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Thinking of retiring next year? Don't do it, financial experts say.
An estimated 7 million Americans will reach the age of 65 by the start of 2013, and many will no doubt be thinking about retiring.
But even if falling off the "fiscal cliff' is avoided, some financial experts are warning anyone thinking about trading in their paycheck for a retirement fund next year.
"It's kind of a perfect storm in 2013 when you think about it," said Jason Wheeler, CEO of Pathfinder Wealth Consulting.
"With questions about taxes, spending cuts, the markets, health care — and then put those together with the number of seniors wanting to retire or will lose their jobs — the year could be a rough one when it comes to retirement," he said.
Topping Wheeler's worry list for seniors are taxes.
"The magnitude of what a retiree will pay on their investments could really hurt their finances," he said. "And right now we don't know what that will be."
If no deal is reached to solve the fiscal cliff by Dec. 31, the Bush tax cuts end and rates go higher on capital gains and dividends.
As it stands now, the top tax rate on capital gains will jump to 23.8 percent from 15 percent and the top tax rate on dividends nearly triples to 43.4 percent from 15 percent. And any fiscal deal will likely include higher tax rates so seniors had better count on that when they plan for their retirement, said John O. McManus, CEO of McManus & Associates, a trust estates law firm.
"Many seniors may want to postpone retirement in 2013 because they just don't know what their tax rates will be," McManus said. "If the markets don't perform well and tax rates go higher, seniors will have a lot less money to spend. There's a lot of uncertainty about where this will all end."
But McManus said even planning for tax increases won't be easy.
"If someone retires in January but a deal isn't reached until March, will tax rates be re-retroactive? That's a big risk for someone thinking about retirement," said McManus.
More seniors than ever are depending on defined contribution plans to fund their retirement as traditional pension programs decline. Only one in five people in the private sector actually have a pension plan in place, according to the National Institute on Retirement Security.
And though the most recent IRS data show that more than 63 percent of taxpayers with qualified dividend income are age 50 and older, some 23 percent of workers don't participate in a retirement plan—leaving many seniors unprepared for their golden years.
"The vast majority of people don't have the money to retire," said financial planner Bill Losey, president of Bill Losey Retirement Solutions. "For instance, they don't max out the contributions to their 401(k)'s. I think people need to have two to five years' worth of expected income before they can think about retiring."
Another part of the storm facing seniors in 2013 is Social Security. Retirees will see an increase in their payments—but only by 1.7 percent, less than the 3.6 percent they got in 2012. That's because the payments are adjusted to inflation—which Wheeler said is low but not low enough.
"Food, clothing, gas, everything is inching up in price while salaries remain low," he said. "Seniors will feel the pinch if they retire next year." (Read More: Inflation Climbs.)
Inflation hurts those seniors who looked to fixed income investments like bonds, for retirement funds, said Chris DeGrace, first vice president for private wealth management at SunTrust Investment Services.
"Given how low interest rates are and will be for the next few year with what the Federal Reserve is doing, it's going to be hard for seniors to generate needed income," DeGrace said. "There will be more stress on them to find other types of guaranteed income streams."
If their incomes are going down, seniors face rising health care costs in 2013. A report from Fidelity Investments found that a 65-year-old couple in 2012 would need an estimated $240,000 to cover medical costs through their retirement — a 50 percent increase from 2002. That figure will likely increase to $260,000 next year.
And those on Medicare will see their monthly premiums go up from $104.20 in 2012 to $120.00 in 2013 — as well as increased taxes on the wealthy to help pay for Obamacare.
"More and more people are going to be responsible for their health care costs as they get older," Wheeler said. "Even with Medicare, and as companies stop providing coverage to their retirees, those costs loom large for seniors."
While 2013 presents unique problems, analysts say that in the end, planning for retirement never comes at an easy time, fiscal cliff or not.
"Seniors need to think about that if they leave the workforce, can they get back in, no matter what the year?" said Losey. "Are they retiring because they need a break? I've had clients say three to six months later that they want to work again because they are bored. And these days it's difficult for seniors to get jobs that pay well when companies are hiring younger people at lower salaries."
