I find it puzzling that you would want to pay a sum of taxes upfront rather than over a period of years to allow tax deferred funds to grow over time. You say that you are worried about being pushed into an income level where your medicare tax is higher. In your column you say that you are worried about taking RMDs which could put you into a higher tax bracket. Most people have the majority of their funds in tax deferred accounts because it allows them to save more than investing in something like a Roth. From your response it appears that you must have a relatively high % of your retirement funds in taxable and Roth accounts. I appreciate that it can be more valuable to have a smaller sum growing tax-free than it is to have a somewhat larger sum growing in taxable and tax-deferred accounts, but only if your mix of tax deferred vs tax-free and taxable is relatively even. Most people try to invest as much as they can over time and the best way to do that is to use tax deferred accounts whenever possible.
I would hope that you are taking into account the time value of money. If paying taxes bothers you so much it might be better to pay the taxes little by little over the next decade until the time you are required to take out those tax deferred $ from IRAs and tax deferred 401Ks. Take out a measured amount from tax deferred account(s) on a yearly basis so you reduce the amount you have at the commencement of your RMD withdrawal period while at the same time not taking out too much each year that you jump into a higher tax bracket. The IRS likes your strategy I'm sure but it would seem to be better to defer paying those taxes as long as you are able.
I am confused about something. Why is it that experts often do not mention state partnership LTC policies? According to the broker I purchased my LTC policy through, these policies are designed to be a way for states to share in the ultimate cost of LTC so as to hopefully minimize the state Medicaid expenditures by the state and to minimize the personal financial cost to the individual. I may not be representative, but my policy premiums have increased at a little over the Fed's 2% goal for inflation over a 15+ year period (while the increases have been intermittent and jarring) with a 5% inflation coverage increases. This is offset by the fact that I live in a high cost state for LTC. I have talked to several RIA's and they have never recommended buying such a type of LTC policy or getting a reverse mortgage which seems to scare financial advisors for some reason. I figure that I have to pay my property taxes and maintain the property no matter whether I have a reverse mortgage or not. The other advantage of a reverse mortgage is that they are a nonrecourse loan, meaning that the ultimate liability for any funds used is the market value of the home when the borrower leaves.
You worked for a company mostly composed of regulated public utilities. Do you think it is advisable for everyone to invest so heavily in the public company stock of the company that one works for? You appear to have been fortunate that the company you worked for has had a stable history. Many of us have worked for companies that are now much smaller and/or not around anymore. What % of one's retirement assets should revolve around a single stock, even if that stock is your employer or especially if that stock is your employer.
I know everyone hates reverse mortgages. But a reverse mortgage is a good supplement for retirees who are a little short on retirement savings. Yes, someone with a reverse mortgage has to make sure their home is maintained and that property taxes are paid, or their home can be lost. This, however, is true no matter whether the homeowner is 26 or 62 or whether you have a reverse mortgage or not. Money borrowed from a reverse line of credit does not have to be paid back until everyone on the reverse mortgage loan has left the property. Another advantage is that the reverse mortgage is a non-recourse loan which means that even if the amount borrowed is greater than the value of the home at time of final sale, the amount that has to be paid back is limited to the sale price of the house at the date of sale. There is no additional amount owed at the time of sale that is beyond the proceeds of the sale price at the time when the last reverse mortgagee has died or left the property. Survivors are not responsible for debts beyond what is covered by the final sales price of the RM property. Yes, it is true that the amount left to beneficiaries of the estate could get less than they otherwise would have if there was no RM.
The phenomena that you're speaking of is called sequence of return risk. Which is the risk of suffering investment losses late in the retirement accumulation phase or early in retirement. The way to address this issue is implement the use of annuities(not variable annuities, but products like deferred and immediate annuities) and to reduce the exposure to equities. Increasing the allocation to bonds is not the automatic answer when decreasing exposure to equities. The viability of bonds have changed significantly over time. From the early 80's to early 2000's was the period of the greatest bond bull market of all time. That is not the case right now. That will probably change as the current bond rates begin to moderate downward. For now, bonds are not a ballast to a portfolio but a detriment. Riskier junk bonds are the only bond sector that is positive in 2023. However, junk bonds go down like stocks in down equity markets. In 2008 top quality junk bonds dropped like stocks. Bottom line is this…in the current environment bonds are not the ballast to a portfolio that they have been traditionally thought of.
Defined benefit plans have decreased over the years. The fact of underfunded state plans is not relevant when talking about the decline of pensions when looking at the overall job market as it pertains to the availability of pensions for public and private sector workers alike. It still remains that govt and private sector unions are the primary source of pensions. As the book details, private sector companies have striven to rid themselves of the pension obligation. At the same time executive compensation and stock buybacks have risen. I'm sounding like one of those socialists. Except, it is not socialism. Companies taking care of their workers is about making companies responsible to not just strictly be shareholder focused. In the long run, companies who are strictly subservient to shareholders are not as successful as those whose stakeholders include not only shareholders but employees and society overall.
