The Retirement Savings Time Bomb (55, pensions, weather, move)

[oldsoldier1976]

Okay yesterday I started reading this book by Ed Slott titled "The Retirement Savings Time Bomb and How To Defuse It". If you have not read it I recommend it highly. I especially recommend it to anyone who is putting away a lot of money (relatively speaking) into savings vehicles that will make up the bulk of their retirement income.

Okay so now that I have your attention I want to point out that our government will be awash with income soon. The point he was making in the book and why that savings is a time bomb is that a lot of this IRA money is pre-tax savings and tax deferred. That means there is going to be a big tax bite coming from this. Also because this is a relatively new phenomena IRA's have only been around since 1975 it is the boomer generation that it has the greatest impact on. Boomers like us have inherited estates from their parents and that combined with savings in taxed deferred accounts will be a bright cherry that our spend thrift government will want in on. We created it by electing this group of vampires and telling them to create a system that is going to cost everyone big money. It isn't even just the programs for our own people but it is the whole package. The money we give to other countries (most recently the Palestinians 500 million). If you think of how much as a group boomers like us have in tax deferred don't kid yourself the government and the IRS knows that money is going to be coming their way.

So all of your thoughts?

[TuborgP]

You have hit a nail right on the head. There only a few institutions in our society that are sitting on large sums of money in reserve:
Public Pensions
Corporations
Retirement Accounts
Investment Accounts

Government and the supporters of big government and wealth redistribution or as some prefer the safety net only have a few places to turn to if they want to keep feeding the machine. We know from the many posts in this and other forums the desire to do so is there. Many progressives have floated ideas about retirement accounts and in this society we have group identity think in which we lump similar people to together and expect them to be source of support for others lumped with them. Not saying any of this is right or wrong but that it is.

[mathjak107]

it may be a mixed bag as far as future revenue. while you do have taxes due on retirement momey the rmd table is spread out way beyond most life expectancy. that means our kids will inherit much of it and have their life time to pay the taxes.

the other issue is most up us had no 401k to defer taxes as baby boomers during much of our working years.. we did manage to put much smaller amounts in our ira's .

the kids today have 401k's available to them so there may be just as much new deferred money that will have no taxes due for decades saved as spent in rmd's by retirees.

also at age 65 you have extra tax incentives that reduce the taxes on 35k pulled from taxable retirement income to only 1500 due in taxes.. some states like new york don't tax the first 20k in pensions. other states have no state taxes.
throw in tax rates that allow more and more income through every year at less and less tax and the whole windfall may not amount to as much as you think.

[oldsoldier1976]

Originally Posted by mathjak107

it may be a mixed bag as far as future revenue. while you do have taxes due on retirement momey the rmd table is spread out way beyond most life expectancy. that means our kids will inherit much of it and have their life time to pay the taxes.

the other issue is most up us had no 401k to defer taxes as baby boomers during much of our working years.. we did manage to put much smaller amounts in our ira's .

the kids today have 401k's available to them so there may be just as much new deferred money that will have no taxes due for decades saved as spent in rmd's by retirees.

also at age 65 you have extra tax incentives that reduce the taxes on 35k pulled from taxable retirement income to only 1500 due in taxes.. some states like new york don't tax the first 20k in pensions. other states have no state taxes.
throw in tax rates that allow more and more income through every year at less and less tax and the whole windfall may not amount to as much as you think.

On the last line I hope that is the case. First off the savings money I have is play money. Yes I said play money for me and my wife. The two of us stuck with me being national guard and federal employee and will enjoy just over my current income cola adjusted so the savings we have is to enjoy time together.

Red and blue highlights are key in my book. NY is brutal as is CT and RI on retirees. Yes there are nice things in the state but financially COL in those three states are high as is CA and even WA. Let's not get started on the DC area. There are good states to move to that make more financial sense. Everyone has to weigh the cost of the move and other aspects on if it is for them.

On the first point that it is a mixed bag I agree. It is though us as boomers that are going to run that path and see where it leads. Other generations will have larger nest eggs and they will probably need it since COL will rise.

The last point you are spoiling the book for me . Should I have waited for the movie?

thanks mathjak

Oh and now back to the book!

