Tax Brackets and Tax Rates

Do you know what your tax rate is? 

That’s a trick question as you really have two tax rates:  1) your Marginal Tax Rate and 2) your Effective Tax Rate.

To understand each, you need to understand our tax system. The U.S. tax system is not based on a single tax rate, but rather a series of tax rates known as tax brackets based on your amount of taxable income. Everyone pays the same tax rates at each income level, and the more taxable income you have, the higher your tax rate.

Life Insurance - Perceptions vs. Reality

Life insurance is often misunderstood by many retirees. In my many years as a financial planner, I have learned that most people (myself included) have some type of bias they bring to any situation, including their finances. It’s very challenging to step back, remove the emotion of these misconceptions and objectively evaluate a situation, especially when it comes to life insurance.

Recently, I had a client who was dissatisfied with their life insurance agent. Because of their bad experience with that individual, they had developed a negative bias towards life insurance in general. After much discussion, the client explained that one of their major concerns was that if either spouse passed away, the surviving spouse would only receive one of their two current Social Security checks. Their previous life insurance agent had attempted to take advantage of this concern for the surviving spouse by “selling a product” and it had left a bad taste in their mouths.

Life & Retirement Planning - The Big IF in Life

I usually tell people that there’s a big IF right in the middle of life. Just as you never know what may happen in the game of Life, there are many “what ifs” when retirees begin to plan for their retirement. For retirees and soon to be retirees, there are many ifs running through their minds.  One of the biggest retirement planning concerns is if they will outlive their income.  The good news is that there are products, processes and plans available to help mitigate longevity risk (outliving one’s income).

We typically address 3 core retirement planning scenarios with our clients:

The Handy Adder – A Blast from the Past

In the Kemp household, whenever we have a lively dinner table conversation, inevitably, my work as a financial planner comes into play. Recently, my son asked me about these red mechanisms with buttons he’s been observing at his job at the local grocery store. After some discussion, we determined that it was a Handy Adder - a true blast from the past.

After that, everyone was very interested in what the Handy Adder is and why my son was seeing people use it.  The Handy Adder is a small handheld adding machine.  I explained that it wasn't long ago that people used cash or personal checks at the grocery store instead of credit cards.  They had to make sure they had enough cash in their wallet or money in their checking account to cover the bill, so every dollar and cent mattered.  The Handy Adder is an effective way to track each item you plan on purchasing to keep your budget under control.

Mortality Credits and Period Certain

Mortality credits and period certain are two important concepts not to overlook when discussing the features of a life annuity product.  Many people aren’t familiar with these essential terms.   

Consider this: Doug and Helen walk into a bank. Doug is 20 years old and Helen is 70 years old. They both tell the bank officer that they have $100,000 to invest and want to take the most interest they can get for the rest of their lifetimes.

Because of her age, Helen has a distinct advantage in her number of choices.  Helen could simply put $100,000 in a bank CD and take the current interest rate of 2% on a five-year CD.