What Is Behind Sustainable Progress?

Between 1000 BC and 1750 AD the Bank of England estimates that the average person’s standard of living no more than doubled. That is little advancement over almost 3,000 years. Yet they estimate that from 1750 to today, the average has gone up over seven-fold. (Changes in standard of living are closely aligned with GDP per person.) See Chart 1.

The massive change in living standards that occurred over a handful of generations is nothing short of a miracle. Most Americans today live better and longer than the wealthiest kings of a few hundred years ago.

We owe this magnificent change in human history to the advancements in math, science, physics, and medicine that laid the groundwork for the steam engine, telegraph, railroad, electricity, automobile, telephone, vaccines, aircraft, automation, software, the internet, smart phone, cloud computing, and so much more.

Source: Bank of England

These are the more visible signposts that have been hallmarks of this age. However, there is much more to this story. Isaac Newton wrote in 1675, “If I have seen further (than others), it is by standing on the shoulders of giants.” In other words, each new bit of knowledge, each invention, is possible because of what has come before.

Much of the groundwork in basic sciences and math including geometry, astronomy, physics, and philosophy, was developed during Newton’s Age of Enlightenment. This was a period that saw the development of basic inventions necessary to our modern economy such as Gutenberg’s printing press.

Yet standards of living barely budged in this period. So, what was the “secret sauce” that unleashed the phenomenal economic growth of the past 250+ years in the Western world?

Two organizing concepts changed the world, democracy, and capitalism! Capitalism supplanted mercantilism as the basic economic model in England, Europe and particularly the United States, as spelled out in Adam Smith’s Wealth of Nations in 1776 … the same year of our independence. Mercantilism assumes a fixed economic pie (which meant you only grew more prosperous by taking someone else’s riches) while capitalism grows the economic pie and spreads it more broadly within the population.

Our new country’s inspired leaders, not burdened with the yokes of history, had the freedom to take from the best thinking of the giants who had come before. They delivered a true democracy – divided government, elected leaders, rule of law, an independent judiciary and Bill of Rights.

They encouraged free markets and the private ownership of land and inventions.

Alex de Tocqueville, the French sociologist and author, traveled widely throughout the United States in 1830 and 1831. The results of his travels and countless interviews led to his insightful masterpiece, Democracy in America (1835). Among its many revelations to Europeans (and Americans) was the individualism, freedom, and equality that Americans deeply believed in.

One insight that set America apart from virtually every other culture to this day was the trust Americans held in their fellow Americans. This supported the vast network of community, state, and federal associations as well as political, social, and economic structures thriving in America. Americans also exhibited tremendous depth of belief in their country and were willing to risk their lives in support of these beliefs. This was the basis of American Exceptionalism.

All of this went rushing through my mind as I watched Ukrainian President Volodymyr Zelensky address our Congress – in person – on the 21st of December. Here is a man leading a nation with such conviction, such belief, such courage, in the fight for the freedom of democracy and self-rule. The standing ovation given by Congress was not by party affiliation but by recognition of the continuing fight for principles.

Authoritarian rulers come and go, but little of lasting value comes from them. They coerce, bully, or bribe allegiance to themselves, not to principles. They typically drape themselves in the egalitarian promise of socialism or communism. In the end they often leave their country either backward or in ruin as seen in the rule by such strongmen as Stalin, Hitler, Mao, Castro, Maduro, and now Putin. Will Chairman Xi be next?

The turn to democracy and capitalism in the Western world underwrote the sustained progress of the past 250 years. But as shown by the unbelievable courage and will of the Ukrainian people, it should not be taken for granted.

Disclosures

Social Security Family Benefits

Social Security has three main benefit programs. The most well-known is the Retirement Benefit for individuals who worked and paid into Social Security. Even if you did not work under Social Security, you may still be eligible for benefits as a Spouse, Ex-Spouse, or Survivor.

Spousal Benefit

If you are married and never worked under Social Security, at your full retirement age you would be eligible to receive up to one-half of your spouse’s full Retirement Benefit amount, or even a reduced benefit as early as age 62. To the extent you have any work history, you would receive the higher of the two.

Ex-Spousal Benefit

In general, if you are divorced and never worked under Social Security, you may be eligible to receive Retirement Benefits based on your ex-spouse’s work history if: you were married at least 10 years, you never remarried, and you are age 62 or older. If one-half of your ex-spouse’s Retirement Benefit is higher than yours, you would receive the higher of the two.

