Retirement Reform Blog

Beginning in 2013, the recently passed health care reform bill will impose new Medicare  taxes on unearned income for single filers with adjusted gross incomes of  $200,000 a year or more and joint filers with AGIs of $250,000 a year or more.  The new 3.8 percent will apply to any rent, royalties, dividends or capital gains above those income thresholds.  This is in addition to regular capital gains and dividends taxes.  In a new brief analysis, I show the implications of the Medicare tax as well as Obama’s proposal to raise the capital gains tax for high-income earners (better known as the “wealthy”).   The bottom line is that these taxes will have the potential to reduce the after-tax rate of return on an investment by nearly one percentage point, or more than 10 percent. Read the rest of this entry »

An article about 401(k) plan fees caught my eye this morning.   It seems that employees are taking a more active role in fighting high 401(k) fund fees, whether it be through pressuring their employers to provide lower cost funds, or simply taking their employers to court over fee disclosures.  There has been concern from Congress over the past few years regarding plan fees, so no doubt this issue will be addressed by Congress eventually. Read the rest of this entry »

Earlier this year, the NCPA released a Brief Analysis on the 2010 tax law change that allows individuals of any income level to convert a traditional IRA to a Roth IRA.  For most people, the benefits outweigh the costs.  But a New York Times article released today gives some important  tips on how to convert.  If you are considering a Roth conversion, but are not  into following up and paying attention to detail, you may find yourself unintentionally paying the tax bill out of the Roth IRA, as well as a 10 percent penalty.   Most Roth mistakes can be fixed within 60 days of conversion, says the Times.   But procrastinators beware!

In honor of 2010, the Wall Street Journal provides a year-long guide to fixing your finances.  (See article).  While I would normally enjoy pontificating over these common sense steps, I have very little to add here…but..oh wait, I do feel the need to put in a word here about retirement savings.

The past couple of years have been rough for retirement savings.  While most will likely stay the course in 2010 and continue saving, some may be tempted to cash out and play to lottery or try a Madoff-style investment in order to get rich quick.  The fact of the matter is nobody gets rich quick.  There is no magic bullet.  If monthly retirement saving seems boring, well, that’s because it often is.   If the quarterly 401(k) or IRA statement is not jumping out at you with a 25 percent rate of return, that is to be expected. 

Let 2010 be the year of common sense…save regularly, don’t time the market, and as Warren Buffet once said, “Beware of geeks bearing formulas.”

When it’s time to retire, will you have enough in savings?  If you have made and are making wise personal investment decisions, the answer is likely yes.  But, if you were automatically enrolled into your employer’s retirement plan and are letting that employer make your investment decisions for you, the answer could be no.

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It’s about time…the good news about 401(k)s has finally surfaced, thanks to an article from the Wall Street Journal.   After all the hand-wringing over 401(k) balances that took a tumble last fall, and ideas proposed by some in Congress over what to do about it (mainly nanny-state schemes of allowing the government to manage retirement accounts), it has been noticed that balances are bouncing back.   (Thank you to WSJ’s Karen Blumenthal) Read the rest of this entry »

 "The question isn't at what age I want to retire, it's at what income."  ~George Foreman
 

I came across an informative article in Monday's Dallas Morning News, "Retirement Readiness."  (This article is also available in the New York Times). Two financial advisors in North Carolina put their pre-retiree clients through a "boot camp" designed to prepare them for what it will feel like when they retire. It helps people determine if they will truly be ready to retire at the age they plan to do so.  It got me to thinking about what retirement is really all about. 

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A recent New York Times article discusses whether the best time to retire is at 62 (early retirement) or at 70.  Its conclusion: hold out as long as you can.  This must, however, be taken with a grain of salt.  Getting the timing of retirement right depends on several factors, and no two families are exactly alike.

For a single person, probably the most important question is how long do you plan to live?  If you are "in poor health and probably won't live past 78," you might want to take benefits at early retirement, says the Times.  Ideally, if you expect to live a long time and can work past retirement, then 70 is the best time to take benefits.  

If long life is the expectation, but you can't work till 70, then 66 seems to be the magic number.  This option is best even if a retiree has to use retirement savings to make it to 66 to file for Social Security benefits.  That's because the increase in benefits gained by retiring at 66 instead of 62, eventually makes up for the savings used to make it to 66.  Waiting any longer than 66, seems to exhaust savings too much to make up for higher Social Security benefits.

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Do you want to pay the piper now, or later?  Currently, only households making less than $100,000 a year or spouses filing jointly can convert their traditional Individual Retirement Account (IRA) into a Roth IRA.  But as noted in a recent Wall Street Journal article those restrictions will be lifted in 2010, so that workers of any income level can convert their traditional accounts to a Roth.  Traditional IRAs allow workers to save money tax free now and pay taxes when they withdraw their money during retirement.  Roth IRAs, on the other hand, allow workers to pay taxes on retirement savings now and withdraw it tax free later.   If you're not sure whether a Roth IRA is right for you, check out the NCPA publications "To Roth or Not" and "Would You Benefit from a Roth IRA?"  

In my recent study, Ten Ways to Wreck Your Retirement, I pointed out that relying too much on home equity for retirement income can spell trouble.  A Wall Street Journal article has reiterated the potential pitfalls of relying on a mortgage to make you rich.

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