Friday, July 29, 2011
You know I think we really need to reduce our national debt and no I do not want my taxes raised either. But something has got to give. We need to be smart about our choices.
Last year I was having a debt dilemma. Due to the recession of 2008 I lost enough money that would have paid off my house and my son's student loans and had money left to help my other son. I then realized that trying to pay off my house until I was 82 and my helping my son with his student loan was draining me and getting me nowhere. I was not responsible for my son's debt. I was helping him out while he looked for work. Well, that had to end. He could get deferment for a while which would free that money to help pay off the house. I also realized I was 59 1/2 and could now withdraw money from my IRA to begin to make substantial payments on my house but I needed to do make it large enough to not interfere with my social security widows benefit I planned to claim at 60. ( I plan to hold off on mine until 70 if my health lasts.) So I bit the tax bullet last year and paid 3/4 of the house loan off. Now most of my payment goes to the principal and that with my extra payment should lower the balance enough by January 2012 that I can withdraw the balance left and no longer have a house payment.
Now I know everyone thinks withdrawing the money early is a bad idea. But I figured out that by paying off the house I saved $70,000 in interest over the life of the loan. I also have some peace of mind that as long as I pay the taxes, I will have a roof over my head and a safe haven for my family if they need it. Another note I owed $86,000 on the house. So what I saved in interest almost pays off the house. Also since the stock market is so unpredictable investing in a roof over my head seemed more secure. Another note. At the same time I was doing these numbers I was looking at what happens at age 70 when RMD kicks in. Had I not reduced my IRA savings, I would still have to withdraw more than I needed and paid taxes not only on it but because of social security added in the taxes were higher. You can collect up to $25,000 from social security and pay no taxes ----IF you have ANY money over that you then pay 75% of the taxes on social security in addition to the taxes on the withdrawal. My RMD would have all gone to pay taxes! That money was supposed to supplement my retirement. The $25,000 was never indexed to inflation which means everyone eventually will pay the 75%. Why? Because as inflation goes up that $25,000 will be the low end of the social security payout. Now they want to cut social security benefits on top of that little ditty. If I take my money out of the IRA pay the taxes and invest in the stock market I pay taxes before 70 then after 70 I owe taxes only on what I earned at 15%--and I do not HAVE to sell it if I do not need it. Therefore I reduce my taxes later. I might also extend the length of time my money lasts.
During the past year besides paying more on my loan and not paying for things other people owe, I also reduced my utilities, food, misc unneeded expenses. I was able to shave about another $3000 off which goes to the loan. I am always looking for more ways to cut expenses and if I get myself back to be comfortable with my money situation I will probably help my sons again.
The point to using my own experience is that whatever this nation does to get back on track it needs to be smart. Just not lifting the debt ceiling or lowering costs or spending or no new taxes is not going to do it individually. They all need to be looked at in a smart logical manner without the politics and ideology.