How Many Sources Of Income Do You Have

terraausOctober 31, 2008

And What Are They?

Dh and I aren't retired yet but we plan on having the following: the equity in our home, 401k, social security for both, a food stockpile, gardening and frugality skills and book royalties. Dh may decide to work part-time in retirement.

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At the present time I have a fulltime job. But when I retire (hopefully this coming July) I plan on having my current 14 year pension, a second 22 year pension, and the interest from several savings accounts. I don't want to pull my social security for about 6 months when I celebrate my 64th birthday. If the difference isn't much between 64 and 65 I will say "show me the money" and collect at 64. I also have a 403b and a rollover IRA but I am going to try and not touch them for another 5 or so years.

So to answer your question I will have 3 sources of money that I will collect when I retire. And after several years I will add a couple more. I don't really want to work part time for at least 6 months, but I wouldn't mind having a little "fast cash" at some point. And I think it will do me good to get out and do something (besides volunteering and art classes etc.) to keep the "gray matter" working.

I know the economy is tough right now but I'm sticking to my plan until March, when I will have to "give notice" and start the retirement process. Hopefully it will work out for me. I'm so ready!


    Bookmark   November 6, 2008 at 5:08PM
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i have soc sec, a little interest and my husbands retirement. i also have some collectibles i need to put on ebay. our new home and new car are paid for.

    Bookmark   November 7, 2008 at 7:55PM
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We are mortgage-free, but although it is an asset, our home isn't a source of income. (More a source of 'outflow' with taxes, utilities, maintenance!) We own a vacation rental property that has so far earned more than it costs by a small margin. Our RE assets are still worth more than what we paid for them, but I'm glad we don't need to sell them in this market!

I never earned much, but my DH did OK. We have his social security plus mine, which is set at 50% of his. (I didn't know that was how it worked. I also didn't know that a *former* spouse could collect 50% of her DH's soc. sec. benefit if they had been married at least 10 years. A long-divorced cousin benefited from that law. I guess the government could be funding several women for a few much-married men!)

DH has a small pension from his former employer, and they offer group-rate health and dental insurance to supplement Medicare. We will take a medigap and a dental plan from them and add an unrelated drug policy for 2009.

DH has a small non-Roth IRA that he will have to start withdrawing from at 71 1/2; we plan to direct some of that to a charity, thereby avoiding income tax on that portion.

Other income comes from an investment portfolio that is mostly conservative mutual funds, plus some CDs and a money market checking account.

terraaus -- Might we have read your books??? (DH and I are great readers!)

    Bookmark   November 8, 2008 at 1:37PM
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About ten, I guess ... some of them rather small, and only occasional.

1. Government non-contributory Old Age Security (earlier 10-year minimum residence required) that they could reduce or eliminate ... but it would cause a huge howl if they tried! Seniors constitute a considerable unpaid lobby entity ... with some organizations to instigate/organize the hollering!

2. Government contributory Pension Plan, produced from compulsory contributions having been made by both employer and employee, somewhat reduced due to lower than full rate of contribution through a few low-income years.

3. Private pension program, with about half of a career's level of contributions, but I think that I receive more than half of regular full level of payout.

4. These are all partially adjusted for inflation, usually regularly ... but if investment markets drop heavily, they could reduce or even eliminate those adjustments ... or even reduce the pension amount, if markets (have gotten?)/were to get really bad!

5. Small tax-deferred retirement program, fully personally funded, with about 9% required annual payout currently, growing to 20% at age 90 and annually beyond.

The income from all of these is taxed at top marginal rate.

6. I have what was some over 10% of my assets earlier, which recently became about 15% of the assets, due to drop in value of other types of asset, in a mortgage-backed mutual fund which has maintained its value with nary a ripple in the past few years. It pays interest quarterly at quite a stable rate, which is taxed at full marginal rate, also.

7. I have other largely equity-related mutual funds, most with some U.S. and Canadian assets, but mainly carrying foreign assets, which currently pay some income, heavily taxed, and some capital gain, which rate varies widely from year to year, which is taxed at half usual rate in my hands when the mutual fund sells some of their assets.

Most of the equity-based mutual funds have increased in value, which do not produce current income as I have not sold them, but will likely produce capital gain when I choose to do so (or die, when they'll be deemed to have been sold and my executor will have to answer to the tax people in that year).

