My wife asked…

My wife asked, “Why isn’t your blog more upbeat?”  I said, “Because ‘No Surprises Retirement’ is about preventing or mitigating bad retirement surprises.  It’s not ‘happy everything goes right retirement’, that’s a different guy.”  Then she hummed a funeral dirge.  There’s no pleasing some people.

Ch-ch-ch-changes – Retirement Adaptability

Things change over time, in our work and our life.  They also change when our ‘work’ is retirement.  A big topic in the news right now is the Republican tax bill that will make changes to taxes on individuals as well as corporations.  We won’t make any value judgments on the tax bill here, because the key No Surprises lesson is that tax changes will periodically happen (regardless of party) and your retirement plan will need to adapt to them.

The tax bill is not passed yet, so anything could happen to the individual provisions, but let’s examine a few of the current proposals and discuss their general effects on your retirement income plan.  My retirement income plan extends from next year, in case I have to retire suddenly and early, to age 90.  I don’t plan to retire until about 2020, but if I have an unforeseen early retirement, I have a plan.

Speaking of an unforeseen early retirement, the Society of Actuaries, in their 2013 Risks and Process of Retirement Survey, found that, “People actually retire at a much earlier age than people say they want to retire. In the 2013 study, the median age at which people retired was 58 compared to 65 as the median age when people said they want to retire. This is not surprising when involuntary and “pushed” retirements are considered.”

Tax rates change

As part of my budget, I look at my planned retirement income for the year (gross), then calculate what the Federal and state income taxes would be.  Subtracting the taxes from the gross leaves our spendable retirement income (net).  Those calculations are based on what the current rates (2017) are.  Once the Congress passes the tax bill, I will have to check out the new rates and recalculate to enable us to see what our new spendable income will be.

FIFO capital gains rules change

The easy explanation on this one is, if you were going to sell your stocks with the lowest gains first to minimize taxable income and capital gains taxes, you won’t have that flexibility in the future.  Specifically, if you are a person using non-qualified (not 401(k), 403(b) or the like) investments who planned on using stock or mutual fund sales, the revised tax code may require that all stock sales be made first in-first out.  Generally, this will mean greater gains subject to tax, with a corresponding impact to the retirement income plan and budget.

As it has been since Biblical times

Taxes are a fact of life.  It looks like they will change in 2018.  Given the demographics of the USA, with a lot of baby boomers retiring and using Social Security and Medicare, my suspicion is that they will change again in the relatively near future (8-10 years).

What you can do about taxes

The controllable parts of taxes are:

-Understand your retirement income plan and how the income components are affected by the income tax (yep, up to 85% of Social Security is taxable, depending on income).  You may want the advice of a trusted financial professional on this.

-If there are tax code changes you want, call your elected representatives, vote, and support advocacy organizations that advocate for your preference.

-Know that the ‘rules’ for 2018 taxes will be changing and figure out (perhaps with a professional tax advisor) if there are things you should be doing right now in these waning days of 2017.  You might be able to take advantage of the current ‘tax rules’ that will mitigate the impact of effects of the 2018 changes that would be negative for your personal tax situation.  (Example – Gifts of highly appreciated securities to charity are more valuable, tax wise, when rates are higher.)

Actions you can take include:

-Make sure you have an updated retirement income plan

-Make sure you have a retirement budget, based on a realistic assessment of net retirement income.

-One of the next No Surprises Retirement blog posts will be on life insurance.  If you’re thinking about getting rid of a policy and don’t have to this instant, you might get some ideas from the upcoming post.

Note: I plan to put out Excel templates for samples of both a retirement income plan and a retirement budget before the end of 2017, but you can likely find some with web searches if you want to start now, which you should…

Questions, comments, or suggestions for retirement surprise areas you want to know more about?
-Leave a comment
-Use ‘Contact’, above, to send an email.

Tax and Legal Disclaimer
The materials available at this web site are for informational purposes only and not for the purpose of providing tax and/or legal advice. You should contact your Enrolled Agent, CPA or attorney to obtain advice with respect to any particular issue

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