When it comes to cost savings, I like to focus on the big ticket items like home mortgages, car and homeowners insurance and so on, rather than spending too much time on the little stuff. People like to say well, it all adds up, which technically may be true, but in the long term, you're better off focusing on your biggest expenses. We all have limited time to spend on this stuff, so might as well make it count.
Now that my mortgage is paid off, I'm applying the same logic to areas where i see potential for substantial savings in retirement, and the other day I pulled together the details of several opportunities I can take advantage of now, and in retirement. All 4 of these are income-based programs that either provide a generous tax credit, rebate or just plain NO tax if you meet the income guidelines.
Now until age 65:
Less than $38,600: 0% long-term cap gains tax
Less than $47,520: Healthcare exchange subsidy
From age 65 on:
Less than $35,300: State of CT property tax credit of up to $1,000
Less than $38,600: 0% long-term cap gains tax
Less than $45,000: Maximum town property tax credit of $2,525; income up to $55,000 = $1,750
The most stringent income guideline is the property tax credit offered by the state of CT which provides an additional $1,000 in property tax credit on top of what my local municipality offers.
These look like awfully low income guidelines. Can I do it? Yes, I'm actually pretty sure I can.
Here's a look at my actual annual expenses for each of the 5 last years:
Historical Total Expenses
2017 $35,994
2016 $42,972 ($30,305 w/out new driveway)
2015 $40,866 ($31,066 w/out front entry redo)
2014 $28,918
2013 $37,832
If you don't include a very large capital expenditure I had in 2015 and again in 2016, I never spent over $38,000 in the past 5 years.
Just organizing the info together in one place helps organize my thoughts and makes it easier to consider aiming for a low income specifically to take advantage of these savings.
See, this is just another reason to track your expenses every year, all year long...I'd never be able to project my expenses nearly as accurately if I hadn't been tracking my expenses all along. Once it becomes a habit, it's easy to do.
I've created a simple spreadsheet to do that so I can see YTD income in any given month.
There will be a few unknown sources of income, of course. Job income is the easiest to predict, but I will also build in possible income of let's say $1500 in any given year due to art sales.
In addition, I have just 2 taxable mutual funds; one reports its capital gains distributions in December, the other one, quarterly. But I can still estimate them based on what cap gains/dividends were in previous years.
If I get too close to the income threshold for any given tax credit program, I can also leverage my ability to lower my reportable income by making $6500 in traditional IRA distributions.
Systematically lowering my income for long-term savings
February 16th, 2018 at 02:07 pm
February 16th, 2018 at 02:53 pm 1518792801
February 16th, 2018 at 04:10 pm 1518797439
February 17th, 2018 at 03:09 am 1518836968