Retirement Tax Issues You Could Face In Retirement

Does your retirement plan consider tax issues? It should -- or it could cost you valuable post-work money.

Taxes don't end when you stop working. Federal and state tax issues come into play in several retirement income areas.

The key focus of all retirement plans is ensuring you have enough money to live the retirement lifestyle you want. While you were working, you took advantage of workplace savings accounts such as 401(k) plans and individual retirement accounts.

If your IRA is a Roth account, you don't have to worry about tax issues with the Internal Revenue Service. You paid taxes on the money before you put it into your Roth IRA, and its earnings have grown tax-free. That means you don't owe the IRS anything on your withdrawals once you retire.

But if you're depending on traditional IRA or 401(k) funds, you will owe taxes. You never paid income taxes on the workplace plan or deductible IRA contributions. Plus, the earnings of these accounts are tax-deferred, meaning you owe tax at your ordinary income tax rate on money you take out in retirement.

And if you've delayed distributions so as to postpone those taxes for as long as possible, remember that the required minimum distribution, or RMD, rules compel you to withdraw certain amounts when you turn 70 . The IRS has life-expectancy charts, the most common one being the Uniform Lifetime Table, that help you calculate how much to withdraw.

Your private retirement accounts are designed to supplement your Social Security benefits.

But your added retirement income, whether from an IRA or pension plan, investment income or a job (including self-employment), could lead to taxes on at least part of your government benefits.

Retirees could pay taxes on up to 85 percent of Social Security benefits, says Mike Piershale, a Chartered Financial Consultant and president of Piershale Financial Group in Crystal Lake, Ill.

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Don't fall into these retirement tax traps

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08-10-2012 11:06 The mayor and Interim Interim Police Chief Chester Logan discuss the future of the department following Ralph Godbee's departure. Detroit — Embattled Police Chief Ralph L. Godbee Jr. retired Monday amid a scandal surrounding his alleged relationship with a subordinate female police officer and an investigation into whether he used police resources to spy on her. "It hurts me a great deal it has come to this," Detroit Mayor Dave Bing said. "I told him what my expectations were. He didn't live up to those expectations." From The Detroit News:

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Bing announces Detroit police chief's retirement - Video

Residents at some retirement homes are upset because they could soon be on the hook for additional costs caused by new provincial legislation aimed at making the homes safer.

The Ontario government passed the Retirement Homes Regulatory Authority (RHRA) in 2010 to keep homes maintained at a certain standard.

Retirement homes in Ontario must also now have a licence to operate, which could amount to an extra fee of $10 per month for each resident of a retirement home starting in November.

Some homes say they are covering those costs, but others are forcing residents to swallow the extra fee.

"I mean, the other option is to cut services and I really think residents come to a retirement home to gain those services," said Sharon Henderson, a spokeswoman for Chartwell Seniors Housing.

"To have those activities, to have the socialization, the nutritious meals, the housekeeping services, all of those things help make lives better."

Chartwell, which runs 80 retirement properties, now expects its total costs to increase to about $1 million per year. The company said it would pass the cost down to residents.

Residents at one of its homes in Ottawa were mixed on the idea.

But the government believes the cost, which was kicked off with $7.5 million of Ontario taxpayers' dollars and is now a self-funding model, is worth it to help prevent abuse and neglect to residents.

"It's going to bring protection to them (homes) in the long run. There have been homes that have been burnt down. There have been inquests into abuse situations. There have been people that have been living in conditions that are not good," said Mary Beth Valentine, CEO of the RHRA.

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New Ontario retirement home rules hike costs

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06-10-2012 19:04 Regi and Nick Allen talk about the recent TSM loss and Regi reveals his plans for Season 3.

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TSM Reginald makes huge announcement - IPL Exclusive - Video

Bob Andres - MCT

Denise McColister, 55, of Georgia says a retirement that was on track 10 years ago was derailed by an unexpected disability, job loss and erosion of her homes value.