Survivors Benefit

If you are a widow(er) and have children under age 18 (or age 19 in secondary school), you and each of your children may be eligible for survivor benefits. Your age and whether you have qualifying children at the time of your spouse’s death determines the amount of Survivor Benefit you can receive, which ranges between 71.5% and 100% of your spouse’s full Retirement Benefit at the time of death. Each qualifying child can receive up to 75% of the deceased parent’s full Retirement Benefit.

There is a limit on the combined monthly benefit amount a family can receive. It is typically equal to 150% and 180% of the deceased parent’s full Retirement Benefit at the time of their death. If the total amount payable to all eligible family members is greater than the limit, the monthly benefit amount is reduced proportionately.

If you are a widow(er) with no children and never worked under Social Security, you may be eligible to receive reduced Survivor Benefits as early as age 60 vs. the early retirement age of 62. Remarrying after you turn 60 has no effect on survivor benefits.

The Bottom Line

Your Social Security statement outlines your benefits based solely on your work history. At the end of the day what type and amount of benefit you receive ultimately depends on your specific situation and how you qualify.

Three Ways to Address Inflation in 2023

With inflation rates topping 8% last year, the average American household is spending significantly more for the same goods compared to the previous year. Here are three ways you can address the impact of inflation.

Watch Out for Budget Creep

Budget Creep occurs when your expenses are consequently going up due to the increasing cost of goods brought about by inflation. Though reviewing a budget is hardly anyone’s favorite pastime, the effort could be an eye opener when you determine where those hard-earned dollars are being spent. Most of our clients can afford everyday luxuries but are also practical. How much more did your favorite restaurants cost this past year? Review your subscriptions (streaming services, for example) that auto renew each year. For fixed expenses such as utilities, internet, insurance, this may be a good time to check your rates and shop around. Using a resource like powertochoose.com can be very helpful in keeping energy costs down.

Review Homeowners Insurance

With the increased costs of rebuilding homes caused by the aftermath of natural disasters and high inflation, review your home coverage limits. Most insurance companies use cost estimators annually to reflect current construction prices. However, consider adding a “Guaranteed Rebuilding Cost” endorsement. Although this comes with an additional premium, it provides piece of mind knowing the policy will pay the full cost of rebuilding even if it exceeds policy limits.

Make an inventory of all the valuables in your home. Consider getting an updated appraisal when renewing scheduled coverages to reflect any increased values of personal property.

Check Yields on Cash Savings

If you have cash sitting in the bank that exceeds your emergency reserves, check your interest rates. Three of the well-known bank chains are paying as low as 0.01% – 0.15%! In today’s high inflationary environment, you are leaving money on the table by holding cash at such low rates.

As of this writing, Schwab’s Value Advantage Money Market fund is currently yielding 4.26% while 1-Year Treasury Rate are now 4.75%. These are significantly better cash vehicles to combat inflation’s toll on purchasing power. Tanglewood uses these short-term investment options in your portfolio whenever possible and can facilitate getting a client’s other cash holdings working harder as well.

Disclosures

SECURE Act 2.0 Has Arrived

Included with the 2023 government spending bill that was just signed into law by the president last week was the latest version of SECURE Act 2.0. The first SECURE Act was passed in late 2019 and it made some major changes. The most significant being the elimination of the “lifetime stretch IRA”. In place of the stretch was a much less tax-friendly 10-year rule which puts the maximum stretch at – you guessed it – 10 years.

SECURE 2.0 adds even more retirement account related provisions that affect savers, retirees, plan participants and plan sponsors. Here are the top items worth noting to clients.

Required Minimum Distributions age extended and penalty relief

Starting in 2023, the Required Minimum Distribution (RMD) age for certain IRA owners is now age 73 and will be further extended to age 75 in 2033. Here is the breakdown of RMD start years by year of birth:

  • Born 1950 or earlier – no change

  • Born 1951 through 1958 – RMDs start at age 73 (2024)

  • Born 1959 or later – RMDs start at age 75 (2033)

For many clients, the additional year(s) affords more time for strategic Roth conversions or other lifetime tax planning opportunities that become much more limited after RMDs begin.

The penalty for failing to make a required distribution was a steep 50% of the shorted amount. The egregious penalty was mostly a deterrent but rarely ever enforced. SECURE 2.0 reduces the penalty to 25% or just 10% if corrected in a timely manner. The lesser penalty makes it much more likely to be imposed and/or voluntarily paid.