Given that, according to the BLS, only about 2/3 of workers have access to retirement benefits(defined contribution and/or defined benefit), it is hard for many workers to even be able to access such benefits. Small businesses that do offer these plans often price them at an expense ratio that subtracts significantly from a worker's overall savings balance,especially over a long period of time by subtracting plan expenses each year. Increasing the % of income that SS replaces is a laudable goal that is unlikely to be implemented in anybody's lifetimes. It is hard to see it ever being implemented. A more reasonable goal would be set up a Federal govt sponsored savings fund managed with investments in Treasury instruments and standardized equity indexes. Employers would be encouraged(and/or strongly pushed) to give their employees access. Their motivation would be that, especially for small firms, the incentive would be that this would be an incentive to reduce or eliminate their retirement plan costs. Anyone who laments the loss of pensions should read Retirement Heist: How Companies Plunder and Profit from the Nest Eggs of American Workers by Ellen Schultz.
As an eldercare expert, I assume you would recommend that people buy LTC using state partnership LTC policies that are more affordable due to the better control of future premium increases. My policy premium rate has increased at less than the inflation rate.
How people view the overall situation in the world depends very much on the particular situation we find ourselves in. If we find ourselves in good physical and financial health it is easy to say that money is not so important or crucial in our lives as we navigate the non-financial aspects of our lives in the retirement phase of life. If someone has worked a very physical or mentally exhausting work existence, retirement is a respite in a very busy life. For the latter person, in retirement money can be an emotionally fraught topic in one's life if money is not so easy a topic to think about because of one's previous actions as pertaining to job history, poor health, family disruptions etc. The emotional and financial life that a child is faced with in his or her family, depending on how they react, can have a profound effect on whether or not the child will eventually see their future retirement period as a time of daily life reflection or a time of daily money reflection. And by the way, $10K investments in FSPSX Fidelity International Index vs the S&P500 on 8/31/2013 would have quite different balances on 8/31/2023. The former would have a balance of $16,397 while the latter would have a balance of $33,379.
Comments:
I find it puzzling that you would want to pay a sum of taxes upfront rather than over a period of years to allow tax deferred funds to grow over time. You say that you are worried about being pushed into an income level where your medicare tax is higher. In your column you say that you are worried about taking RMDs which could put you into a higher tax bracket. Most people have the majority of their funds in tax deferred accounts because it allows them to save more than investing in something like a Roth. From your response it appears that you must have a relatively high % of your retirement funds in taxable and Roth accounts. I appreciate that it can be more valuable to have a smaller sum growing tax-free than it is to have a somewhat larger sum growing in taxable and tax-deferred accounts, but only if your mix of tax deferred vs tax-free and taxable is relatively even. Most people try to invest as much as they can over time and the best way to do that is to use tax deferred accounts whenever possible.
Post: Paying to Avoid Pain
Link to comment from May 16, 2024
I would hope that you are taking into account the time value of money. If paying taxes bothers you so much it might be better to pay the taxes little by little over the next decade until the time you are required to take out those tax deferred $ from IRAs and tax deferred 401Ks. Take out a measured amount from tax deferred account(s) on a yearly basis so you reduce the amount you have at the commencement of your RMD withdrawal period while at the same time not taking out too much each year that you jump into a higher tax bracket. The IRS likes your strategy I'm sure but it would seem to be better to defer paying those taxes as long as you are able.
Post: Paying to Avoid Pain
Link to comment from May 15, 2024
I am confused about something. Why is it that experts often do not mention state partnership LTC policies? According to the broker I purchased my LTC policy through, these policies are designed to be a way for states to share in the ultimate cost of LTC so as to hopefully minimize the state Medicaid expenditures by the state and to minimize the personal financial cost to the individual. I may not be representative, but my policy premiums have increased at a little over the Fed's 2% goal for inflation over a 15+ year period (while the increases have been intermittent and jarring) with a 5% inflation coverage increases. This is offset by the fact that I live in a high cost state for LTC. I have talked to several RIA's and they have never recommended buying such a type of LTC policy or getting a reverse mortgage which seems to scare financial advisors for some reason. I figure that I have to pay my property taxes and maintain the property no matter whether I have a reverse mortgage or not. The other advantage of a reverse mortgage is that they are a nonrecourse loan, meaning that the ultimate liability for any funds used is the market value of the home when the borrower leaves.
Post: How to Choose
Link to comment from April 1, 2024
You worked for a company mostly composed of regulated public utilities. Do you think it is advisable for everyone to invest so heavily in the public company stock of the company that one works for? You appear to have been fortunate that the company you worked for has had a stable history. Many of us have worked for companies that are now much smaller and/or not around anymore. What % of one's retirement assets should revolve around a single stock, even if that stock is your employer or especially if that stock is your employer.