ATLANTA -- A decade ago, Denise McColister envisioned a comfortable retirement around the time she turned 62.

At 45, I felt really secure, the Dallas resident, now 55, recalled. Back then, her husband made good money, and their house was paid for.

Then he became disabled and their house, which they had borrowed against, plummeted in value. Now, instead of padding her financial cushion, shes working a part-time call center job while hoping for a better position. Theres no retirement in sight.

Ill probably be working until Im called home, she said.

Many Americans have had to adjust their retirement dreams since the recession and housing bust. For some, like McColister, the question is whether they can ever retire.

Over 55? Retirement iffy

A study by the Employee Benefit Research Institute determined that 1 in 3 households headed by people now age 55 to 64 wont be financially prepared to retire even by age 70. Lower-income people face the biggest problem.

Its generally accepted that the effects of layoffs, flat-lined pay, declining property values and a turbulent stock market have eroded wealth to the point where many can no longer expect to stop working when theyre 65 let alone earlier.

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Retirement roadblocks mount for many

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04-10-2012 05:41 Michael Schumacher will retire from Formula 1 at the end of the 2012 season, the 43-year-old German announced on Thursday at Suzuka. Following last week's announcement that the seven-time world champion will be replaced by Lewis Hamilton at Mercedes, Schumacher called a press conference along with the team in Japan to call time on a career that has spanned 21 years and more than 300 races. Speaking of his decision, Schumacher said: "We did not achieve our targets but I can be happy about overall achievements in my career. "I would like to thank Daimler, Mercedes-Benz, the team, my engineers and my mechanics for the trust they put in myself. "I would like to concentrate now on the end of the season and enjoy those races with you." Schumacher added that he had felt his energy and enthusiasm had begun to wane, just as it did when he quit Ferrari and the sport the first time at the end of 2006. "I have been thinking for quite a while [about this]," he said. "We had a three-year agreement, hard to keep motivation and energy - it's natural you think about this more than when you are young. "I have had my doubts for quite a while whether I had energy to [carry on]. I said in 2006 my battery was empty and now I am in the red zone. I don't know if there is time to recharge them - but I am looking forward to my freedom. "I have no hard feelings. In a different way we achieved a great deal... "Now I will do exactly as I did the first time - to finish and focus 100 per cent on what I ...

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Michael Schumacher confirms F1 retirement 2012 - Video

If your jeans dont button quite as easily as they used to and your shirts feel extra snug these days, youre not alone: Thousands of older folks struggle with weight gain when they retire. So, is retirement making you fat?

At a time when out-of-pocket medical costs have been steadily rising for seniors, its a question thats just as important to financial well-being as to physical health. And its possible that retirement is connected to adding extra pounds, according to several recent studies.

A study from the Institute for Health Policy Studies titled The Effect of Retirement on Weight, for example, studied a group of almost 38,000 retirees and concluded that retirement is connected to modest weight gain. The study focused on body mass index, or BMI, which is calculated by dividing a persons weight by his or her height. The researchers found that the average person added .24 to their body mass index upon retirement.

Thats not a huge amount -- typically 2 to 4 pounds. But other research suggested that some subgroups of retirees were more vulnerable. In a separate study, women who retired were more likely to gain weight than their same-age working counterparts. A third study found that men who retired from physically demanding jobs were more likely than others to gain weight within six years.

So whats the explanation for these extra pounds? Some of the weight gain may be due to the fact that many people are less physically active when they retire, and that they have less structured meal times or change their eating patterns in retirement, according to a study from the University of Iowa College of Medicine. And some of it has less to do with retirement per se than with the aging process. Our metabolisms slow as we age, explains Desmond Ebanks, a doctor and founder of Alternity Healthcare, a medical practice that focuses on older patients. In fact, we have to give up about 5% of the amount of calories we are eating every decade after 40 if we want to prevent weight gain, estimates fitness and lifestyle coach Rona Lewis, author of Does This Cookbook Make Me Look Fat?

