfer of $6,750, (or $7,750 if you’re age 55 or older), once in your lifetime from an IRA to an HSA account. Keep in mind that you can’t transfer and make an annual contribution in the same tax year. The tax-free distributions from the HSA account can only be used for medical expenses and insurance premiums for long-term care, disability, medical and Medicare. One huge benefit is the ability to use your HSA account at any time. There’s no waiting until age 59½ like other qualified retirement accounts. The distributions are tax-free and are not includable in the provisional income test for Social Security. The odds are that you will use this account throughout your lifetime for medical expenses and related insurance premiums. Roth IRAs are not tax deductible, but they accumulate tax deferred and distributions are tax-free and are not includable in the provisional income test for Social Security benefit taxation. The maximum annual contribution for individuals is   Read more…

The largest block of retirement savings in America is in ERISA qualified defined benefit and defined contribution plans: totally tax deductible. But as a consequence of using an ERISA plan comes the loss of recoverable basis. All ERISA qualified plan income is taxed at ordinary income rates and is included in the provisional income test for Social Security benefit taxation. Taxes are the number one expense in retirement and can erode the cash flow necessary to meet essential retirement spending as well as restrict discretionary spending, i.e. no fun money  To combat the present 20 trillion dollar debt and 60 trillion in future obligations, taxes must go up and that’s not factoring in any budgetary spending increases. It is inevitable that Millennial retirees will pay a significant portion of their retirement plan dollars and Social Security benefits to taxes, perhaps up to 40%!  None of this includes the true cost of living that could impact the purchasing power of your retirement dollar. The qualified plan trap will ensnare many unsuspecting seniors fifty years from now. Many Millennials are convinced there must be a better way. And they’re right.  There are some little-known tax favored funding vehicles that you can take   Read more…