Post: Took Time
Link to comment from December 10, 2023
I know everyone hates reverse mortgages. But a reverse mortgage is a good supplement for retirees who are a little short on retirement savings. Yes, someone with a reverse mortgage has to make sure their home is maintained and that property taxes are paid, or their home can be lost. This, however, is true no matter whether the homeowner is 26 or 62 or whether you have a reverse mortgage or not. Money borrowed from a reverse line of credit does not have to be paid back until everyone on the reverse mortgage loan has left the property. Another advantage is that the reverse mortgage is a non-recourse loan which means that even if the amount borrowed is greater than the value of the home at time of final sale, the amount that has to be paid back is limited to the sale price of the house at the date of sale. There is no additional amount owed at the time of sale that is beyond the proceeds of the sale price at the time when the last reverse mortgagee has died or left the property. Survivors are not responsible for debts beyond what is covered by the final sales price of the RM property. Yes, it is true that the amount left to beneficiaries of the estate could get less than they otherwise would have if there was no RM.
Post: Check Before Leaving
Link to comment from October 20, 2023
The phenomena that you're speaking of is called sequence of return risk. Which is the risk of suffering investment losses late in the retirement accumulation phase or early in retirement. The way to address this issue is implement the use of annuities(not variable annuities, but products like deferred and immediate annuities) and to reduce the exposure to equities. Increasing the allocation to bonds is not the automatic answer when decreasing exposure to equities. The viability of bonds have changed significantly over time. From the early 80's to early 2000's was the period of the greatest bond bull market of all time. That is not the case right now. That will probably change as the current bond rates begin to moderate downward. For now, bonds are not a ballast to a portfolio but a detriment. Riskier junk bonds are the only bond sector that is positive in 2023. However, junk bonds go down like stocks in down equity markets. In 2008 top quality junk bonds dropped like stocks. Bottom line is this…in the current environment bonds are not the ballast to a portfolio that they have been traditionally thought of.
Post: Some Gain, Less Pain
Link to comment from October 17, 2023
Defined benefit plans have decreased over the years. The fact of underfunded state plans is not relevant when talking about the decline of pensions when looking at the overall job market as it pertains to the availability of pensions for public and private sector workers alike. It still remains that govt and private sector unions are the primary source of pensions. As the book details, private sector companies have striven to rid themselves of the pension obligation. At the same time executive compensation and stock buybacks have risen. I'm sounding like one of those socialists. Except, it is not socialism. Companies taking care of their workers is about making companies responsible to not just strictly be shareholder focused. In the long run, companies who are strictly subservient to shareholders are not as successful as those whose stakeholders include not only shareholders but employees and society overall.
Post: Retirement Do-Over
Link to comment from October 16, 2023
Given that, according to the BLS, only about 2/3 of workers have access to retirement benefits(defined contribution and/or defined benefit), it is hard for many workers to even be able to access such benefits. Small businesses that do offer these plans often price them at an expense ratio that subtracts significantly from a worker's overall savings balance,especially over a long period of time by subtracting plan expenses each year. Increasing the % of income that SS replaces is a laudable goal that is unlikely to be implemented in anybody's lifetimes. It is hard to see it ever being implemented. A more reasonable goal would be set up a Federal govt sponsored savings fund managed with investments in Treasury instruments and standardized equity indexes. Employers would be encouraged(and/or strongly pushed) to give their employees access. Their motivation would be that, especially for small firms, the incentive would be that this would be an incentive to reduce or eliminate their retirement plan costs. Anyone who laments the loss of pensions should read Retirement Heist: How Companies Plunder and Profit from the Nest Eggs of American Workers by Ellen Schultz.
Post: Retirement Do-Over
Link to comment from October 14, 2023
As an eldercare expert, I assume you would recommend that people buy LTC using state partnership LTC policies that are more affordable due to the better control of future premium increases. My policy premium rate has increased at less than the inflation rate.
Post: Stepping Up
Link to comment from October 4, 2023
How people view the overall situation in the world depends very much on the particular situation we find ourselves in. If we find ourselves in good physical and financial health it is easy to say that money is not so important or crucial in our lives as we navigate the non-financial aspects of our lives in the retirement phase of life. If someone has worked a very physical or mentally exhausting work existence, retirement is a respite in a very busy life. For the latter person, in retirement money can be an emotionally fraught topic in one's life if money is not so easy a topic to think about because of one's previous actions as pertaining to job history, poor health, family disruptions etc. The emotional and financial life that a child is faced with in his or her family, depending on how they react, can have a profound effect on whether or not the child will eventually see their future retirement period as a time of daily life reflection or a time of daily money reflection. And by the way, $10K investments in FSPSX Fidelity International Index vs the S&P500 on 8/31/2013 would have quite different balances on 8/31/2023. The former would have a balance of $16,397 while the latter would have a balance of $33,379.
Post: On Second Thought
Link to comment from September 15, 2023