"It's not to say that 2014 will be a better year to retire," said McManus. "There are a always a lot of things people can't control, like the markets and global issues. I'm just saying that if you think about retiring in 2013 you need to take care and take caution."
Related links:
- Will ‘Fiscal Cliff’ Resolution Engulf Social Security?
- New Retirement Calculus Gives New Life to Tricky Annuities
- Social Security Overhaul: An Obama Legacy?
- A Smart Start to Retirement Investing
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If older workers were investing in real estate and similar investments instead of tax deferred retirement acounts, following the advice of this self proclaimed "wealth consultant", they have only themselves to blame if their easy money dreams don't pan out.
It's called life, Joe. Bad marriages and bad kids. Corporate buy-outs and then layoffs by the new management. Starting over. Many people were scared of "wealth Consultants" whose industry had a reputation for stealing from accounts and manipulation. Selling you the stock as it drops so the bigger accounts could buy the stock that was going up. Con men.
Beware of "financial advisors" who are trying to sell you annuities. There is no free lunch. Worst case, they'll take your money and you'll never get it back. I throw all those offers and invitations directly in the recycling.
I agree with joe mota. Tax-deferred retirement accounts such as an IRA with the right custodian are a good way to go. Mutual fund accounts through a no-load company are the best bet. But do not let an insurance agent talk you into putting your IRA into one of their accounts--it is just an annuity arrangement, and you won't be able to get it back out without penalty for several years, all the while you're losing money.
JayEll - You are generalizing and saying what may be true today, but not necessarily always. As a stock broker, I put some of my client's $ into annuities and they did very well and were quite happy. Right now annuities aren't doing well, but when interest rates were higher and the bond market robust, they did very well. As far as mutual funds. I'd never own them, even the no load funds. The people who run them don't do anything for free and you can lose money and still have to pay taxes on trading on the winners in the portfolio. I'd opt for high dividend paying blue chip stocks, or Senior Income Funds that are purchased like stocks. That way you don't have the ongoing Mutual Fund expenses.
The so called "cliff' is where we were when our lives were good, no one came any where near going to the poor house and no one came to take our houses from us.---or our jobs.
Progress seems to be the rich get richer and the poor get poorer.
Even more stupid to imply that a tax break for the middle class is a good thing, when the middle class doesn't have a job to get taxes deducted from.
What's really sad is that most pension plans sponsored by companies have been closed. You may ask why??? Well there used to be an accounting treatment that allowed companies to smooth single year market gains or losses over an extended period of time. When the markets were volatile like they have been over the last ten years, then the smoothing would not have major impacts on their financial statements. But thanks to our wonderful government, they eliminated the smoothing so rather than take the risk of volatile markets impacting the financials and stock prices, they simply shut down the plans. Thanks alot big government!
There is no security in this world and only damn fools and mice think there ever can be. I spent today hauling firewood for a co-worker who has no money to fix her furnace, and it did me at least as much good as it did her. This may be God's way of teaching us to love and care for each other because we sure can't depend government or corporate promises.
Its pretty obvious who has had war declared upon them. If the Death Squads don't get you government policy certainly will. Your earnings don't belong to you but to the Marxist Socialist State. Your lifes work has been for the pleasure of the State not your personal retirement. Your investments earnings belong to the State, not you and when you die, should you own property or a business, the Death Tax will be the ultimate nationalization of private property because your children will not be able to pay the Death Tax.
We should have all moved to California in the 1980's and have gone to work for a city, such as San Bernadino. 25 years laying in a rack in a Firehall or working out with weights daily (after your Kelly Day schedule of 3 or 4 days a week) and retire with a $100,000 a year in salary. Or be a cop hiding from the gangs so they don't hurt you and give old lady's speeding tickets. Retire at even more. No college necessary but being related will help.
From the article - "And those on Medicare will see their monthly premiums go up from $104.20 in 2012 to $120.00 in 2013 — as well as increased taxes on the wealthy to help pay for Obamacare. " WRONG! 2012 Medicare premium is $99.90 & is going up to $104.20 in 2013. If you are going to write an article at least get you facts straignt.
Patriotson - Where do you get a Medicare premium for 99.90. Mine is much higher and going higher next year.
