Gen X Is More Worried About Retirement

April 27, 2022 — Of all the current demographic generations, Gen X is the one most worried about its retirement, according to a research study from the SOA Research Institute. They are the folks born between 1965 and 1980, and are the next demographic group to start retiring. Gen X came immediately after baby boomers (1946-1964), but before Gen Y/Millennials (1981-1996), and then Gen Z. Gen Xers are currently between the ages of 42 and 57.

The SOA study researched a number of questions about their retirement preparation and feelings about financial security.

April 3, 2022 — For many people entering retirement, the holy grail is to find a state where their hard earned money won’t get taxed.  When it comes to  the 8 states that have no income tax, that’s easy: nothing will be taxed at the state level: not Social Security, pensions from any source, distributions from 401(k)s and IRAs, or interest, dividends, and capital gains.

But of the remaining 43 states and District of Columbia, a complex patchwork exists. Each state seems to have a unique approach to taxation, levying  taxes on some of these items completely or partially, while exempting others. Finding out which states tax what can be confusing, made more difficult because every retiree brings a different package of earning sources to the party. Because the states frequently change what is taxed and what is exempt, it is best to check state websites and or your accountant before basing any decision on this information, which should be used as a survey rather than a definitive guide.

8 states with no income tax

March 23, 2022 –  A worrying study by the University of Michigan’s Retirement and Disability Research Center found that many workers tend to overestimate how much they will receive in Social Security retirement benefits. That is concerning because that overconfidence has a negative impact on how much people save getting ready for retirement. About half of the survey takers noted that they wished they had done a better job of planning. Note that about half of Social Security recipients rely on it for at least half of their income. The average Social Security retirement benefit in 2022 is $1658 monthly. The maximum is $4194 (for someone who takes it at age 70).

Among the findings in the study:

February 15, 2022 — Everybody knows some things about Social Security, the benefit that changed retirement for the good when it was signed into law in 1935. Unfortunately, some of the items many people think they know either aren’t true, or are just plain wrong. This misinformation could have a serious and negative impact on the decisions they make, and their ultimate retirement well-being. One of the sources used in this article are the results from our 2020 Social Security IQ Quiz , where we looked at the answers that people tended to get wrong the most.

1. How many years you work doesn’t really affect your Social Security benefit that much.

Only 49% of people who took our 2020 quiz got this answer correct. The choices for how many earning years are used to calculate your benefit were 25, 30, or 35 – and the correct answer is that Social Security calculates your benefit on your highest 35 earning years (adjusted for inflation). While that might not seem that important a detail, it is, because every year you had no earnings counts as a zero!

January 16, 2022 — A significant number of workers underestimate their financial needs in retirement, and that includes calculating how much they will receive from Social Security. As a result they often retire too early and start taking their Social Security before they maximize their benefit. The end result is that they face an income shortfall in their retirement years. A new study from the Boston College Center for Retirement Research has concluded that taking a non-traditional job late in one’s career can help retirees avoid a serious shortfall in replacement income, and thus have a more comfortable retirement. Replacement income is defined as the ratio of a worker’s retirement income to pre-retirement income.

January 5, 2022 — With inflation going up and just about everything getting more expensive, retirement is getting even more difficult than ever. So the beginning of the year seems like a great time to come up with some ideas to help everyone spread their income a little further, possibly even increasing it, and not forgetting to have fun and enjoy life.

Some of the best ideas we have ever seen have come from Topretirements Members. Two previous articles (see Further Reading at end) generated over 200 Comments with many great suggestions. So in this article we provide some broad based tips, then encourage you to go over the Comments already made and mine them for things that could help improve your budget outlook.

Nextavenue.org recently profiled a couple, Joan and Steve Reid, who retired and moved from the affluent New York City suburb of Pearl River, N.Y., to Vero Beach on Florida’s East Coast. They had a very limited budget, $30,000, most of which was from Social Security and some small pensions. By attending to the basics the couple was able live surprisingly well in a great Florida town. We love their attitude, shown best by a quote from Joan: “We are not rich except in friendships, our art, our families and our souls” .

December 24, 2021 — The clock is running out for people who must take their yearly Required Minimum Distributions (RMDs) from their 401(k) or IRA plans. An RMD is the minimum amount you must withdraw from your account each year after you reach a certain age. December 31 is the deadline.

You generally have to start taking withdrawals from your IRA, SEP IRA, SIMPLE IRA, or retirement plan account when you reach age 72 (70 ½ if you reach 70 ½ before January 1, 2020). The deadline is April 1 of the year following the calendar year in which you reach age 72, if you were born  after Jun 30, 1949. Thereafter the deadline is Dec. 31.

Calculating your RMD

There are various IRS tables that tell you how much your RMD has to be (you can take out more if you want). The amount you take out is taxable in full. As an example, if you are 72 years of age the factor is 25.6. You divide your IRA/401(k) balance by the distribution period in the IRS Uniform Lifetime table to determine the RMD. So if your balance was $1 million, dividing by 25.6 would yield an RMD of $39,062.50. Each year as you age the factor increases, until at age 115 or older it is 1.9. The Uniform Lifetime table distribution periods are being revised to reflect current life expectancies, with new figures expected in 2022. Roth IRAs do not require withdrawals until after the death of the owner.

