Taxes and inflation will have a huge impact on our retirement income.  Scott Burns explains how our Social Security benefits are taxed at retirement.

For a couple, the taxation of benefits begins when your other sources of income plus one-half of your Social Security benefits exceeds $32,000. Today the average Social Security check is $1,048 a month, or $12,576 a year. So an average two-earner couple may have benefits of $25,152. Subtract one-half of this amount from $32,000 and you have the amount of income they can have from other sources before benefits become taxable — $19,424.

Once their other income exceeds $19,424, every additional dollar causes either 50 cents or 85 cents of benefits to be added to their taxable income.

I'm going to give this a shot before I start the BBQ this evening.  Hope you're having an enjoyable Memorial Day!

Courtesy of AARP.  The Daily Sudoku

The California teacher pension system faces a $19.6 billion funding gap over the next three decades, despite three years of strong investment returns, according to a new report.

That means teachers, school districts and the state will need to boost contributions to the nation's second-largest public pension system, the actuarial consulting firm Milliman reported.

Milliman projected the fund needs a 3.3 percent boost in annual pension contributions to end the deficit. Currently, school districts pay 8.25 percent of payroll toward teacher pensions, while the state pays 2 percent and teachers contribute 8 percent of their pay.

The California State Teachers Retirement System (CSTRS) is the nation's second-largest public pension system.

403b plans will probably undergo some changes next year.   These plans offered by schools, hospitals and non-profits will get more oversight and be similiar to 401k plans.   Several 403b experts point out the changes in these employer plans.

Understand all your options when you leave the federal government and start distributions on your Thrift Savings Plan.  Here's a TSP distribution booklet online.

Start by trying to save 2x your annual salary.   Jonathan Clements offers a million dollar savings strategy.

Mr. Farrell figures the breakthrough occurs at around two times income. Let's say your salary has hit that $80,000, you have amassed $160,000 in savings, you are socking away 12% of your pretax income each month and your investments earn 6% a year.

Over the next 12 months, your $160,000 portfolio would balloon to $179,518, or $19,518 more. Your monthly savings would account for $9,600 of that growth. But the other $9,918 would come from investment gains. In other words, you've got to the crossover point, where the biggest driver of your portfolio's growth is now investment earnings, not the actual dollars you're socking away.

GasBuddy.com provides weekly update on gas prices.   Ouch, this isn't helping our retirement!

The IRS has a helpful page of links and publications that provide retirement information.

Have you heard of the "age 55" rule?  If you anticpate needing money from you retirement plan prior to age 59 1/2 you might not want to do a rollover into an IRA. Kiplinger.com explains the age 55 rule.

If you are at least 55 in the year you leave your job, you may be able to withdraw money from your 401(k) at any time without penalty. But if you roll the money over into an IRA, you're generally hit with a 10% early withdrawal penalty if you touch the cash before age 59½.

Social Security has a long-term financing problem. More of us will soon be collecting benefits with not many more paying taxes to support the program. The Social Security Fix-It book is a short, colorful guide to the program, its financing issues, and the leading proposals for eliminating the shortfall. Cheerfully narrated and easy to read, this book seeks to raise public awareness to achieve a long-lasting solution.

Boston College Center For Retirement Research  publication on Social Security.

CNNMoney.com provides some tools to help determine your retirement replacement rate.

Researchers recently published a study in the Journal of Financial Planning that provided guidelines for how much you need to save for retirement based on your age and income. The percentages they provide assume you will want to replace 80 percent of your pre-retirement income, except - and this is important - that 80 percent is after deducting the amount you save for retirement.

So, for example, if you earn $80,000 a year and save $10,000, the researchers assumed you would need 80 percent of $70,000, or $56,000 in retirement. The idea is that you don't need to replace the dollars you're saving for retirement since they don't reflect our pre-retirement spending.