You people in the private sector should just forget about retiring. You need to keep working till you die so people in the public sector can retire at age 50. Now shut up and get back to work. You are causing the public sector anxiety. They might just have to take a earlier disability pension due to stress.
Common Man - You are misinformed. My husband worked for the Feds in Civil Service for 40 years before retiring. At 69 and having cancer for 13 years, he's still working - couldn't handle retirement. Next year I think he'll retire for good - I hope he does. So who're you talking about?
Roth IRA 1st, 401K 2nd, pay off ALL debt (every $ of debt paid off is a $ of increased net worth).
Move to some place where you can afford to live.
Finally, if you have some savings in IRAs or ordinary investment accounts, learn about SELLING options. It's like having a private ATM or a license to print money.*
*Check out Palm Beach Current Income (google it) OR Subscribe to Stansberry Research's "12% Letter" for $99 a year, follow the stocks they recommend, look at the charts in Yahoo or whatever, and you'll notice big swings in price of individual stocks listed in 12% Letter. Sell a put option on a stock that's trending toward the lower end of the oscillation (i.e., it's 'on sale'). For example, let's say Intel has traded between 19 and 26 for the past year, and now it's 20, maybe sell a put option for 30 / 60 / 90 days out offering to buy it at 19 (just an example). Let's say the premium you'd be paid for it is $0.60, that means you'd be paid $60 per contract, $600 for 10 contracts. In an IRA, a hold on $1900 per contract would be placed in your account. Outside of an IRA, the margin requirement is about 20%. BUT, I would strongly suggest you have liquid funds to cover you, like a Home Equity Line or whatever, because you could trade maybe $100,000 with only $20,000 in your account and it IS POSSIBLE that with extreme market action, you might have to come up with the rest of the money. (As a practical matter, about 20% of my trades have been PUT to me, meaning I had to buy the stock, then I sold Calls to make more income on the stock I just bought. If the price stays above $19, the contract expires worthless and you get to do it all over again. You can do it on other stocks at any time as well. It's not rocket science. You just need to do this for a stock that you'd want to own anyway.
The cool thing is you're like saying to some guy, hey your vintage Mustang is worth $18,000 ... I'll be willing to buy it for $16,500 two months from now ... and oh, by the way, give me $500 bucks for the privilege RIGHT NOW!.
You get paid immediately, and most of the time, you don't have to buy the stock. If you do buy it, you can then SELL a CALL option, giving someone the right to buy the stock from you at a higher price. And, you guessed it, you GET PAID RIGHT NOW.
I would suggest it's worth your while at first to pay for professional advice, Palm Beach Current Income is I think $1250 yr for new members. I pay $650. And Stansberry's Daily Wealth Trader is $49 a month. Or you can wing it.
I'm retired, don't work for either of these company's, but I value their advice.
This is gambling. I don't gamble with my retirement money. I'm pretty smart, but not smart enough to pick stocks on my own. Good luck to you--hope you do well--but this reads like advertising.
Premium rates to go to $120...right AFTER the election. And, the following year, 2014, I hear they're to almost double. There are many hidden costs in that 3,800 page bill with lots of entitlements stuck in for good measure. Bend over seniors the best is yet to come...
Because private/corporate/for-profit health care is such deal.
I don't understand why everyone has such a twist in their underwear because Medicare isn't free. Did you all think it would be? All I know is that my health insurance costs are going to drop considerably when my Medicare coverage kicks in. I didn't expect to pay nothing. I'm glad Medicare exists at all--there was a time when it didn't.
Just some reminders to those who are bitter and angry:
No one owes you anything.
Life isn't fair.
Deal with what you have to deal with.
Your experience is what you make it, whether rich or poor.
Ran out of platitudes?
Ran out of patience with the whiners.
i know one thing, as a corrupt out of control government raises the taxes i will be working less. i am not going to work so hard just so obama and the democrats can give it to lazy people who do not want to work. i am not going to pay for obamaphones, food stamps, fake disability for people who oband and democrats use our money to pay for .. government has taken out the working man that produces.. to heck with it.. we can work less. democrats win.
Of course the welfare crowd doesn't have to worry about any of this when they "retire". They will continue to live in their subsidized housing with free heat and utilities. They will still collecting their SSDI, SSI, food stamps, Medicaid, free cell phone, etc.
