FRONTLINE correspondent Hedrick Smith (The Wall Street Fix, Is Wal-Mart Good for America?) investigates this looming financial crisis, and the outlook for middle class Americans, in Can You Afford to Retire? airing Tuesday, May 16, 2006, at 9 P.M. ET on PBS (check local listings).

Converting your Traditional or Rollover IRA to a Roth does have an income restriction right now, your AGI needs to be under $100k (married filing jointly).  That income restriction would be eliminated in 2010 under the new tax bill.

Taxpayers who convert their IRAs in 2010 would be allowed to spread out the tax payments. Those who convert in 2010 wouldn't have to pay any tax on the conversion that year.  They would be allowed to pay half their tax bill in 2011 and the other half in 2012.

USAToday provides the details.

But if you're itching to call your financial adviser, put down the phone. You can't convert your IRA until 2010.

The Roth IRA provision is supposed to generate $6.4 billion in revenue over 10 years, offsetting some of the cost of extending lower tax rates for capital gains and dividends. But to meet certain revenue-raising targets in the bill, lawmakers postponed the effective date of the Roth provision, says Tom Ochsenschlager, vice president of taxation for the American Institute of Certified Public Accountants.

If a person who was eligible for Medicare on or before Feb. 1 of this year decides not to enroll before the May 15 deadline, he or she will not be able to enroll again until Nov. 15. In addition, if that person decides to enroll after the deadline passes, he or she will be assessed a penalty of 1 percent of the premium per month.

Visit the Medicare site to enroll.

 

Here's another helpful article on generating a paycheck from your retirement accounts from Morningstar. 

Sequence of Withdrawals
The issue of how to sequence your withdrawals in retirement is a particularly important one. It almost always involves careful tax planning. It's not uncommon for retirees to have many different streams of income (pensions, Social Security, nonqualified distributions, etc.) and pools of assets (taxable accounts, retirement accounts, etc.).

• Set up a cash pool that will cover 2-5 years' worth of expenses. Take your regular distributions from this pool and periodically fill it up.
• As a general rule, make withdrawals from taxable assets before tax-deferred assets. If you have a particularly large IRA, there may be exceptions.
• If you're in your late 50s and must tap a retirement account, take distributions from your company retirement plan instead of your IRA.
• At retirement, consider taking out company stock held in a retirement plan (not rolling it over) to potentially convert ordinary income tax to capital gains tax.
• Use substantially equal periodic payments from IRAs to avoid the 10% early withdrawal penalty.
• Tap your Roth IRA last.

 

We've summarized several articles from the Journal of Financial Planning on this site.  Their articles on retirement withdrawal rates are extremely important for anyone who does not want to outlive their money.  Here's an article that gives us strategies on "harvesting" (creating a cash flow) from their retirement accounts.

I hope everyone survived tax season.  It can be stressful.

There's some help on that front from a new study published in the April issue of the Journal of Financial Planning. Authors John Spitzer, an economics professor at the State University of New York at Brockport, and Sandeep Singh, a finance professor there, looked at various combinations of retirement portfolios to see which harvesting strategies made the most sense.

Here's what they found:

-- If you take out less than what your investments earn on an after-tax basis every year, it doesn't matter how you withdraw your funds. To be sure of doing that, you'd have to stick with a "safe" withdrawal rate of 4 percent a year. So if you had a $500,000 well-diversified nest egg, you could probably withdraw $20,000 in the first year and 4 percent of what's left each year without running out of money. If you need more than that, say 7.5 percent of your savings in the first year, you'll have to do some juggling to make your money last as long as possible.

-- If your portfolio is split between stocks and bonds, deplete the bonds first. The study found that if you spend the first seven years of your retirement pulling money out of bonds and letting your stocks ride, your money will last three years longer.

There is a bit of a risk here: Most experts say that as you age, it's safer to keep a higher percentage of your portfolio in bonds to guard against stock market losses.

These findings run directly counter to that and suggest that bigger withdrawals require the greater risks of stock investing. In any portfolio that's divided between two assets, "it is clearly better to first take distributions from assets that have a lower expected return rather than a higher one," the authors say.

Here's the summary Reuters article and the original article written by John J. Spitzer and Sandeep Singh from the Journal OF Financial Planning (April 2006).

Here's an article that explains some of the benefits our elected officals receive.

Members of Congress occasionally lose elections, but they never lose retirement and health benefits that most Americans can only envy.

A lawmaker who retires at 60 after just 12 years in office can count on receiving an immediate pension of $25,000 a year and lifetime benefits that could total more than $800,000.

That doesn't include 401(k) benefits. And any member who lasts five years in office also can get taxpayer-subsidized health care until he or she reaches Medicare age.

"I don't think that many people in Congress would be quite so indifferent to the demise of the defined-benefit plan if they didn't have such a robust plan themselves," said James Klein, president of the American Benefits Council, which represents companies with pension plans.

You may have received a 1099-R in your January mail if you did a distribution from an IRA or rolled over a employer plan into your IRA.  Bankrate.com explains this form.

What the 1099-R tells you:
Box 1 of the form shows the total amount of your retirement fund that was distributed. The more important amount to you right now is in box 2a, the taxable amount. For direct rollovers from one qualified plan to another, that amount is generally zero.