Roll unused 529 balances to Roth IRA

We’ve always considered 529 accounts as pseudo-Roth IRAs for college expenses as they offer similar benefits of tax-free growth when accumulations are used toward college expenses.

The SECURE Act 2.0 includes a never-before offered opportunity to roll 529 balances into a Roth IRA for the beneficiary of the 529 plan starting in 2024. There are some limits and qualifications. The 529 must have been maintained for 15 years or longer. Also, contributions made to the 529 within the past 5 years are ineligible. Rollovers are allowed annually up to the Roth IRA contribution maximum (currently $6,500) subject to a lifetime rollover maximum of $35,000.

That may not seem like a lot on the surface but provides a nice Roth IRA foundation to build investing momentum for children or grandchildren entering the work force. Assuming this begins when the beneficiary was 16 years old, that’s easily over a million tax-free dollars by their late 60s without ANY further contributions!

Qualified Charitable Distribution (QCD) limit indexed to inflation

QCDs were first introduced in 2006 and offered to those older than 70½ an alternative means of making charitable donations directly from retirement accounts. These donations satisfied the owner’s RMD obligations while being excluded altogether from taxable income – a better economic value than a typical (itemized) charitable deduction in many cases. The limit was $100k in 2006 and remains $100k in 2022. Beginning in 2024 it will be indexed to inflation.

There’s also an opportunity to make a QCD gift up to $50,000 (indexed to inflation) to a charitable trust as an expansion of the types of entities that can receive a QCD. Questions remain about this given the small amount and special requirements of the trusts.

Higher catch-up contributions

Today, participants in a 401(k) or 403(b) over the age of 50 are allowed a catch-up contribution of $7,500 in addition to the standard allowable max deferral $22,500 for 2023. These contributions are all made on a preferential pre-tax basis.

Starting 2025, plan participants who are age 60 to 63 will be allowed a “super-sized” catch-up equal to the greater of $10,000 or 150% of the catch-up amount in place at the time.

One new caveat is that for those earning more than $145,000 in the prior calendar year, all catch-up contributions must be made on an after-tax basis to a Roth account. That’s the loss of approximately $2,400 per year income tax incentive (or more) for those over that income threshold who want to max out savings.

Employer matching enhancements

Employers were previously not able to deposit matching contributions to their employee’s Roth accounts. SECURE 2.0 now gives this option. Matching in this Roth form however will be fully taxable as income to the employee in the year of contribution.

Also, starting in 2024, employers can include student loan repayments as retirement plan contributions to determine the amount of employer matching funds paid to the employee.

SECURE 2.0 brings dozens of other provisions and additional complexities. It will be an evolution over the next several years as they work their way into plan documents. We will keep you abreast of major developments and work with you to help navigate your expanded options and decisions.

“Money Has to Be Somewhere”

I find myself using this phrase often lately. Whether it is in stocks, bonds, investment real estate, money market accounts, gold, cryptos, or cash under the mattress… money must be somewhere. The concept of “money” is more of an accounting mechanism for balance sheets and income statements.

Every choice has its own characteristics which include:

  • Upside potential (moonshot or steady eddy)

  • Downside risk (erosion or wipeout)

  • Liquidity (ease of selling at the current estimate of value)

As most clients know, I did extensive research on asset class performance in the late 1980s. I developed our proprietary Historical Risk/Reward Charts as a way of comparing the risks and rewards of each investable asset class to each other.

With this analysis in hand, I developed “ideal” asset allocations to meet the wide variety of investor objectives which were first presented in 1990.

Our Historical Risk/Reward Charts are updated annually to present up-to-date guidelines as to the risk and reward of each asset class and asset allocation since 1972. Within each Historical Risk/Reward Chart:

Risk is defined as the percentage decline during bear markets (such as the one we are in today) as well as the length of time the portfolio was “underwater” (the total months of decline plus the total months to full recovery).

Reward is defined as the average annual return the portfolio delivered above the annualized riskless rate of 30-day Treasury bills for the same period.

Source: Tanglewood Total Wealth Management-Charts available on request.

Table 1 shows the risks and rewards of Tanglewood’s four primary Investment Policies (IPs) as shown in their most recent Historical Risk/Reward charts (1972-2021). (A copy of these charts are provided in each client’s Tanglewood/Black Diamond Portal.)

