I'm in big trouble. Last week, in my "family update," I wrote disparaging remarks about my mother's pickleball ability. I received numerous emails and even angry texts from family members who felt my comments were out of line. I want to apologize to my mom formally. After she read the email, she went out and played pickleball, winning three out of three games, including one against me.
We are home from Pittsburgh and winding up the end of summer vacation. Chris is furiously practicing the piano, Alex is working on his hobbies, Jesse is going to weekly computer programming camp, and Senay is running around town enjoying the freedoms of being an 18-year-old adult. I am also working on starting an orchid YouTube channel.
Unfortunately, my wife is still struggling with migraines. It seems like a never-ending battle to chase possible cures. At least she has a good nurse, as you can see below.
Part 1.
Susie and John Watkins, having just left their daughter’s house to visit their new grandson, were glowing with pride.
“What a little angel,” Susie said.
“Being a grandparent is much better than being a parent,” John laughed. “He was getting pretty fussy when we left, wasn’t he?”
“John, we need to start some bank account for him. If we start saving for him now, he will have a head start. I wish I had one growing up,” Susie said.
“I agree,” John said. “I know there are gifting laws and limits. I’m going to give our financial advisor a call to see what the deal is.”
The next day, John called and was told:
“When you want to give money to your grandson, there are specific rules about gift taxes that we need to consider. However, gift taxes typically only apply to very large gifts. You can give up to $17,000 per year per person to anyone without worrying about gift taxes. If you go over that amount, you might need to file a gift tax return, but it doesn't mean you'll have to pay taxes. This is because there's also a lifetime exclusion amount, which is extremely high—over $12 million per person. You could potentially owe taxes if your total gifts over your lifetime exceed this amount. In other words, John, unless you hit the lottery, you’re fine.”
Part 2.
(very common question)
“How do I pay less taxes on my Social Security?”
Some of your Social Security benefits are taxed if you make a certain amount. Income would include withdrawals from retirement accounts, pensions, interest from CDs, etc. However, you only count half of your Social Security payment. So, if you get $36,000 a year in benefits, only $18,000 is applied to the calculation.
For single people, if your total income, including half of Social Security, is between $25,000 and $34,000, 50% of your benefits are taxed. If it’s more than $34,000, 85% of your benefits are taxed.
For married couples, if their combined income is between $32,000 and $44,000, 50% of their benefits are taxed. If it’s more than $44,000, up to 85% of their benefits are taxed.
Many people are very concerned about federal income tax brackets, but more often than not, I find that the actual “bracket” you need to worry about is the $44,000 number above. If your income is $43,900, 50% of your benefit is taxed; if you claim a mere $100 more, it’s 85%. This could mean a difference of thousands of dollars in taxes over a year.
Part 3. (reality check)
Last ten years of returns for the S&P 500. Is investing really that risky? I can show you several decades throughout history with similar results.
2024 YTD: 17.30%
2023: 26.29%
2022: -18.11%
2021: 28.71%
2020: 18.40%
2019: 31.49%
2018: -4.38%
2017: 21.83%
2016: 11.96%
2015: 1.38%
2014: 13.69%
Part 4.
The political world is absolute lunacy right now, so maybe you think, “I should sell all my investments until after the election to protect myself from the volatility.”
Hold on. From 1928 to 2020, the market has experienced gains in 19 of the last 23 election years.
A study by Vanguard compared the stock market performance in election years versus non-election years all the way back from 1853 to 2019. It found no significant difference in average returns between election years.
According to a study by Charles Schwab, looking at the S&P 500 Index performance from 1928 to 2016, the index returned an average of 11.3% during election years, compared to an average of 10.3% in non-election years.
Be Blessed,
Dave
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