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 »

Here we go again.  Panic in the stock market has set in, yet again, due to every direct or indirect domestic or international incident known to man.   Maybe Greece.   Maybe Senate-passed financial regulations.  Maybe unemployment.  Maybe somebody pressed the wrong button on their computer.  Or maybe somebody sneezed. Read the rest of this entry »

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 »

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.”

 "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. 

Read the rest of this entry »

Much attention has been given to the out-of-pocket health care costs seniors will likely incur during their retirement years.  (See our recently published Brief Analysis on this topic.)  A Fidelity study found that the average senior retiring this year at age 65 will need $240,000 during his or her lifetime to pay Medicare premiums, out-of-pocket costs, and the like.

Read the rest of this entry »

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.

Read the rest of this entry »

A recent article in the Wall Street Journal confirms what I pointed out in a recent NCPA study, "Ten Ways to Wreck Your Retirement."  Tapping into retirement accounts is not the best option!  Certainly, desperate times can call for desperate measures, but it's important to bear in mind the true cost:  penalties, taxes and the lost opportunity of reaping a market comeback. 

A recent article on Forbes online discusses the benefits of "pensionizing" one's 401(k) as a way to dam up the flood of money leaching from the ever downward-spiraling market:

"Seeing how well most 401(k) plans have done in the past year, the answer still seems to be that for many, added flexibility is no replacement for steady, guaranteed returns. But those days are long gone for many. But that doesn't mean that even in a down market that you can't try to trim your losses. How? Do like the pensions do and re-balance your portfolio ever six months or so, selling off your winners and bumping up your losers. This way you're always selling high and buying when things are cheap. "The only way that the investor is going to be able to respond accordingly is if they are aware of what is happening in their portfolio," says Roseman."

Read the rest of this entry »

Fresh from the Employee Benefit Research Institute, a new survey found that many people plan on postponing retirement and working longer than they originally anticipated.  The reasons?  A bear market, economic worries, and less confidence in how much they have saved for retirement.

Read the rest of this entry »