Chart 1 contains both asset class and Tanglewood IP composite performance for the period 1/1/99 through 12/31/21. This is not an arbitrary period, 1999 is the first year that Tanglewood’s performance was audited in accordance with GIPS standards. Both gross and net returns are shown for our four primary IPs — Conservative, Moderate, Growth and All Equity. Expanded performance information is provided on page 11.

Our performance calculations were verified over 17 years before dropping the audit in 2017 due to its increasing cost. However, we continued to follow the same procedures in calculating performances. We recently made the decision to resume our outside audits which will begin with where we previously stopped.

Source: Federal Reserve Economic Data (FRED), Tanglewood Total Wealth Management, Inc.

Money has to be somewhere and the asset classes in Chart 1 are the primary portfolio choices. This provides an excellent backdrop for our performance.

A very important confirmation of Tanglewood’s performance relative to that predicted by our Historical Risk/Reward Charts can be derived from the chart. The rewards of Tanglewood’s net returns over this period are almost identical to the rewards shown in Table 2. We delivered the expected returns over this period net of all fees and costs.

For example, Tanglewood’s Conservative indexed benchmark shows an annual reward of 3.4% since 1972 (Table 2). Since 1999, Tanglewood’s actual Conservative composite has provided a reward of 3.5% (Conservative’s 5.1% net average annual return is 3.5% greater than the average 1.6% return from treasury bills over this period.) Tanglewood’s Moderate, Growth and All Equity composites are equally close to those of their expected returns.

Disclosures

Helping Aging Parents

I recently visited my mother across the globe. Though in relatively good health, the pandemic aged her in some ways. We shared many laughs along with serious conversations about her finances and her desire to live at home as long as possible.

Since many of us have parents who are aging (or YOU are the aging parent), it is prudent to have discussions about their wishes, aspects of their lives that are important to them, dreams that have yet to be fulfilled, concerns about the future, and plans for potential incapacity or illness.

Topics for discussion

Make sure that your parents’ legal documents are in order. Have your parents executed a Will, a Living Trust, and/or Durable Powers of Attorney for financial matters and healthcare? Are they up to date? Do you know where they are?

Discuss your parents’ preferences regarding healthcare. Do they have doctors who they trust? If they are currently sick, what type of treatments would they consider and how will this impact their finances? Do they have medical directives that state the use or termination of life-sustaining care in case of terminal illness?

Housing considerations. Talk openly about moving to an Assisted Living Facility if they can not easily manage living at home. Or, do they prefer caregivers to help at home with daily activities such as driving, getting dressed or cooking?

Learn about your parents’ financial resources. What type of assets do they own? Are adequate funds earmarked for medical needs or prolonged illness? Do they have any insurance policies (life, auto, property, long-term care) and are they all current? Find out where they keep their password information for their digital accounts and smart phones (for access to two-factor authentication if necessary).

Discuss with family members what their roles and responsibilities are. Should a parent become incapacitated, is there a child who can devote their time to their care? What are the options available if no one is available to assist full time?

Ask what your parents’ preferences are for end-of-life arrangements. Do they want to be buried or cremated and where? Do they own any prepaid funeral plans or a burial plot?

Having these important and difficult discussions empowers children to make decisions that are consistent with their parents’ wishes which will positively contribute towards their more rewarding and peaceful twilight years.

Fraud Alert: Be Wary of Sweepstakes Scams

“Congratulations! You’ve won the grand prize.” How would you react to a call or an email saying this?

Fraudsters relentlessly try to separate people from their money. Retirees (especially those living alone) are the most vulnerable. This article addresses common schemes shared by clients and how to respond. Take and share these with ones you love who may be susceptible to these scams.

“Easy money” schemes

Did you even enter? If you don’t remember entering a lottery or sweepstakes, you probably didn’t. Don’t second guess yourself. Be skeptical.

Do not send them anything of value. If you really win a big prize, you do not need to prepay taxes, pay a processing fee, or send them gift cards.

No personal data. Do not provide your social security number or date of birth over the phone. Fraudsters may also ask for bank account information under the pretense of getting the “prize money” to you safely. Do not give it to them! This same information can also be used to steal money OUT of your bank account.

Money mule scams. This is where someone is used to launder and transfer stolen money. If someone sends you money and then asks you to send it to someone else, don’t walk, run away.

Legitimate companies. Scammers often spoof legitimate companies like Publishers Clearing House (PCH). PCH representatives will not call or email you if you win. When in doubt, go to the company’s official website or ask a trusted contact to do so on your behalf. It may save you a small fortune.

