Post Office Cancels Saturday Mail Delivery

The US Post Office is cancelling mail delivery on Saturday’s. While this move has been expected for some time as a cost cutting measure, what was not expected was that there will still be Saturday package delivery. The only Saturday service that has been cancelled is first class mail delivery. In addition, if a post office location was open on Saturdays prior to the change in mail service, then it will remain open.

Though services are being cut and postage rates have increased, there are still some benefits of the USPS that are of high value to the average shipper.  Home pickup is available for Priority Mail shipments.  This is in addition to the free package materials available for priority mail shipping.  If most of your shipments fit within the profile of a flat rate box, this option allows for expedited packing as no weighing is necessary.  Home pickup can be used for other delivery methods as long as at least one of the packages is being shipper Priority Mail.  Ebay/Paypal and allow for postage to be printed from your home at a discount with free delivery confirmation.

One of the best kept secrets of mailing through USPS is the availability of Priority Mail Regional Rate Boxes.  The boxes are available for free and allow for flat rate shipping for “A, B, and C” size boxes.  There are weight limits, but the an “A” box costs between the 1-2 pound rate, but can ship up to 15 pounds.  Regional Rate shipping really shines if you are shipping to a nearby state.

Tax planning to make the 401k into your own retirement pension

The 401k is a retirement plan which is employer sponsored.  In 2013, an employee may contribute up to their qualifying income or $17,500 (whichever is greater) to this account.  Many employers will match your contributions up to to several percent of your salary, but not all will.  The benefit of this plan is that your contributions are deferred from present taxes and gains within the account are sheltered from taxes.  This means that if you earn $75,000 per year and are $3,000 into the 25% marginal tax bracket, then contributing $3,000 to your 401k over the year will reduce your taxable income by $3,000 and knock you back down to the %15 marginal tax bracket.  This equals a tax savings of $750 in that year!  That’s $750 that you get to keep and don’t have to give to the government.

There’s other options for retirement accounts.  The term Roth comes up often, and points to the one downside of a 401k.  That is, for a 401k, the amount withdrawn at age 59 1/2 is subject to taxes.  Any amount withdrawn before age 59 1/2 is subject to taxes and a 10% penalty.  In the case of a Roth 401K, the principle can be withdrawn from the account, and withdrawals after age 59 1/2 are tax free.  The same penalty rules apply.

The fact that taxes aren’t paid on Roth 401k withdrawals sounds like a good deal, and it is.  However, contributions are made with “after tax” dollars.  This means no $750 savings in 2013.  The conventional financial wisdom suggests a bias towards Roth contributions for all except those in the higher tax brackets, usually 28% and higher.  The reasoning is that if you’re below this bracket, your present tax rates are low and will likely be higher in retirement since you will have multiple sources of income.  If your tax rate is 28% or above, the standard advice to to contribute to a traditional 401k.

Does the conventional wisdom work?  Is the bias towards Roth contributions valid?  Not so much.  Here’s why:

  • The above advice for Roth contributions make the fatal mistake that anyone has an idea what U.S. income taxes will look like in a decade or more.
  • The advice also ignores all elements of tax planning; where proper planning has multiple options for deferring taxes.
  • Roth contributions serve the government better as it brings in more tax revenues in the present.  Wouldn’t you rather have that money in hand?
  • The 10% bracket for Married Filing Jointly is about the same size of the maximum contribution limit of $17,500.  Even if all of your 401K contribution is in this bracket, you will get back $1750 if you max out your contribution.
  • 401k contributions lower your AGI.  They’re an “Above the line” deduction, one of the sweetest tax deals available.  This can open the door to the retirement tax contribution credit (or even a higher credit multiplier) and the earned income credit; which if you have kids you should at this point expect the additional child tax credit.

Based on this, the best strategy at any time is to defer taxes the most that you can in the current year.  The only exception to this rule exists for those who are in or near the 1% category.  Even in the case of a 0% tax rate, your best bet may not be the Roth contribution because of working your way out of the “phase out” of the earned income credit which is 16% with 1 child and 21% with 2 children.  Also worth considering is that the additional child tax credit is refundable.

>>>Taxes are complicated.  They are built to be that way.  It is not reasonable to expect mastery based on one read.  Financial Place Online will continue to provide only the best in tax guidance to make sure that you can maximize your own wealth development.

Retirement planning using cash flows

The question comes up often as to what amount is needed to retire.  Money in the bank and diversified assets are indeed important, but the critical measurement of what gets you buy on a daily, monthly, and yearly basis is your income.  For most, a retirement will be short lived if you live off of only the cash that you have on hand.

Ideally, your retirement income will come from multiple robust sources.  This will act as a hedge against having your income collapse in the event of adverse conditions.  Social Security may play a part in this, however, if it plays a substantial part for your retirement planning, you are likely short of what you truly desire for income in retirement.  So, how much is needed?

The current median income in the top quintile is currently $111,000 a year.  This means that this income is higher than 90% of all American households since it is in the middle of the top quintile (80% to 100%).  If your income is $111,000, first of all congrats on the hard work.  Second, your current lifestyle in retirement can be sustained on less.  The amount required is about 50% as work related expenses, commuting costs, and taxes at the new 50% income will decrease.

Now the question becomes, how is a retirement had at $55,500 per year?  To answer this there is a simple formula that FPO has developed as a starting point as well as a personal goal to shoot for.  This amount can be met by accumulating nine buckets of $500 extra income per month as described in the four part FPO series (1, 2, 3, 4) on creating extra income.  At least seven of these buckets must come from income generators in the first three parts, with two being permitted to be from part 4.  More than 2 from part 4 is welcome, however the effort to create additional savings would not be beneficial at the expense of achieving that seventh bucket.

>>> When broken down like this, seven buckets seems achievable, right?  Of course it is, but it is never explained like this.  Many financial experts frame a funded retirement as something that only the most disciplined can achieve, and that it is some sort of lofty goal.  In reality, it is easier than advertised when broken into chunks.  However, expect that it won’t happen overnight.  But aim for creating one of the seven every five years and you’re set.  Start at 25 and retire at 60.

Your house is not your warehouse


The Samsung just took the lead on lap 13.

The Samsung just took the lead on lap 13.

Also known as a lesson in de-cluttering and cost effectiveness.  I have seen too many of my friends upgrade their houses based solely on an increase in junk accumulation.  Household junk is very  much like being in debt in that both will weigh you down.  That’s a hard to justify cost increase when many items will go unused.  At the very least, moving the excess accumulation to a storage unit would be a lower cost method.  But why give your money away on that option?  For what it takes to maintain, secure, and store excess items, a better deal exists:  the opportunity to liberate yourself of your more useless possessions.  Not only would you free up some cash which could be put to better use, but your house will seem bigger than ever before.

There’s a personal rule which I have adhered to for years.  That rule is that if an item hasn’t been used within the last year, it gets sold.  If I need it in the future, I can always buy it back, usually close to what I sold it for (often less).  There are some exceptions to this rule; reference books, personal mementos, and occupational related items.  Those will be kept, but in the case of old video game systems, that extra computer monitor, power tools, or DVDs; out the door they go.

>>> There’s another benefit of this technique.  Repeated over time, it will transform you into a better sales person.  It will also increase your eye for value and perhaps make you more critical of what to take in to begin with.  Choosing a house to live in will depend on many factors; desired location, good schools, commuting distance, personal sentiment, etc.  Just don’t let the ever-expanding pile of junk be one of them.

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