There is a far easier way to know your RMD, however. Your mutual fund company or broker will normally tell you how much you need to take out each year, as well as send out reminders to do so. If your IRAs are with more than one company it is up to you to make sure your total RMD reflects balances in all of your accounts. As a reminder, if you send money directly to a qualified charity that amount does not count as income (but you cannot deduct it).

If you haven’t taken yours yet – hurry!

The penalties for not taking RMDs are serious – 50% of the required distribution. It can take time to set up a withdrawal, so get on it today!

November 30, 2021 — It is amazing how many times this question comes up, usually from people who we consider very proactive about their retirements. There are no easy answers to the question, but there are some guidelines. Adding to the mix, if the provision of the Build Back Better plan concerning Roth conversions is included in any final bill that gets congressional approval, there might never be a better time to consider it than right now.

The legislation being considered would prohibit the conversion of after-tax assets from traditional IRAs and employer-sponsored retirement plans into Roth accounts after December 31, 2021. No one knows what will happen in congress these days. But, if you think that law has a chance of passing, this could be your last chance to convert.

What is a Roth IRA?

Basically, in a Roth IRA you contribute after-tax income into a tax friendly retirement account. The money you contribute and future income and gains are shielded from future taxation. Unlike regular IRAs, you don’t have to withdraw anything from it during your lifetime. And if you do, you won’t pay taxes on those withdrawals. The SECURE Act changed the law on how long a period your heirs (except spouses, minor children, etc.) have to withdraw the money – it now has to be completed over 10 years. Unlike contributions to a regular IRA or employer-sponsored retirement plan, you cannot deduct the initial contribution from your current income.

October 13, 2021 — Social Security and Supplemental Security Income (SSI) beneficiaries will receive a record 5.9 percent Cost of Living Adjustment (COLA) for 2022. It is the largest COLA since 1982. The increase is based on the Consumer Price Index (CPI-W) from the third quarter of 2020 through the third quarter of 2021. It translates to a $92 monthly increases for the average Social Security recipient, which will be welcome news to people seeing consumer prices rising all around them because of the pandemic and worldwide shortages. According to the SSA, 37% of men and 42% of women get at least half their income from Social Security.

The maximum taxable earnings (OASI) for 2022 will increase from $142,800 to $147,000 in 2022. The retirement earnings exemption limit increases by $600 to $19,560 ($1 withheld for every $2 dollar over that until Full Retirement Age). In the year someone reaches Full Retirement Age the exemption limit increases by $1,440 to $51,960 ($1 deducted for every $3 over the limit). Here is a link to the Social Security Fact Sheet.

Comments? Do you think the COLA will be enough to offset what you are seeing happen to your budget? Please share your thoughts in the Comments section below.

For further reading:
Overlooking Spousal Benefit Could Leave Him Clipping Coupons

September 8, 2021 — The latest Trustees report for Social Security shows that the COVID-19 pandemic and the 2020 recession are affecting the future of this popular program, but no one is certain exactly how that will play out. One thing the report does lay out is that the Trust Fund will become exhausted in 2033, one year earlier than projected last year.

Given the unprecedented level of uncertainty, the Trustees say there is no consensus on what the lasting effects of the COVID-19 pandemic on the long-term experience might be, if any.

Based on best estimates, the 2021 reports show:

• The Old-Age and Survivors Insurance (OASI) Trust Fund, which pays retirement and survivors benefits, will be able to pay scheduled benefits on a timely basis until 2033, one year earlier than reported last year. At that time, the fund’s reserves will become depleted and continuing tax income will be sufficient to pay 76 percent of scheduled benefits.

• The Disability Insurance (DI) Trust Fund, which pays disability benefits, will be able to pay scheduled benefits until 2057, 8 years earlier than in last year’s report. At that time, the fund’s reserves will become depleted and continuing tax income will be sufficient to pay 91 percent of scheduled benefits.

So many conflicting currents

The Covid pandemic caused millions of people to lose their jobs, meaning they did not pay into the Social Security system. Many people became disabled, which increased payouts by the Disability Trust Fund. On the other hand, over 650,000 people have died from the virus, so those people will not be around to collect their Social Security (although any survivors will). Immigration numbers are down, which means fewer people are paying into the system. Fertility rates declined in this period of uncertainty, which will have long term effects on the size of the workforce supporting retirees. How all of these factors play out, no one is sure.

Bottom line for lawmakers – do something!

The Trustees report finishes with this stern warning: “Lawmakers have many policy options that would reduce or eliminate the long-term financing shortfalls in Social Security and Medicare. Lawmakers should address these financial challenges as soon as possible. Taking action sooner rather than later will permit consideration of a broader range of solutions and provide more time to phase in changes so that the public has adequate time to prepare.” We couldn’t agree more – quit fighting silly political battles and do something about the ticking time bomb that is going to blow up Social Security!

For further reading:
Summary of the Trustees Report

Comments? If you were in charge, what would you do to save Social Security?