This weight gain can do more than just impact your body image -- it can cost you, big. There is no question that being obese or overweight is more costly than being of normal weight, write the authors of A Heavy Burden: The Individual Costs of Being Overweight and Obese in the United States, a 2010 study from researchers at George Washington Universitys School of Public Health and Health Services. In fact, the study showed that each year, morbidly obese people pay $2,845 more in medical costs than their normal-weight counterparts; severely obese, $1,566; moderately obese, $807; and overweight, $346.

The good news: Weight gain does not have to be a part of retirement, says Carmella Sebastian, a doctor and the senior medical director of clinical client solutions for Blue Cross and Blue Shield of Florida. Here are five things you can do to keep yourself slim and trim -- and potentially save money.

Eat better. It sounds like a no-brainer, of course, but its particularly important for retirees -- some of whom begin to eat out more or snack out of boredom, leading to weight gain, says registered dietician Lisa Hugh, who specializes in nutrition therapy. Ebanks recommends that retirees try to stay away from many packaged foods; avoid excess refined carbs (think white flour, sweetened drinks, and any form of table sugar); eat more fruits, veggies and whole grains; and make sure they get adequate protein.

Exercise more. Exercise is important to losing weight, but seniors need to do more than just cardio. Muscle is more efficient, so weight-lifting -- even small weights -- will increase muscle mass and hence, your metabolism, Hugh says.

Get enough sleep. Inadequate sleep can lead to weight gain, says Ebanks, who recommends trying to get seven to nine hours of sleep a night.

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Is Retirement Making You Fat?

SACRAMENTO A new law that seeks to establish a first-of-its-kind state-run retirement plan for low-income workers still faces numerous hurdles in the year ahead, but its author says the idea is already generating nationwide attention.

SB 1234 by state Sen. Kevin De Leon (D-Los Angeles), signed into law last week by Gov. Jerry Brown, creates a California Secure Choice Retirement Savings Trust, authorizes a major feasibility study of the idea and seeks approval for the idea from federal regulators.

As envisioned by De Leon, the plan would require private employers to withhold about 3% of the wages of employees who participate. The state would collect the money, invest it and eventually provide a modest sum to retirees who don't have traditional company pensions or 401(k) retirement plans.

But, under a compromise that led to final approval of the legislation, the retirement program cannot begin operation until it gets a final go-ahead. Once a market analysis study is complete and federal officials sign off on the plan, lawmakers must pass another bill specifically authorizing the program.

The new law is an important first step toward preventing a tidal wave of "discarded seniors" forced to retire with little savings or income after lifetimes of often difficult manual labor, De Leon said.

The state senator said he had already conferred with U.S. Labor Secretary Hilda Solis, a former California legislator and U.S. representative from Los Angeles. The retirement plan also has sparked interest from officials in New York state, Pennsylvania and Connecticut, De Leon said.

The bill "is definitely getting quite a bit of attention" from the national leadership of the AFL-CIO and other unions, said Steve Smith, spokesman for the California Labor Federation, a prime supporter of De Leon's proposal.

"It's really trying to address a problem that very few people are trying to address in this economy: the real retirement crisis. Here in California, as many as half the workers retire in poverty" with only Social Security benefits to sustain them, he said.

The bill creates a seven-person oversight board that includes the state treasurer, director of finance and controller. The governor would appoint two individuals with expertise in retirement plans and small business; the speaker of the Assembly and the Senate president would make one appointment each.

The board would contract with experts to conduct the market analysis using private or federal funds and would pursue the project only if it concludes that the retirement system would be self sustaining.

