Retirement Reform Blog

Several months ago, I wrote about the pros and cons of converting a traditional IRA to a Roth IRA (see Roth 2010:  Should You Convert?).  Beginning this year, any individual can convert to a Roth IRA and take two years to pay the taxes, regardless of household income level (in previous years, only those with household incomes below $100,000 annually could convert to a Roth).  Further research by “yours truly” indicates that a Roth conversion may be ideal for those who can pay the taxes on the converted amount and are still several years away from retirement (see my new NCPA publication, Should You Convert to a Roth IRA?).  After punching some numbers into ESPlanner, a financial planning software developed by NCPA senior fellow and Boston University economist Larry Kotlikoff, I found that the typical 40-year old couple can increase their living standard by as much as 15 percent at retirement by converting to a Roth now and continuing annual contributions to a Roth.  And who doesn’t want to have a fairly comfortable standard of living at retirement? Read the rest of this entry »

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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