When you do your taxes this year, it probably won’t be much of a comfort to know that in February 1913, the personal income tax was born. Bravo. But the good news is that if you will be writing out a check this year, you might want to ask yourself if a nice, fat mortgage interest deduction would come in handy next year.

For many people it certainly will. Mortgage interest is tax deductible. This means it is one of the expenses that reduces the amount of income on which you pay taxes.

Many, if not most, people who do not own houses, also do not itemize their deductions. That makes sense because if they added up all their potential deductions, the deductions would not be greater than the standard deduction. For 2016 the standard deduction for heads of household will also rise to $9,300 (up from $9,250 in 2015) but the other standard deduction amounts will remain the same: $6,300 for singles and $12,600 for married couples filing jointly. Personal exemptions will be $4,050 in 2016, up from $4,000 in 2015.

The beauty of the mortgage interest deduction is that it allows you to deduct all the interest you pay on your home loan. During the first years you pay on a home loan, nearly everything you pay is interest — up to 75 percent of your payment. That nice deduction can reduce the taxes you owe, while allowing you to live in the house you want. Owning a home also offers you some subtle protection from inflation. Inflation is an increase in the general level of prices for goods and services over time. So you notice that your grocery bill is going up and your dollars buy less, that is inflation, according to investopedia.com

According to inflationdata.com, in 2016 inflation was about 1.7 percent. For 2017, Kiplinger’s predicts inflation to head to 2.5 percent. Meanwhile, mortgage rates are ranging from 4.2 percent to 5.2 percent on 30-year fixed rate. That is an increase of at least 2 point from 2015 and 2016 but still very low. If you buy a home this year, and inflation continues to increase, you’ll soon be paying off your home with cheaper dollars. Your food will cost more; your luxuries will cost more; rent will cost more. But your mortgage is going to stay the same.

Meanwhile, inflation will also have some effect on home prices, forcing prices up. Right now, in most parts of the country, home prices are low because there are a lot of houses on the market and fewer buyers than five years ago. That means, right now you can get a lot of house for fewer dollars. In coming years, however, as the supply of houses for sale decreases, the pressure of inflation plus a reduced supply of houses, will force home prices up. In 10 years, your home purchase today will be a bargain and you will be living in a home you love while paying prices locked in the past! It’s like being a financial time travel

Things are so divided these days. Say the word “Republican” to some people and an internal flare goes off. Say the word “Democrat” to another and you get the same reaction.

This article leads with the title, “Congress could pump the brakes on these new retirement plans”. It’s been shared multiple times on social media sites. But before anyone flares up, let’s break it down. Is this really a political play or just 2 different ways to see something – both having pros and cons?

The article state:

At issue are the state-run retirement plans being created in states including California, Oregon, Illinois, Maryland and Connecticut. Under the programs, workers who don’t have access to retirement plans through their jobs would be automatically enrolled in portable individual retirement accounts (IRAs), and contributions would be deducted directly from their paychecks.

A new Labor Department ruling is making it easier for states to offer Retirement Plans. Congress is considering doing away with the rule.

Supporters say – This would make saving for retirement easier to use and providing access for some that don’t currently have access to a 401K of some sort. States should be allowed to do this.

Opponents say – If states begin making their own plans, companies who currently offer retirement savings plans may discontinue offering savings plans of their own. It isn’t free for companies to provide these services, especially when they also offer contribution matching.  Opponents would prefer to make it easier for companies to start and maintain 401K programs as well as offer incentives to companies to provide any or better savings plans.

Neither say – Retirement savings plans are bad and should be done away with. Both sides are just looking for the best way to offer option to Americans workers. Now, it’s just a matter of opinion – which seem to be in no short supply these days! LOL!

More Information (per the article):

• State plans, as currently proposed, do not allow company matching – which might actually decrease your current saving ability.
• No current structure exists for oversight – could lead to higher costs initially and possibly more long term if those oversights are sourced out to third parties.

So, just curious, what do you think?

Should states be allowed to move forward with these plans or not?

Why or why not?

I got an email the other day.  If you have any interest in the RetirementView software I thought you might want to read it.

Here it is….

Hi Tim,

I was just telling another person today about your software, strongly encouraging it (again).

During lunch, he was telling me that he’s thinking that the consulting assignment we’re on now may be his last.  I asked how he was sure he can afford to stop working yet.  He said he knows his budget and his savings and what he can expect from investment returns and SS. I don’t doubt that, but to me it seems so much more complicated than that.  Has he factored in inflation?  How can one estimate what one will lose to tax payments when one begins to liquidate assets from IRAs vs ROTH IRAs vs taxable investment accounts? That makes too huge a difference to not factor that?  I can’t imagine even THINKING about deciding when one can end one’s career without either using a sophisticated software package like yours or hiring a financial planner to do an analysis (who might end up using your software to do it, or a package that’s similar!).  When a question is as critically important to answer correctly as this one–whether one has enough savings to last the rest of one’s life and cover any likely contingencies– it seems that one would be foolish to not invest the money to double check their relatively rough estimates.

I’ve told so many of my friends about your software, and it amazes me that I don’t think anyone has acted on the recommendation (though one does plan to as soon as she has some time she can anticipate dedicating to it).

As for me, in response to losing my job 5 years ago, I made the decision to change my profession in order to be more marketable long-term.  It took three years to research and decide what I want to do next, then study to learn the new career, and then network and jobhunt like crazy.  The painful result was that I decreased my savings by $170K during those three unemployed years (it’s very expensive to live near Boston!, and some of that was paying taxes on some partial IRA to Roth conversions I decided to do while I was earning practically nothing and thus at a low tax rate).

That set my financial plan WAY back. The good news is that although it took a long time and was VERY challenging, I eventually managed to get a very good job in my new profession (Business Analysis consulting).  In the almost 2 years since then I’ve saved as much as I possibly could to start getting back on track for what I hoped would be an early retirement from my technical profession. My ardent desire is to be able to focus on my passions for art and loving (primarily) and sailing and being outdoors and exploring. It feels so discouraging that between having withdrawn so much of my savings to live while unemployed and my portfolio having lost so much value in the recession (and not fully recovered), there’s been such a major setback. And the outlook for ROI seems so very low that after inflation takes its toll, it’s not appearing that I can realistically hope for my savings to double in 7 years as rates of return used to enable.  But oh well. One must adapt and deal with the what is.

I really love knowing that I’ll be able to reassess where I stand with regards to a reasonable retirement year estimate with the aid of your software in which I have a good deal of confidence (even though I don’t have much confidence in the crap shoot of my choice of variables to enter into your software!, since those variables could go any which way, as we’ve seen).

Thanks again for a super product!,

Julliette

—- we’ve left her full name off so not to violate her privacy.  But thought you’d see some real insights into HOW and WHY people use our software.

Thanks and Happy Planning!