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State-run retirement plan idea for private sector draws attention

How much money will you need to retire? Probably more than you think! Extended life spans, reduced employer benefits, lower market returns and increased costs of living have forced us to have to save more. Unfortunately, most Americans are doing a poor job of securing their future. The Employee Benefits Research Institute reports that if current trends continue, by 2030, the annual shortfall between the amount retired Americans need and the amount they actually have will be at least $45 billion. If you want to avoid having to flip burgers at age 75, one of the best things you can do for yourself is to calculate now how much you'll need in the future.

The Need to Plan Two generations ago, corporate pensions and social security ensured a secure retirement for our grandparents. Today, pension plans have become virtually extinct, shifting the burden of retirement savings away from corporations and onto the employees. Our retirement depends largely not only on our own ability to save and invest wisely, but also on our ability to plan.

According to a survey from Allianz Life, 28% of workers between ages 55 to 65, are concerned they won't be able to cover basic living expenses in retirement. Most of these people will be forced to extend their work years or accept living in poverty. How can this disastrous scenario be avoided?

How Much You Need in Total Your first step in planning is determining how much you'll need.

Many studies indicate that retirees will need to between 70% to even 100% of their pre-retirement income to maintain their current standard of living. So, a reasonable target is one that will provide you with an annual income similar to the income you have now. Then you need to consider a "safe" withdrawal rate. This is the percentage of your retirement nest egg you will withdraw each year during your retirement. Research indicates that, if they have saved enough, retirees can best preserve their assets if their annual withdrawal rate is 6% or less. This provides a quick and dirty formula for determining the total amount you need to save by retirement: divide your desired annual income by the withdrawal rate.

So, for example, if you want to target a retirement income of $60,000 per year, you need to save $1 million ($60,000 / 0.06). The following table offers some quick estimates of how much you might need to accumulate before you can retire.

Clearly, planning for retirement is not something that you do shortly before you stop working. Because of the magic of compounding, the earlier you start, the less you'll have to save on a monthly basis - as illustrated in the table above. Lower rates of return or higher inflation, of course, will require a much higher contribution.

Planning for retirement is a lifelong process. Throughout your working years, your planning will undergo a series of stages in which you will evaluate your progress and targets and make decisions to ensure you reach them.

Resources for Saving for Your Future Now that you have an idea of how to determine how much you need, it's time to start using the tools available to you. First you need to learn about the types of retirement savings accounts, such as IRAs - and start reaping the associated tax benefits.

The Bottom LineIn summary, planning for your retirement is an ongoing process. The earlier you start, the better off you'll be. The key is to save, save, save! The more time you have on your side, the better your outcome should be. This requires discipline, self study and time. So, take advantage of the many tools available to ensure your success.

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Will Your Retirement Income Be Enough?

The Office of Personnel Management processed more retirement claims in September than in August, after receiving thousands more applications last month.

OPM completed 12,563 retirement claims in September -- the most claims processed in a single month so far this year and 1,063 more than it expected to complete last month. The agency received 11,952 new claims in September, 4,952 more than it anticipated, and 2,979 more than it received in August. The backlog now stands at 41,176 claims, down 33 percent since January.

A growing influx of new retirement claims this past summer, however, has slowed OPMs progress in tackling the backlog. The current inventory is down just 1.4 percent since August, partly because OPM received more new retirement applications in September than it has since January when it was hit with 21,479 new claims. Still, the agency is slightly ahead of its backlog projections: OPM estimated an inventory of 42,978 as of September.

Despite the slow and steady progress OPM has made tackling the backlog, many federal retirees still wait several months for their applications to be fully processed. On average, it takes 156 days to process a claim, but many retirees wait much longer than that for their full annuity checks.

After the influx of claims in January, the number of applications filed this year started to increase steadily in May. Since the beginning of 2012, OPM has received 86,676 new retirement claims. In the last nine months, the agency has processed a total of 93,878 retirement claims. During fiscal 2011, the agency processed 82,837 applications.

OPM administers benefits for 2.5 million federal retirees and processes about 100,000 new claims annually.

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Federal Worker Retirement Claims Surge in September