[mathjak107]

good tax planning is a good thing no matter what we think the out come will be.

there are other tax torpedos out there that i think will catch folks blindsided.

one of which is the big push in to indexing and etf's.

good tax planning wants your equities in taxable accounts where you can take advantage of special capital gain rates and write off losses.

well index funds and etf's spin off very little in the way of capital gains through the years.

that is a good thing at that time. however as you get closer to retirement many will unwind some of those funds and change strategy .

they are in for a tax shock when unlike actively managed funds you where get a capital gains distribution each year along the way ,these etf and index funds can owe an incredible amount of taxes over time.

[evilnewbie]

A bulk of my retirement savings is currently in Roth IRAs... I do have a SIMPLE IRA, another retirement contribution plan, and a HSA account (semi-401k) which will be taxable upon withdrawal... I am thinking about primary residence in a non-tax state for greater than half the year to exempt myself from state taxes... I am still trying to figure out how to avoid Federal taxes... don't know of one yet... perhaps I could open a business and have losses to offset it?

[texdav]

[quote=mathjak107;28912838]it may be a mixed bag as far as future revenue. while you do have taxes due on retirement momey the rmd table is spread out way beyond most life expectancy. that means our kids will inherit much of it and have their life time to pay the taxes.

the other issue is most up us had no 401k to defer taxes as baby boomers during much of our working years.. we did manage to put much smaller amounts in our ira's .

the kids today have 401k's available to them so there may be just as much new deferred money that will have no taxes due for decades saved as spent in rmd's by retirees.

also at age 65 you have extra tax incentives that reduce the taxes on 35k pulled from taxable retirement income to only 1500 due in taxes.. some states like new york don't tax the first 20k in pensions. other states have no state taxes.
I agree with that. Retirees are not going withdraw all that money and its like over 20+ years.Most will withdraw less than they made before retiring.Then of course there is pensions which most crease once both parties are gone. Overall with boomers retiring and numbers of those working :I don't see government really gaining revenues unless laws are changed which is why so many liberals want higher inheritance taxes on estates.Many of the really rich certainly plan to disburse much of their money to causes of their choice thru foundations that avoids govenment spending it also.We see much of this in government estimates of funding programs in the future that benfit seniors because of the nmubers working and contributing as bommers continue to redcue the work numbers funding those programs.One other problem is that China and japan both have aging populations . Much of their savings is invested towards retirement and alot in assets that are future US debt.Alos this recessio and its lagging resulots mean at the elast five years of loss gains by senior even if we are now even with 2007 or slightly above taking continued new investment out of the picture.

[StealthRabbit]

Originally Posted by evilnewbie

A bulk of my retirement savings is currently in Roth IRAs... I do have a SIMPLE IRA, another retirement contribution plan, and a HSA account (semi-401k) which will be taxable upon withdrawal... I am thinking about primary residence in a non-tax state for greater than half the year to exempt myself from state taxes...

I too am structuring ROTH accts as a last resort to avail some non-taxable income. (I have WAY too much % in 'Qualified' accts, having been in 'retirement savings' program for over 40 yrs, non-accessible for several yrs, or do a 72T)

SD is the state of choice for Domicile.. PO Box and 24hr per yr domicile requirement to get license / voter registration.

I also am in a state with no income taxes and limit my investment properties to those states. (Currently have WA, TX, soon adding TN, SD)

I am still trying to figure out how to avoid Federal taxes... don't know of one yet... perhaps I could open a business and have losses to offset it?

As you know the IRS is also watching for you to do that 'business'... so... NOT a reasonable idea for the LONG term (except assure you will be dealing with IRS for the LONG TERM). If you haven't retired YET, or have a windfall yr... you can do a section 179 (accelerated depreciation), and start a business and defer taxes (till you liquidate the business)

Since the tax code is getting a HUGE rewrite this yr (scary, with current 'secretive / BIG gov / socialist agenda') We all may need to re-write out LT strategies. (retirees have significant challenges to RE-WRITE their LT withdrawal / investment strategies). SO.. for today, the only significant way to get tax exempt income is selling your Primary Residence every 2 yrs (presumably for a gain...). There are several tactful ways to do that and even better, utilizing (domiciling) in a state that is income tax free while doing so. (for your 'other' income). I am on that path and perfecting the strategy at the moment. When I get a bargain property that I want to 'flip' (in less than 24 months) I do a 1031 exchange into something else that I can EVENTUALLY roll to primary residence and sell tax free (stiffer rules... 5 yr HOLDING vs 24 month) You still need to LIVE in it for 24 months of the 5 yr period to fully realize the tax free benefit. (There are exclusions to THAT requirement too... financial need, health, job change of 40 + miles, Multiple BIRTHS...)