8. I own some individual stocks, mainly Canadian-based ones, several of which pay dividends ... and dividends on Canadian stocks is taxed at a much lower than usual rate, with a larger reduction added a couple of years ago.

Most have increased in asset value over time, and this also develops increasing income over time, as the dividend rates usually run at approximately the same percentage rate of the value of the underlying stock at the time. A share of a bank bought 41 years ago for $4.20 or so paid about a dime - 12 cents initially and as the share price increased to $107.00 in May, 2007, dividend rates increased, as well - from $3.08 to $3.48 in the fall of 2007. The bank was involved in the U.S. mortgage debacle, and share price fell through recent $49.00 to current $55.00 ... but it looks as though they'll try hard to maintain the dividend at $3.48 (6.2%), in order to forestall an even further drop in the share price.

Think that I should borrow at 4.75% (deductible) to buy some more? If/when I do ... it'll be a different bank!

For several years recently I didn't buy anything, but I have three or four times in the past couple of years ... haven't bought for a few months, now - it's about time, especially at current market levels, I think.

9. Sometimes they produce capital gains, usually taken at a time of my choice, with half of the capital gain being taxed at regular marginal rate. Sometimes when a company is bought out, I have capital gain (or, seldom, loss) not at a time of my choice, half of which is taxed at regular marginal rate. I get half of the capital gain tax-free.

10. Fees for income tax preparation and personal financial planning ... a minimal one, really - so low as to almost infinitessimal! There's a rumour abroad that I'm supposed to be mainly retired!

But when a milk-wagon horse hears the milk cans rattle ... he gets ready to travel the route!

Having lived in something over 20 locations during my 79 years, I've never owned a home.

Someone said that the home in which they live doesn't provide income, but has various expenses. If they didn't have the home, I doubt that they'd live in a tent ... so there would be costs associated with renting a place to live ... which would be at least partially subsidized by income from the invested proceeds of the sale of what had been their home prior to its sale.

On the other hand ... some folks that I know say that their home does produce income - and that's not from renting out a room!

They use some of their equities to borrow to invest (and I've made a thread elsewhere to make the claim that Canadians can often borrow to invest at almost nil net cost, if the Canadian equity investment produces about half of the loan interest rate). Some borrow to invest at 4.75% currently and are earning about 10%, taxed at low rate ... I could say that they are laughing all the way to the bank, but ...

... do you know what's better for a Canadian than putting her/his money into a bank?

Buying the bank! Or a piece of one - as both kinds of income that that investment produces is taxed at low rate, plus one of them is deferred!

Before my retirement, my major income was employment income and income from investments was piled on top of that, so I didn't like to earn interest, as it was taxed at top marginal rate. If I could develop such income that was taxed at lower than usual rate, I was pleased, as tax rates were higher than usual at the higher level of income.

If I could carry an investment that built value over the years but that value didn't become actual until I sold it, and wouldn't be taxed till then, that pleased me even more! And if, then it would be taxed at a lower than usual rate (half) ... I'd be doing a happy dance!

Wouldn't you?

After retirement, most of us depend on investment income for our living. The pension portion, if we have one, is usually taxed at high rate, above a certain deductible amount, and if we can develop investment income that's taxed at a low, or deferred, rate, that suits us well.

Then, if we choose to develop employment income, that is added to our usual income, and may be taxed at a higher rate.

I've said that every retiree should have a home-based business ...

... no scraping ice off of the windshield prior to dawn (and driving home in the dark) ... plus, seldom being able to deduct the price of the gas!

Private business, worked at home, permits some nice deductions from the income produced.

Which income, being piled on top of the pension and investment income, is taxed at one's highest marginal rate.

Tax evasion costs heavily, both financially and, sometimes, in terms of one's freedom ... but ...

... almost all financial advisors, and many citizens, claim that tax avoidance should be practised by (almost) everyone.

Good wishes for increasingly shrewd management of not only your income ... but your assets, as well.

ole joyful

    Bookmark   November 10, 2008 at 12:27PM
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i consider my home a big time asset. even with the cost of owning one, the "outflow" is cheaper than rent, unless you rent in a low income area.

    Bookmark   November 12, 2008 at 9:20PM
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Hi stargazer,

Suppose that you could rent a coimfortable 2-br. farmhouse for $483./mo. ...

... would you still sing the same song?

Also, as I referred to earlier ...

... could one interest you in sending some of those dollars buried in your house out to work, potentially producing income, rather than just sitting there?