Also check box 7, the distribution code. A letter or number should be here, explaining to the IRS exactly why your retirement money was taken out and just what was done with it. Direct rollovers to another qualified plan are coded with the letter "G." This includes transfers to another company's 401(k) plan, a tax-sheltered 403(b) annuity, a government 457(b) plan or an IRA.

Here's another topic that generates a lot of emails to our site.  Roth IRA conversions.

If you have a Traditional IRA or a Rollover IRA-eventually you'll pay taxes on this money.  Remember the Roth IRA allows tax free withdrawals.  So investors who may be in low tax brackets will do the conversion and establish the new Roth.  We've noticed several fund families allow this conversion right over the phone.  You'll want to check with your tax advisor as your Adjusted Gross Income needs to be under $100k to be eligible.

Bankrate.com gives us complete information.

Converting a traditional IRA to a Roth gives you that future tax-free benefit, but at an immediate tax cost. You'll have to pay taxes on contributions that you previously deducted, as well as on the accounts earnings.

Conversion also could push you into a higher tax bracket, especially if you've accumulated sizeable earnings over the years.

We found several articles on annuities this week.  Jonathan Clements who writes for the Wall Street Journal and Humberto Cruz, syndicated in many Sunday papers share their insight on annuities. Here's the Jonathan Clements article.

Here are five tips for immediate-fixed annuity buyers.

Get a fistful of quotes from your insurance agent or from a Web site like www.immediateannuities.com. There's often a wide spread in the income offered by insurers, so it pays to shop around.

Many annuity buyers opt for a guarantee, such as promised payments for 10 or 15 years. But I wouldn't bother, unless taking the guarantee involves only a tiny cut in the annuity's income. Instead, to eliminate the risk that you will invest a huge chunk in an annuity and die soon after, consider making smaller annuity purchases each year through the first 10 years of your retirement.

If you buy income annuities over time, that will also give you the chance to reduce risk by buying from different insurers. Even then, stick with top-rated insurers.

To protect against inflation, purchase an annuity where payments are linked to inflation or where your annuity check is stepped up each year by, say, 3 percent.

If you're married, consider a joint-life annuity, where the income is paid until both of you have died. Because you are insuring two lives, your annuity investment won't be wasted money if one of you dies prematurely. Buying a lifetime income stream could also be a smart move if you're worried about your spouse's ability to manage the household's finances after your death.

The Employee Benefit Research Institute's annual retirement confidence survey has found that about 68 per cent of workers are confident about having adequate funds for a comfortable retirement, up slightly from the 65 per cent recorded last year.   Unfortunately some of the savings numbers in this report don't make me feel confident at all.

• Modest savings: More than half of workers saving for retirement report total savings and investments (not including the value of their primary residence or any defined benefit plans) of less than $50,000 (52 percent). However, the large majority of workers who have not put money aside for retirement have little in savings at all: Three-quarters of these workers say their assets total less than $10,000 (75 percent).

• Expected benefits unlikely to materialize: Many workers are counting on employer-provided benefits in retirement that are increasingly unavailable. Only 40 percent of workers indicate they or their spouse currently have a defined benefit plan, yet 61 percent say they are expecting to receive income from such a plan in retirement. Likewise, workers are as likely to expect (37 percent) as retirees are to receive (40 percent) retiree health insurance through an employer, despite the fact that the number of employers offering this benefit is declining

Visit the Employee Benefit Research Institute site for The 2006 Retirement Confidence Survey

Many employer plans such as 401k's and 403b's are not very tax friendly at death.  Many of these plans actually cash out a non-spouse beneficiary on the death of the account holder.  Large employer plans send a check out to the beneficiary creating an immediate taxable event.  This is the primary reason most investors do a direct rollover to an IRA and take advantage of the the "stretch-out".

A Stretch IRA is not a special type of IRA account. A Stretch IRA reflects an approach to estate planning that attempts to maximize the tax-deferred growth potential (or tax-free it it's a Roth IRA) of IRA assets by leaving them in the IRA for as long as the law permits.

Even though the tax rules allow the stretch option for beneficiaries of 401(k) and 403(b) plans, most companies don't permit it. The reason is simple -- the stretch can take place over decades. If a company allowed that, then it would be responsible for all of its administration. There isn't any benefit to a company to do so, while it exposes it to potential liability.

Instead, most company plans will cash out the beneficiaries at the death of the employee. The good news is that a surviving spouse can always roll over an employer's retirement plan into his or her own IRA. The bad news is that beneficiaries, such as your children and grandchildren, cannot. However, upon leaving an employer, by transferring your 401(k) assets into an IRA provides the ability for these beneficiaries to receive payments from an inherited IRA during their lifetimes.

The Armchair Millionaire gives some tips on organization.

Retirement Accounts

This is where you'll keep all of your retirement-account statements. Create a file for each retirement account that you hold, especially the quarterly statements. You don't need to keep the prospectuses that the mutual-fund companies mail you each quarter.
However, if you have a company retirement account, you should definitely keep the sign-up package indefinitely because it tells you what investment options you have -- something you should review annually.

Social Security

Put your most recent Social Security Benefits Statement in this folder. If you haven't received one by mail, request it online at www.ssa.gov [http://www.ssa.gov/]. You should receive an updated statement every year so be sure to file the most current document.