I am acquiring choice properties in areas attractive to seniors, so that I can later 'try a few places on' while converting to primary residence:OK:. I intend to 'carry the paper' with minimum 30% down, and convert my 'properties to income stream' post age 70... (should I make it that far.)

IF USA tax still allows tax free income from flipping primary residence, I will remain on that path. You can do that very 'Stealth'... a mailbox and tee-pee (or a trashed $500 RV) will work JUST be sure you make it appear like you LIVE there....

[evilnewbie]

Originally Posted by StealthRabbit

I too am structuring ROTH accts as a last resort to avail some non-taxable income. (I have WAY too much % in 'Qualified' accts, having been in 'retirement savings' program for over 40 yrs, non-accessible for several yrs, or do a 72T)

SD is the state of choice for Domicile.. PO Box and 24hr per yr domicile requirement to get license / voter registration.

I also am in a state with no income taxes and limit my investment properties to those states. (Currently have WA, TX, soon adding TN, SD)

The problem with SD is that it is SD. There isn't really a general problem in getting residency in any state. You still have to spend more than half the year in SD to qualify for primary residence. I think I would choose another state such as TX or FL. Better weather and all..

As you know the IRS is also watching for you to do that 'business'... so... NOT a reasonable idea for the LONG term (except assure you will be dealing with IRS for the LONG TERM). If you haven't retired YET, or have a windfall yr... you can do a section 179 (accelerated depreciation), and start a business and defer taxes (till you liquidate the business)

Since the tax code is getting a HUGE rewrite this yr (scary, with current 'secretive / BIG gov / socialist agenda') We all may need to re-write out LT strategies. (retirees have significant challenges to RE-WRITE their LT withdrawal / investment strategies). SO.. for today, the only significant way to get tax exempt income is selling your Primary Residence every 2 yrs (presumably for a gain...). There are several tactful ways to do that and even better, utilizing (domiciling) in a state that is income tax free while doing so. (for your 'other' income). I am on that path and perfecting the strategy at the moment. When I get a bargain property that I want to 'flip' (in less than 24 months) I do a 1031 exchange into something else that I can EVENTUALLY roll to primary residence and sell tax free (stiffer rules... 5 yr HOLDING vs 24 month) You still need to LIVE in it for 24 months of the 5 yr period to fully realize the tax free benefit. (There are exclusions to THAT requirement too... financial need, health, job change of 40 + miles, Multiple BIRTHS...)

I am acquiring choice properties in areas attractive to seniors, so that I can later 'try a few places on' while converting to primary residence:OK:. I intend to 'carry the paper' with minimum 30% down, and convert my 'properties to income stream' post age 70... (should I make it that far.)

IF USA tax still allows tax free income from flipping primary residence, I will remain on that path. You can do that very 'Stealth'... a mailbox and tee-pee (or a trashed $500 RV) will work JUST be sure you make it appear like you LIVE there....

There is no need to worry about the IRS considering it will be a real business in every sense but there are no rules that require you to be a "good" worker for that business. Acquiring property and flipping it is a legal strategy but I don't think that kind of life is for me or for most people due to kids, jobs, etc.

[StealthRabbit]

Originally Posted by evilnewbie

The problem with SD is that it is SD. There isn't really a general problem in getting residency in any state. You still have to spend more than half the year in SD to qualify for primary residence. I think I would choose another state such as TX or FL. Better weather and all...

No, only (1) 24 hr period required for domicile in SD (and why so many RV'rs choose Tax Free / Emission Free SD.) ANd scenic, central, and nice too!

Of course you want to be on the move enough to NOT trigger the Domicile clasp of some state like CA I thought we were talking 'retirement forum' here... not kids, jobs, etc...

There is no need to worry about the IRS considering it will be a real business in every sense but there are no rules that require you to be a "good" worker for that business. .

There are SEVERAL 'means' tests the IRS will apply to your business venture to discern if it is: a Hobby, legitimate self employment, or a tax shelter.

You MUST be profitable (and DEMONSTRATE signs of viability) within 5 yrs (7yrs for a farm / ag where you must BUILD a herd / orchard / soils...). Some folks drag several businesses on and on, BUT do so at their peril under the watchful eye of IRS. (Not my idea of a 'retirement strategy') YMMV