Keep the family informed. It is best that you tell your family or trusted contact about these alleged windfalls as soon as possible. Thieves discourage people from telling anyone so they can “surprise” their family later. Don’t keep it a secret.

“You owe them” schemes

According to AARP, in addition to fake prize scams, government impostor scams are on the rise. These scams involve people who claim to be from the IRS, Social Security, Medicare or the FBI. The government will not call you and ask for personal information they already have. You do not need to wire money, send a check, or mail a gift card to avoid arrest or having your account suspended.

The Federal Trade Commission (FTC) website (https://consumer.ftc.gov/features/scam-alerts) is a good resource to learn about current scams.

Feel free to call your Tanglewood advisor if you or someone you love receives a suspicious communication about an alleged sweepstakes prize.

Disclosures

Declines, Losses, and the Path of Travel

There is a big difference between a “loss” from investments and a “decline” in current market value. Yet while a portfolio is experiencing a steep drop, like the one during the first half of this year, they both may feel the same.

I define a loss as a permanent impairment of market value whereas a decline is a lower market value that is temporary and fully recovered within a reasonable period. A portfolio loss often requires a change in lifestyle or a reduction of (anticipated) spendable income. A portfolio decline should require no adjustment to current plans.

One of the characteristics that often distinguishes the two is diversification. For example, owning one real property is subject to many local considerations, all of which can change and become more detrimental. Many single properties have experienced permanent losses in value over time.

Source: The WSJ, Market Tools, Value Square Asset Mgmt, Yale University

On the other hand, owning a portfolio of real properties that includes many property types (apartment, office, retail, self-storage, etc.) – particularly if over several geographic areas — has rarely led to permanent loss unless excessive debt was used to purchase the properties.

This leads to a second source of losses, leverage. Many a worthwhile investment has turned into a loss for the holder because of too much debt on the asset. Leverage is a double-edged sword. It enhances returns during good times but can destroy them in down cycles. Limiting or avoiding leverage may be the single best way to avoid a permanent loss.

Owning the total U.S. stock market, despite its periodic declines, has provided enviable long-term returns, averaging roughly a 6% annualized return above inflation in every 35 year period over the past two centuries according to Jeremy Siegel’s Stocks for the Long Run.

Chart 1 illustrates the U.S. stock market’s annual returns from 1825 through 2020. The annual returns are categorized by ten percent increments. For example, on the bottom left of the chart is the year 1931 over the -50% to -40%. This indicates that it is the only year with an annual decline greater than 40%. There are only two additional years (out of 196) that had declines greater than 30%. The year 2008 was one of them which shows how brutal the Financial Crisis was while one was in it.

If the total U.S. stock market ends 2022 where it was at its recent low, down 23%, it would be only the seventh year out of the 196 in the -20% to -30% category.

As shown on the chart, the market has provided a positive return in seven out of every ten years, and a negative return the other three. Almost the same percentage has held true in this century through 2020. There have been five down years and sixteen up years.

Taking it one step further, portfolios built around professionally researched asset allocations can be tailored to limit the degree of decline during major bear markets.

Asset allocation makes further use of diversification by using multiple asset classes. This is what our Investment Policies have accomplished in the real world of investing for 32 years.

One final way of looking at market declines is through the path of travel. The total U.S. stock market was virtually the same price in late November of 2020 as it was at the end of June 2022. However, this price was at an all-time high back then. From November 2020, the market continued to climb reaching its cycle high at the very beginning of this year. Since then it has retraced those additional gains back to the November 2020 price.

Everyone was more than delighted with today’s price just a year and-a- half ago. If the market had declined first (after that November 2020 high), and then recovered back to today’s price, most investors would be ecstatic today…and yet it is the same price. The difference is only how we got here. For our perception, the path of travel is often more important than the price.

Sometimes It’s OK to Feed the Bear

Market volatility is inevitable and a part of the investment experience. Since 1926 the S&P 500 has experienced 26 bear markets – defined as a decline of 20% or more from its previous high. These periods are unnerving and uncomfortable, but they should not be unexpected. Volatility (aka “taking risk”) is the price an investor pays for a superior return on their investment. For a well balanced diversified portfolio, committing to the investment process should ultimately lead to a full recovery and on to new highs.

With this as a backdrop, corrections and bear markets can be viewed as opportunities to enhance a client’s wealth planning objectives. This is not market timing in the traditional sense but simply reframing a temporary market downturn into a positive long-term planning opportunity. Let’s look at some of these opportunities.