Wold you let an able-bodied adult kid lie around the house, eating and sleeping, but contributing nothing to maintaining the home, cutting grass, paying for food, etc?

Were you to do so, I don't think that you'd be doing him/her any favours ...

... and possibly not yourself, as well.

That said - I'd be extremely reluuctant to borrow using my home as collateral in order to subsidize my current consumption ...

... especially if I lacked a substantial pension coverage - my house would be my pension.

And even more so were I to live in the U.S., where medical costs are high ... could one say ... "potentialy huge" for seniors?

ole joyful

    Bookmark   November 13, 2008 at 4:59PM
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You betcha.......... i'm out of debt, i am living within my means. it would not matter if someone gave me a free... "a coimfortable 2-br. farmhouse for $483./mo.", i would stay right where i am.

please forgive my no caps and typos, i have a severely broken arm which pains me beyond imagination. no splint ot cast, to quote my doctor, "it will heal with gravitation" ouch

    Bookmark   November 13, 2008 at 8:19PM
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Hi stargazer,

Sorry to hear about your painful experience ... that continues.

I don't need caps to get your drift.

I'm wondering whether, walking around at night, with eyes on the stars ...

... you may have tripped over a raised sidewalk?

ole joyful

    Bookmark   November 18, 2008 at 5:58PM
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I have read some of your posts and you say that you also live in Kansas..... Do you mind me asking, where? I live in Junction City, which is about 60 miles west of Topeka.

We have a huge abundance on homes for sale and none of them are moving....the developers came in groves hoping to get rich off of the military that was "supposed" to come home....not happening. I would like to sell this house because the taxes are getting terribly expensive and move to Burlington, KS, which is about 60 miles south of Topeka...where living is so much cheaper and the safety of being back in a small town......but the market has to turn around before I can make that move.....too much invested to just "give" it away, although I am thankful that I do not have any mortgage on it.

Hope you read this and answer.....

    Bookmark   January 3, 2009 at 12:00PM
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i tripped in the bedroom but don't think that was the cause, i think i passed out for a few seconds.

phoggie i live in northwest Wichita and love it, not kansas, just the neighborhood. the home is a patio home and buying it was the best decision i ever made. i am a widow and i don't have to take of the lawn or shovel snow.

    Bookmark   January 4, 2009 at 10:24PM
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Canadian banks, pretty solid, but recently having suffered share price reductions in sympathy with their U.S. counterparts, are paying 6 - 7% dividend rates. That have low probability of being reduced. But, in tandem with increases in share price, a greater possibility than their U.S.counterparts of being increased in the foreseeable future.

For Canadians, those dividends come at a much lower tax rate than we pay on interest income ... and the tax rate on those dividends was cut even further, a couple of years ago. Another gift from Mr. Harper to his rich friends.

At present the bank wants me to pay 5% interest (rate recently increased from 4.25%) on a fully secured loan and when I use the borrowed money to invest, the interest is deductible, meaning that the after-tax cost is about 3.75%.

The 6% dividend is taxed at a low rate, leaving me with about 5% after-tax return ... so I have some money in pocket, on the current business.

When I borrow $10,000. to invest, agreeing to pay interest only, and after a few years when I repay the loan ... I am required to repay exactly $10,000.

Each of those dollars will buy less than when I borrowed it, so I gained from inflation. The guy/gal who put that dollar into the bank (or bought a CD, GIC or bond) lost money due to inflation (as the number of invested dollars doesn't grow, apart from the rent on the money).

While quite a few U.S. banks are rather iffy, these days, Canadian banks are going to be around for a while.

And I fully expect them to regain a substantial part of their recent losses, and that before long.

Which I fully expect will give me some capital gain.

That'll be taxed at one-half regular rate - and not payable till I choose to sell them.

But if I'd sold the equity assets and bought GICs, money market funds, etc. a while ago ... they'd pay interest ... that'll be taxed as current income ... and taxed at top rate.

I'd rather earn a higher rate of dividend, taxed at a lower rate than interest.

And expecting to grow some capital gain, quite likely before too long ...that won't be taxed until I choose to sell them (or die) ...

...and then be taxed at half regular rate.

Actually ... I just signed up for a "credit" card ... that'll charge me 1.97% for nine months on transferred debt.

So I plan to use my original card to buy some stocks, then transfer the debt ... and make sure to pay the 1.97% annual rate of interest, monthly ... and be sure to pay the loan off in full just prior to nine months after the transfer.

