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3 Things 5-6-24

Thing One



Item 3 From Our Five Favorites List



In keeping with our plan to discuss each of the five items on our favorites list, we’ll touch on the third item today. (See the full list below)



1) Credit cards are black holes.


2) Thirty years from now you'll wish you had invested more in stocks.


3) Put retirement first (not buying a house).


4) Insurance is a must.


5) You'll end up treasuring almost nothing you buy.



To address this one, we refer you to excerpts from an article by Andrew Lisa from gobankinrates.com. Mr. Lisa offered six reasons that support the argument:



There’s No Such Thing as a Retirement Loan



"...If you’re financially responsible, a lender will float you money to buy a home, and there are many programs that can make the process easier and more affordable. But no credit score is high enough to convince a bank to loan you money for late-life income after you’ve stopped working. “You can borrow money to purchase a house, but you cannot borrow money to live comfortably in retirement...”



You Don’t Have To Pick One or the Other



"...Another reason you shouldn’t choose amassing a down payment over building a nest egg is that you don’t have to — the two pursuits aren’t mutually exclusive. Saving should not be all-or-nothing, or deposit a little less into your retirement account for a few years while you save for your down payment, but continue the savings habit…or max out your 401(k), and any money left over should be focused on saving for a down payment..."



Two Words: Compound Interest



"...Compared to retirement planning, saving for a down payment is a relatively short-term goal that depends more on your contributions and less on any returns they gain. On the other hand, you should keep saving at least a little for your far-off retirement because, over time, a little can become a lot..."



Money in the Bank Is Guaranteed. Home Appreciation Is Not



“…The investments that make up your nest egg can go up or down as markets fluctuate, which is why most people shift to more conservative portfolios as they get closer to retirement. But diversification can mitigate risk and traditional investments are highly liquid.



A single physical property, on the other hand, is neither diversified nor liquid, which means it makes you vulnerable. Real estate, though often touted as a sound investment, is not without risks, …Market fluctuations, unexpected maintenance costs and changes in neighborhood dynamics can influence the value of a home… I recall a former student of mine who prioritized buying a home over saving for retirement. While the home initially appreciated in value, an unexpected downturn in the local economy led to its depreciation, causing financial strain. Meanwhile, he had missed out on several years of potential retirement savings growth…”



House Rich but Cash Poor Is a Bad Way To Retire



"...Equity is dead money until you harvest it from your home, which can be a difficult and expensive process. Turning equity into spendable cash involves selling your house, establishing a HELOC, taking out a home equity loan, pursuing a cash-out refinance or agreeing to a reverse mortgage. None of those are guaranteed, but all come with risks and expenses — and until you complete the process, your wealth is trapped in your home and inaccessible for use in daily life..."



If You Put All Your Money Into Your House, Who’s Going To Pay for Your House?



“…Owning a home comes with ongoing expenses like mortgage payments, property taxes, insurance, maintenance and repairs. Even if you own your home free and clear by the time you retire, your mortgage is just one expense of many, and the others never go away — in fact, homes cost more the older they get…If you spend your savings on a home without saving enough for retirement, you might struggle to afford these housing-related costs, which can be really stressful…”


Thing Two



Some Stubborn Facts On The Tax Cuts And Jobs Act



Per Garret Wilson and Erica York writing for the Tax Foundation in the Wall Street Journal:



"Congress has less than two years to prevent tax hikes on the vast majority of Americans from taking place. That’s because the Tax Cuts and Jobs Act (TCJA) of 2017, a tax reform law that simplified individual income taxes and reduced tax rates across the income spectrum, is set to expire. If Congress does nothing, most Americans will face higher taxes, worse incentives for work and investment, and a more complicated tax system starting in 2026.



The TCJA reduced average tax rates for taxpayers at all income levels because it lowered marginal tax rates, widened tax brackets, doubled the child tax credit and zeroed out personal and dependent exemptions, nearly doubled the standard deduction, and limited several itemized deductions and the alternative minimum tax, among other changes.



Although not every change the TCJA made was a tax cut—for instance, placing a $10,000 cap on itemized deductions for state and local taxes paid increased taxable income for higher-income taxpayers living in high-tax states—the net effect of all changes taken together was to reduce average tax burdens.



In 2017, the year before the new tax changes took effect, the bottom half of taxpayers paid an average tax rate of 4.0 percent. After the TCJA took effect in 2018, the average tax rate for the bottom half dropped to 3.4 percent. Likewise, the average tax rate paid by the top 1 percent of taxpayers decreased from 26.8 percent in 2017 to 25.4 percent in 2018. Average rates declined across all income groups and have remained below their 2017 levels since. Further, we estimate making the individual provisions of the TCJA permanent would reduce taxes for about 62 percent of filers, leave taxes unchanged for about 29 percent, and increase taxes for just under 9 percent of filers in 2026."



Keep this in mind whenever you hear about how unfair the 2017 tax cuts were in favoring only big businesses and "the rich".


Thing Three



Just A Thought



"If you care enough for a result, you will most certainly attain it." - William James

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