Add sideline cash

When markets are down substantially from their all-time highs, it is a great time to add accumulated cash to a long-term investment portfolio. The deeper the decline, the more the reward on those contributed funds.

For every dollar invested when a portfolio is down 40%, that dollar achieves a 67% return when fully recovered. See below for the “recovery return” after various levels of decline.

This is not magic market timing or crystal balls, it’s just math!

Make an IP change

In the same vein as adding cash to the portfolio, adding stock exposure through a more aggressive investment policy accomplishes a similar result. Tanglewood’s investment policies range from 30% equity to 100% equity. Turning up the equity dial a notch after a significant decline will take advantage of a downturn with more equity growth during the recovery.

It’s very important to keep in mind that with either of these moves you never know where the bottom will be. You might initially feel good investing or getting more aggressive when down 20% or 30% but only to see it continue to fall further from there. Being too early can cause pain and/or regret in the short-term, but doesn’t change the math or advantage ultimately achieved when fully recovered.

Roth conversions

For someone considering a Roth conversion, a market decline may be the perfect time to pull the trigger. The greater the decline, the more a conversion is “on sale”. Remember the conversion is taxable income in the year it is converted. Most often, the goal is to target a specific conversion amount to fit within the client’s tax budget. When market prices are low, more shares get converted to reach the desired conversion amount.

The real payoff comes when the market (eventually) turns around and the conversion recovers tax free inside the Roth instead of the taxable IRA.

Accelerate gifts

Gifting is a simple and smart way to transfer wealth and reduce estate taxes over time. Whether using the annual gift exclusion ($16,000) or making a significant gift that uses some of the $12,060,000 per person lifetime exemption, a bear market provides additional leverage since the gift values are temporarily depressed.

Business owners may also find this to be a good opportunity to gift depressed company stock if their business has also been negatively impacted. Splitting the stock into voting and non-voting shares will further reduce valuations and provide an opportunity to give away value without losing control.

Diversify

A sharp decline in market value should reduce the tax impact of selling an investment with a large unrealized capital gain. We recommend not letting the “tax tail wag the dog” but if realizing that large gain was a barrier to diversifying, a bear market may open up that opportunity and lessen the tax pain.

Tax loss harvesting

This strategy is nothing new and one that Tanglewood implements when the right opportunities present themselves. Selling positions at a loss and simultaneously buying a similar security, pockets the loss to use against gains later while remaining invested. They never go to waste as any carryover losses from one tax year roll over indefinitely until fully utilized.

Accelerate IRA RMDs

Similar to a Roth conversion, taking an IRA RMD when the market is down can be a tax wise move. The reinvestment of the RMD in an after-tax account essentially “steals” appreciation from the IRA and shifts that growth from an ordinary income tax environment to a capital gain environment.

Tanglewood’s Wealth Advisors stand ready to discuss and analyze whether any of these moves make sense in your particular situation.

Take Your Tax Ceiling Ratio With You

If you are a Texas homeowner, you are likely familiar with the term “homestead exemption.” However, there may be a wrinkle you are unfamiliar with.

When you turn age 65, you can fill out an application with your appraisal district to qualify for the over-65 homestead exemption. This is an additional $10,000 homestead exemption from school district taxes (on top of the $40,000 exemption from school district taxes for all homeowners).

The year you qualify for the over-65 homestead exemption is called the “freeze year.” The freeze year is an important concept because it establishes your “tax ceiling.” The benefit of the tax ceiling is that it caps your future school district taxes to the amount you pay in the year you qualified for the over-65 homestead exemption. This means your school district taxes may not go above the tax ceiling amount, unless you make changes to your home that your appraisal district deems to be an improvement (e.g., adding a new room or second story).

We have been asked, what happens to my tax ceiling if I move; do my property tax values reset? The good news is you can take your tax ceiling ratio with you. For example, if your home is appraised at $1,200,000 today but was valued ten years ago at $600,000 when your school district taxes were frozen at age 65, you currently have a tax ceiling ratio of 50%. If you decide to move to a new home in the same or other district, you can apply your 50% tax ceiling ratio to your new home. Your school district taxes will be 50% less than what they would be without the tax ceiling ratio applied.

The bottom line: If you are age 65 or older and are moving within Texas, make sure you take your tax ceiling ratio with you. It is a simple process. You or your title company requests a Tax Ceiling Certificate from your former appraisal district and then file it with your new appraisal district when you apply for a residence homestead on your new home.