HOW TO RETIRE TAX FREE: Advice from a Retired National Radio Show Host
Be one of the first to broadcast a never before told story on why millions of Americans can lose 40% or more of their retirement nest egg once they retire
With 25 years as a nationally known radio talk show host, Jim Jorgensen can light up your phone lines and scare your listeners with how much money they can lose in their IRAs, 401(k)s or pensions once they retire.
Jim’s not talking about the future – the future is here as millions of retirees already pay more for Medicare premiums and receive less in their Social Security retirement check.
Host: I’ve read your book, but I didn’t know half the money in my IRA and 401(k) could be lost in retirement.
Jorgensen: That’s right, what most working people don’t know is after income taxes, earnings tests and means testing as much as half the money they’ve saved for retirement will be lost. But there’s a way to have tax-free money when you retire and I outline a plan for anyone socking money away in a 401(k) or IRA.
Host: A shocker is that money in a 401(k) or IRA we’ve saved for retirement could cost me my entire Social Security retirement check. How could that be?
Jorgensen: That’s because withdrawals in retirement with means testing could cost you your retirement check. Congress is already working on how your taxable income in retirement will reduce or eliminate your Social Security retirement check.
Host: In the book you point out how important it is to hold our savings for retirement
in tax-free accounts. Is this the key to spending the money once we retire?
Jorgensen: The key today is to build a retirement nest egg of tax-free cash if you expect to avoid the loss of maybe half the money you have in retirement. That’s what this book is all about.
ABOUT THE BOOK...
Retire Tax Free: Avoid the IRA Tax Trap and Win the Retirement Game
By Jim Jorgensen
Today can change your life! Retire Tax Free is the first book to outline how you could lose 40% or more of the money you withdraw from your IRA, 401(k) and pension once retired due to taxation. Unless you understand earnings tests, means tests and income tax traps, your Social Security retirement check could be reduced or even eliminated. Plan to Retire Tax Free now, before it’s too late!
What’s Ahead for Our Retirement Years?
Throughout this book I’ve tried to give a glimpse of the future as I see it. I have tried not to be unduly pessimistic, but it would be foolish to be unrealistic. It would also be foolish to expect the current rules of retirement planning to remain unchanged. With the need for more tax revenue to cover a soaring debt I believe Congress will continue to find ways to reduce the cost of Social Security and other social programs.
For example, from a Social Security report in 2010 we learn that raising Social Security’s full retirement age from the current sixty-seven to sixty-nine is a thirteen percent cut in benefits, no matter what age an eligible worker retires. This is on top of a thirteen percent benefit cut that occurred when the retirement age was increased from age sixty-five to sixty-seven for people born after 1960.
The other plan is to adjust downward the taxable income thresholds to allow more retirees to be subject to higher taxes and greater loss of benefits. That’s because increased taxes and reduced benefits is the fastest way to control entitlements that threaten to consume over half the federal budget in the years to come. And make no mistake; with little notice to working Americans, much of this additional means testing will also apply to unsuspecting retirees.
Think of trillions of dollars of un-taxed cash sitting in employer pensions, IRAs, 401(k)s, 403(b)s and other company-sponsored retirement plans. This enormous pile of cash has to someday be withdrawn as workers retire. Already ways to substantially increase the government’s take on releasing this un-taxed money is floating around Congress:
• Lower the annual taxable income in retirement to meet the means tests. This could make one hundred percent of your Social Security retirement check subject to ordinary income taxes. Currently, for most retirees, it’s eighty-five percent. But taxing all the benefits could result in a twenty-five percent reduction of benefits most retirees expect from Social Security.
• Lower the annual taxable income in retirement to reduce or eliminate your monthly Social Security check. The only question remaining: what is “taxable” income? For this means test should it also include capital gains, dividend income, and other sources of taxable income in what is known in Congress as affluence testing?
• Increase the amount of reductions from your “normal” age Social Security benefit when you retire before age sixty-six and later sixty-seven.
• Gradually raise the earliest eligibility age for Social Security retirement benefits from sixty-two to sixty-five starting in 2012. The earliest age for benefits would be increased by two months every year for individuals reaching age sixty-two. The sixty-five age would apply for those reaching age sixty-two in 2029 and later.
• Reduce the amount you can earn on the job when you collect benefits before the “normal” retirement age of 66 or 67 and later age sixty-eight and sixty-nine. The current annual limit is about $11,000. With earnings over that limit you lose $1 of benefits for every $2 of pay. If this earnings limit was cut in half most people could not retire before “normal” retirement age, work on the job and collect Social Security benefits.
• Increase the “normal” retirement age three months per year starting in 2017 until reaching seventy for those attaining age sixty-two in 2032. Then increase the “normal” retirement age one month every two years thereafter. In this case, a twenty-six-year-old worker today would have to wait to age seventy-one in 2056 to collect the regular Social Security benefit.
Wealth Transfer Retirement Program:
The coming fight in Congress to reduce entitlement spending can change Social Security from a program where benefits are based on payroll taxes to a program where benefits are based on taxable income in retirement.
In other words, the trillions of dollars of un-taxed money in millions of worker’s tax-qualified retirement plans could create a new social program in which taxable contributions over the years will not be a factor on benefits received. In fact, those who will lose the most benefits and pay the most taxes in retirement are those with high taxable incomes during their working life and those who built substantial tax-deferred retirement nest eggs. In fact, if you look at the fine print it’s easy to see how this scenario can expand to where only those with little 401(k) and IRA assets and retire with no earned income on the job will be the ones to collect Social Security in the future starting at age seventy.
Let’s Look Twenty Years Ahead:
To understand what the future tells us, follow me with someone who is forty-years-old today, married, raising kids, buying a home and car and now faced with college costs. With the big forty he finally decides he’ll start saving for retirement with an IRA and wait to Social Security’s “normal” retirement age of sixty-seven to collect benefits. In the back of his mind is the fleeting thought that Congress could, as rumors spreading around Capitol Hill have already told us, increase the Social Security “normal” retirement age to sixty-eight to sixty-nine, as it did before from sixty-five to sixty-seven.
He knows he’ll have to keep working past the old sixty-five, and maybe to age sixty-nine before he collects benefits. A period he could lose his job and have to live on his pre-retirement assets. And he’ll need even more money from his IRA with a life expectancy of fifteen more years after he retires. He also knows deep in his gut that for all the payroll taxes he’s paid over his working life his family will receive a $255 death benefit. An amount back in 1935 when Social Security was established that would provide a decent funeral for the average worker.
Once again let me say my purpose for writing this book is to alert you to the changing way we save money for retirement. If you believe, as I do, that Congress will continue to take more of yours before tax and means tested benefit money in retirement, I encourage you to start immediately to open and stash your cash in a tax free retirement fund. Use some of today’s payroll deductions for your employer’s retirement plan to pay the income taxes and move the money already in your account to a Roth IRA.
ABOUT JIM JORGENSEN
Jim Jorgensen has over thirty-five years’ experience in financial planning, as a broker on Wall Street and an investment consultant. He is the author of seven books on personal finance, including The Graying of America. His last book was It’s Never Too Late to Get Rich, published by Simon & Schuster. He has been a radio host on WOR in New York City and ABC in San Francisco. For many years he was host of Jorgensen on Money, a nationally syndicated radio show which was also heard on the internet, downloaded to a Pod cast and on major financial web sites.
Jim is a frequent speaker at conventions and meetings and brings his down-to-earth study of investing on Wall Street and economic forecast to audiences worldwide. He provides employees with information on their company retirement plans and his clients often video his talk for employees in other locations. He resides near San Francisco, California.
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