Taxes? Just a joke for them. The only time they think about taxes is when they are complaining about other people not paying enough.
so quit whining and go on welfare. let all of know how it's working out after you do.
Despite the rise in taxes spoken about in this article, and despite the hardships being imposed on millions of Americans due to interest rates being close to zero and inflation still taking a bite out of yearly income I would still be optimistic If I thought the men and women we have elected to be our representatives were working as one to solve the biggest financial problems this country has ever faced. Unfortunately, that's no where close to what I believe is and will happen. Previous Congresses have adopted policies and passed Bills that have caused this country to spend over $16 trillion more than the government took in. In the last four years we have spent $1 to $1.5 trillion more than we have taken in in each of these years. The current talk isn't about what do we do about the enormous trouble this will cause in a mere 5 to 10 years. It's only about what can we do to just "cut" the amount we're overspending next year. Not balance anything, just cut the amount we're overspending. And then these folks will call this "cut" a savings. Absurd. Our President is determined to tax the rich more. Fine. Even though the current government definition of rich now goes all the way down to $200,000. And this new soak the rich tax will generate what? As I understand it, $82 billion dollars. Fine. We spent almost $1.2 trillion more than we took in last year. How far is $82 billion going to go to solve anything? We got bigger problems than that. And then I read today that the TSA has been granted a $9.63 million uniform allowance per year for the 45000 people who now man this newest group of Federal employees. Who now have their own union, the American Federation of Government Employees. Think the folks in our Congress will ever be able to stop spending money we don't have? From either Party? It's why instead of being an eternally optimistic American I now have little information that keeps me feeling that way and a lot of information that keeps trying to turn me into one big pessimist. Anyone out there who has any real ideas on what to do about the folks who work for us in Washington? Voting them out doesn't seem to scare them and neither does the deficit spending they continue to rely on to solve yesterday's problems.
Reverse mortgages are going to become a vital part of every retirees retirement plan. The line of credit option allows you to have funds available to draw upon, but you don't have to take the proceeds until you need them. Also you don't have to pay the loan back as long as you live in the home. To learn more about reverse mortgages check out this free resource I put together for seniors: www.ReverseFAQS.com
Some experts say that you should have $500K saved up before you retire.
That would mean that I had to save one half of my salary for 34 years.
Meanwhile, living on the other half I could only afford to rent a room in someone's basement
and eat Ramin noodles for my one meal a day.
These articles can be depressing,
Over the past 30 years, I saw many older workers going on for many years after they needed to work just to have a very rich retirement, like two or three pensions and some of those gov pensions on top of social security. Keep in mind that most people in their retirement have a lot less expenses than when younger so many of those that have their house paid off say in their 50's will be multimillioinaires in equivalent monthly retirement income with just an upper middle class job if that. You know it is so F'n obvious that the business CEOs/owners want to replace people with robots for last 30 years with their brilliant engineers and tech geeks helping them, that human beings are becoming obsolete except for serving pizza and coffee, etc. So the brains up in congress better start understanding with the Repub CEO romney like outsourcing and offshoring on top of the robots taking jobs in America, that we need to have shorter work weeks like 30 hours, lots of vacation days like Europeans, and early semi-retirement like half time work for those over 50 so young folks can get their old full time jobs. Sorry to say it folks, the Greatest Generation is that for not only winning WWII and killing Hitler, they got the best deal due to the balance between job creation and population size which ended about in Reagan's entry to office with Trickle Down on you economics and firing unions.
If I hadn't been FORCED to pay into SS and invested it like I wanted to do I could have retired now. But thanks to the politicians we keep electing who treat it like their own piggy bank for the general fund I can retire about 24 hrs. before I die.
I think it's wrong to tax Social Security. In retirement we have no deductions. Our home is paid for, the kids are out of the house, we have no tax write offs so our taxes are very high - much higher percentage than Romney and Buffett pay. As for entitlements. I paid into SS for 45 years and Medicare for 40 years and Medicare is deducted from my SS. You bet I'm entitled, I paid to be entitled and paid plenty. If those money grabbing politicians would keep their hands out of the SS and Medicare funds, we'd have plenty. Good healthcare should be a right, not a privilege of the wealthy.