Plus - be sure not to charge anything on that card in the meantime (as not a cent can be paid on that later bill till the full amount of the transfer is paid off).

A second agency are making a similar offer - and I get reduced cost on gas and groceries, with them. But - be careful not to buy any of that stuff on that card till the full amount of the transfer gets paid off, as well.

My auto club is making a similar offer - so that's three such offers.

And I've received an offer from the bank in which I've owned shares for 42 years ... at 2.9%. But that came in November ... and it's only good till July.

In the meantime, I'm adding more collateral to my L o C, to add more security and be sure to pay off those credit card loans, if the stocks haven't gained enough that I'm willing to sell them for a profit when the low interest rate dies.

There's a big difference between the possible credit card loans at low interest cost and the L o C loan, though - for there's a heavy deadline on the credit card debt, and if the new stocks bought haven't increased nicely within a few months ...

... or I can't access the L o C ...

... I'd be in a real bind!

I don't like being beholden to outside agencies, subject to variations in their rules ... especially in volatile financial times as we are experiencing these days.

I have a back-up - I can ask my broker for cheque, as long as it doesn't exceed the margin limits on my assets with them, at any time, and get it, immediately.

So far, that is.

Who knows about the future?

I've played this game for years (though mostly for cash - not much borrowing) - and, even given the volatility of the markets and the uncertainty in the banking business these days, I think that I'm willing to put some chips on the line.

And, if the markets are recovering half decently, I'll most likely try to avoid selling any of the newly acquired stocks.

Some Canadian pipelines are solid and paying well, and some Canadian oil and gas stocks, whose prices have slid due to recent reduction in crude prices, have been paying over 10% ... some up to 15% and even 20% (but likely liable to reduction in future), and some are subject to change in corporate rules soon.

Have a great weekend, everyone.

ole joyful

    Bookmark   January 10, 2009 at 5:13AM
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I just had some surprising news from the carrier of my Line of Credit.

Earlier, the "Prime" rate that they referred to was 3.5%, and, though they'd been willing earlier to loan to me at Prime, they said that there was a surcharge then of 1.5% ... making my effective rate 5.0%.

However ... now they say that their Prime is 2.25% ... and they are, once again, willing to loan to me at that rate.

A friend who retired as an exec. with an auto parts manufacturer and has no pension has been borrowing at approximately the rates to which I referred above ...

... and investing at 10 - 15% (recently some of his investments paying up near 20%).

He seems to be doing well: he and his wife are planning to go on a cruise, soon.

Enjoy your lovely spring week - I was planting garden yesterday, a holiday up here. They threatened frost the night before, but I don't think we had any ... and earlier predicted it for tongiht, but the latest forecast was for several degrees above freezing - but I'd already put several flats of starting plants into the barn.

Also, rather stupidly, forgetting for a time about the threatened frost for tonight, I transplanted some radishes that were growing as volunteer plants from two years ago ... so covered them before leaving the garden at nearly dark!

ole joyful

    Bookmark   May 19, 2009 at 3:56AM
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I missed a necessary watering ... and the radishes are looking rather sickly.

Some of the stocks are, as well - there may be a better possibility that they'll recover than that for the radishes.

o j

    Bookmark   May 21, 2009 at 2:21PM
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chisue, I think a person can only collect on a former spouse if they have never remarried. I know it has been a great surprise to some women. I have often wondered how many women don't know this.

I think the secret to retirement is being debtfree. We live in a very small rural community. Low taxes compared to most. We have a great retirement, social security, and saving. We are not big spenders. Hubby has been retired a little over 3 years and we have more in our checking account then when he stopped working. This has been our goal to keep it close to this amount. We also have not touched out savings.

We have lived in the same place for almost 40 years and purchased another piece of property about 15 years ago in the southern part of our state. It has ended up being a wonderful investment for us. We bought it for $25,000 and have been offered $150,00 for it a year ago. It has an old school house on it that we redid. We did all the work ourselves and tried to perserve what we could of the orginial work. We have people stop in that went to school there as kids. We plan to leave it to our kids but know if it is ever needed we could sell it.

As we all know you never know what is going to happen in the future. What you have can go pretty quickly if something such as a sickness comes.

So, to answer your question.. Retirement, social security, savings and debtfree properties. We feel lucky in life..


    Bookmark   June 14, 2009 at 10:58AM
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