Retirement Timetable for Baby Boomers

Last week I read an article written by Mary Beth Franklin in the magazine, Investment News.  It did such a great job summarizing the key ages related to Retirement Planning, I have republish it in this weeks blog message for your benefit.


Milestones and markers

These days, the road to retirement can be a bumpy ride. And soon it’s going to look like rush hour as Baby Boomers turn 65 at the rate of 10,000 people per day, every day, for the next 17 years. Yet an astonishing 17% of transition Boomers — those 55 to 65 years old — have yet to start saving for retirement, according to a 2012 survey by Allianz Life. Therefore, we’ve created a set of signposts to help these stragglers boost their savings, take advantage of tax breaks and watch out for the curves ahead.



Age 50

Catch-up contributions
In the year you hit the big 5-0, you can start stashing more money into your tax-deferred IRA and 401(k) or Roth accounts. In 2012, those 50 and older can add an extra $5,500 to their employer-based retirement plans on top of the $17,000 allowed for younger workers for a total of $22,500. Next year, the catch-up amount remains the same but the maximum contribution increases to $23,000. Those 50 and older can also contribute an extra $1,000 into the traditional or Roth IRA for a total of $6,000 in 2012 and $6,500 in 2013.


Age 55

Penalty-fee 401(k) distributions for early retirees
If you leave your job at age 55 or older, you can tap your 401(k) or other employer-sponsored retirement account penalty free, avoiding the normal 10% federal tax penalty on early withdrawals. But you’ll still owe income taxes on distributions. The early-out exception does not apply to IRAs which penalize distributions before age 59 ½.

It’s also the age when individuals with a high-deductible health insurance plan can contribute an extra $1,000 to a tax-deferred H S A in both 2012 and 2013 to pay out-of-pocket medical costs tax-free. You can roll over unused H S A funds from year-to-year, making it an ideal way to supplement retirement savings.


Age 59 ½

IRA pay day
Begins the eligibility for penalty-free distributions from IRAs and other qualified retirement plans. But some employers don’t allow distributions from workplace-base plans while you’re still on the job.




Age 60

Early claiming for survivors
Widows and widowers can collect Social Security survivor benefits as early as age 60, but the amount will be reduced by as much as 28.5% compared to claiming benefits at their normal retirement age and benefits. Survivor benefits may be reduced or even eliminated if they continue to work.



Age 62

Early access to Social Security benefits
You can collect retirement and spousal benefits as early as age 62, but benefits will be permanently reduced by up to 25%.




Age 65

Medicare kicks in
If you are already collecting Social Security benefits, you will automatically be enrolled in Medicare. Part A, which covers hospital costs, is free. Part B charges a monthly premium, currently about $100 per month for most beneficiaries, If you’re not yet collecting Social Security benefits, you’ll have to apply for Medicare.

Once you turn 65, you can no longer contribute to a Health Savings Account, but you can spend the money on anything, penalty free. However, you’ll owe income taxes on any non-medical distributions.


Age 66

The magic number
66 is the magic age for Social Security benefits. You qualify for your full benefits, you are no longer subject to the earnings cap restrictions if you continue to collect a paycheck and you can engage in some creative claiming strategies to maximize benefits.




Age 70

Maximum Social Security benefits
If you haven’t started collecting retirement benefits, now is the time to start even if you keep working. Delayed retirement credits, worth 8% per year starting at age 66, end once you turn 70.




Age 70 ½

Mandatory draw-downs
After all those years of tax-deferred retirement savings, Uncle Sam wants his cut. You must start taking annual minimum distributions from your IRA and other retirement accounts (except Roths) based on your life expectancy. If you don’t, you’ll owe a 50% penalty on any amount you fail to withdraw.




Post-Election Update Part 2 – A Few Suggested Investment Strategies

Last week I received the most comments of any of my blog posts to date.  Many of the responses asked for more comments and suggestions related to the type of investments and strategies which should be implemented moving forward.  I will use this week’s blog to provide some suggestions as well as links to articles which go into greater detail about different investment strategies.

