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Seniors face retirement 'perfect storm' in 2013

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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 MoreInflation 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."

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