Most of the suggestions deal with financial planning surrounding the increases expected in tax rates.  Therefore I suggest you may want to consider the following:

  1. Increase in Capital Gains Tax – Since the long-term capital gains rate is set to increase from 15% to 20% you may want to consider selling highly appreciated assets.  If you have any holdings which are in a loss position you could offset some of the gain by selling them.  If you still like the appreciated investment, you can immediately repurchase the investment and obtain a new higher tax basis for the future.  Usually I recommend the opposite which is called tax harvesting.  Meaning you sell the asset which has a loss, capture that tax loss and then wait 31 days before you repurchase, this is called the “Wash Sale Rule.”  But in a gain scenario you don’t need to wait for the holding period.  Feel free to call me with questions about this strategy.  Please read this article for further suggestions about tax loss harvesting, tax gain harvesting as well as other strategies you may want to consider.
  2. Tax Preferred Retirement Accounts – Fully funding your retirement accounts makes great sense if taxes are going up in the future, especially if you are able to contribute to a Roth IRA or Roth 401k at work.  (As a side note, fully funding your retirement accounts makes sense to do even if tax planning was not involved, BECAUSE IF YOU DON’T PLAN FOR YOUR RETIREMENT, WHO WILL?)  By fully funding your tax deferred retirement accounts you are able to defer current taxes and enjoy the benefit of compounded growth.  Now may also be a good year to consider doing a full or partial Roth Conversion.  Here are some articles on the subject:
  3. Favorable Tax Planning Investments REITS – Generally I recommend placing anywhere from 10% to 20% of a client’s holdings in non-publically traded Real Estate Investment Trusts or REITs.  The reason I use them is to generate bond like returns which smooth out the volatility of a client’s portfolio.  The REITs I recommend are currently paying a dividend rate of approximately 7% before any potential appreciation caused by the exit strategy.  The types of non-publicly traded REITs I recommend offer low management costs, they purchase Class A shopping centers or medical related properties at below market and new construction costs, have income which more than covers the monthly dividend paid to investors and offers a timely exit strategy of 3 to 5 years.  In addition when some of these non-publicly traded REITs are held in taxable accounts they offer great tax benefits as well.  They may offer up to 100% tax sheltering of all monthly income paid out and when the investment is actually sold, the gain is taxed at lower long-term rates instead of ordinary income rates.  For more information to see if these types of investments are suitable for you, please call or email me.

If you would like to meet and discuss your situation further, please feel free to call or email me.

To Your Successful Retirement!

Michael Ginsberg, JD, CFP® 


Post Election Update

Even after the candidates, unions, business groups and other special interest groups spent billions of dollars on the campaign, the end result is that we still have the same divided government that we had last week.  President Obama was reelected the Republicans will control the house with a 41 vote majority and the Democrats will control the senate with a 10 vote majority.  The bottom line is that any piece of major legislation will require bi-partisan support, something the Democrats did not have to do with the stimulus, healthcare or financial industry reform measures.  They had super majorities during the first half of President Obama’s presidency and never worked in a bi-partisan manner.

Generally, re-elected Presidents start to think about their legacy, and President Obama privately conceded during an off the record interview that if he was re-elected he will need to tackle the deficit and entitlement spending issues.  Unfortunately, his actions so far appear that he will continue to outsource major legislation to Congress just like he did with the stimulus and health care laws and not take a hands-on approach.  After his re-election Instead of calling congressional leaders back to Washington in order to deal with the “fiscal cliff,” he gave a campaign style speech and went off to play golf.

Most Washington Economists believe that there will be movement towards dealing with the deficit issues.  The major drivers of the deficit are Social Security and Medicare.  These experts believe that it will be possible to push changes through which include means testing of benefits, higher income levels on which social security and Medicare taxes are paid on and pushing the retirement age out.  It is also generally agreed that these changes will only affect those under age 55.

The “fiscal cliff” has been called the “mother of all lame duck session issues.”  If congress can’t agree to soften the tax increases and spending cuts tied to the “fiscal cliff” package of issues, most economists believe that there will be a 3.5% decrease in GDP.  Since the GDP is currently only growing by 1.25%, this means that there will be a drop in GDP, resulting in a recession starting in the 1st half of 2013.

So what are some strategies to prepare for higher taxes and slower economic growth?

  • If you were thinking about selling or diversifying assets with significant gains, you should sell them this year.
  • Be prepared for greater market volatility.  This is due to the high degree of uncertainty along with greater number of assets being sold to avoid the increase in capital gains rates.
  • Consider municipal bonds and tax deferred investments.
  • Consider Roth IRA Conversions.  Even if you convert this year, you can always revert back by October 2013 if positive changes or decreases in market value don’t benefit the conversion.
  • Take advantage of higher gifting this year.

If you would like to meet and discuss your situation further, please feel free to call or email me.

To Your Successful Retirement!

Michael Ginsberg, JD, CFP®