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Zusammenfassung von The New Retirement Savings Time Bomb

Name: The New Retirement Savings Time Bomb
Rating: 4 (40 reviews)
Author: Ed Slott

Ed Slott

How to Take Financial Control, Avoid Unnecessary Taxes, and Combat the Latest Threats to Your Retirement Savings

4 (40 Bewertungen)

26 Min.

Kurz zusammengefasst

The New Retirement Savings Time Bomb by Ed Slott warns about the potential tax bomb of traditional retirement plans and recommends strategies to protect and maximize retirement savings.

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Inhaltsübersicht

The New Retirement Savings Time Bomb
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What’s in it for me? A step-by-step guide to saving for retirement.

There’s nothing more satisfying than a hard day’s work. But after spending a couple of decades earning a paycheck, a little rest and recuperation would be nice, too. So, are you on track to meet your retirement goals?

For an increasing number of workers, that's a tough question to answer. In today’s world of volatile markets and ever-changing tax laws, designing an effective retirement savings plan is more difficult than ever. Luckily, these blinks are here to help. Drawing on Ed Slott’s decades of experience as a financial expert, this practical guide lays out the common problems plaguing savings schemes, then walks you through a five-step program to get your retirement plan on track. With the detailed advice provided here, your financial future will be more than secure.

In these blinks, you’ll learn

how one fumble can end a legendary savings career;
why 2010 was a great year to die; and
what makes math useful in the real world.

Small changes in tax law can greatly impact your retirement plan.

Crack open a history book and you’ll find that the American story is packed with exciting events and monumental moments. From the Revolutionary War to the moon landing, the United States has had plenty of highlights. But alongside these hits, there’s a less-celebrated but equally important story – the history of US tax law.

In the beginning, America had no income tax. Then, in 1913, the Sixteenth Amendment introduced a modest 7 percent tax. Since then, the rate has gone up and down. It reached a peak of 90 percent throughout the 60s, and today it hovers around 37 percent.

You see, US tax law is always changing. Understanding the nuances of this system is crucial for preparing for retirement.

The key message here is: Small changes in tax law can greatly impact your retirement plan.

So why is understanding tax law so important for planning your retirement? Well, for one, changes in the tax code can greatly affect how much of your money you get to keep and how much ends up in the US Treasury. Most people don’t pay careful attention to how changing tax laws impact their savings, and as a result, may end up paying more to Uncle Sam than they really have to.

Consider this: In past generations, people didn’t rely on personal retirement accounts. Most people funded their retirement through a mix of Social Security payments and company pensions. Then, in 1974, the government introduced Individual Retirement Accounts, or IRAs. This legislation let people save for retirement by placing money in special tax-deferring accounts. The money you saved in an IRA wasn’t taxed, at least not right away.

Of course, tax law is always changing. And while people carefully scrimped and saved to fund their IRAs, the government didn’t keep up its side of the bargain. On December 20, 2019, Congress passed the SECURE Act. Among other things, this law changed how the money in IRAs is taxed. Suddenly, people who were expecting to pay one tax rate were now expected to pay a completely different one, especially if they were planning on leaving their IRA to their heirs.

That means that while diligently putting savings into an IRA has been a standard retirement practice for decades, the rules have now slightly changed. While you can continue saving as normal, you may end up paying more in taxes than you realize. You can avoid this pitfall, though; we’ll delve into how in the next blink.

There are four general strategies for managing retirement savings.

Let’s say you’ve been working at the same company for two decades. A lumberyard, for example, or a law firm; the actual job doesn’t matter. What does matter is that you’ve been regularly depositing money into a company retirement plan the whole time. By now, you’ve got a hefty sum saved up.

When you leave the company, whether you’re retiring, getting fired, or just taking a new job elsewhere, you’ve got to decide how to handle that nest egg you’ve accumulated over the years. What should you do?

Your retirement income depends on your age and savings level.

Meet Robert. Robert just ended a long career as a high school math teacher. Now, at the ripe old age of 72, he’s going to retire. Congratulations, Robert, you’ll never have to work your way through a knotty set of complex equations ever again.

If only that were true! Now that Robert is retired, he won’t be receiving a salary. Instead, he’s going to pay his living expenses by making regular withdrawals from his IRA savings account. And, unfortunately, the laws passed by congress make this process a bit confusing.

Help out your heirs with a stretch IRA.

There’s one unpleasant fact that everyone has to face: Sooner or later, we’re all going to shuffle off this mortal coil. When your time inevitably comes, you won’t be able to bring anything with you, so it’s important to decide what happens to your estate when you're gone.

With physical objects, passing on your inheritance is easy. Simply state in your will who gets what. Maybe your house stays with your spouse, your car goes to your daughter, and your priceless antiques go to your art-collecting lifelong friend. But what about your IRA?

Pay now to save later by investing in a Roth IRA.

Imagine you’ve retired. Finally free from the drudgery of work, you spend each day doing exactly as you please. You sleep in each morning, go golfing in the afternoon, and have drinks with your pals in the evening. Your leisurely life is funded by your IRA distributions, and overall, it’s pretty great.

Still, it could be even better. Imagine you’re receiving your regular IRA distributions but with fewer strings attached. Imagine having no required minimum distributions, and more importantly, imagine paying no income tax on your withdrawals.

Avoid costly estate taxes by shifting your money into life insurance.

Bill Buckner was one of the best baseball players of all time. He competed in an astounding 22 major league seasons, more than nearly any other player. That’s not all. Over his illustrious career, he had more hits than champs like Mickey Mantle, Reggie Jackson, and Joe DiMaggio.

But in 1986, he made a blunder. In game six of the World Series, he fumbled an easy catch, letting the ball roll between his legs. The error cost his team the game and eventually the title. Just like that, his illustrious career was forgotten. Most people only remember him for this one mistake.

Be careful not to lose your savings to high estate taxes.

Dan Duncan chose a good year to die, or at least, his ultimate end came at an opportune time for his heirs.

You see, Duncan was a very successful Texas oilman. At the time of his death in 2010, he was worth somewhere close to $10 billion. Back then, Congress had just eliminated the estate tax, letting Duncan’s lucky children inherit his fortune in full. Now, however, the estate tax is back. If Duncan died today, his children would need to fork over about $4 billion to the US government.

Correct your mistakes before they become bigger problems.

In the previous blinks, we’ve outlined five points essential to securing an ideal retirement and protecting the future of your savings. You should keep an eye on IRA distribution requirements, designate your heirs, look into Roth IRAs, buy life insurance, and learn the basics of estate planning.

In a perfect world, you’d be able to successfully follow each of these suggestions to a T. Though in a truly perfect world, you’d also win the lottery and never have to worry about money at all.

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Worum geht es in The New Retirement Savings Time Bomb?

The New Retirement Savings Time Bomb (2021) is a practical handbook to achieving your retirement goals. This level-headed guide provides an easy-to-follow plan for cultivating a nest egg even during turbulent times.

Bestes Zitat aus The New Retirement Savings Time Bomb

Lets take the first step . . . to success in keeping your retirement nest egg out of the maw of the IRS Cookie Monster.

—Ed Slott

Wer The New Retirement Savings Time Bomb lesen sollte

Careful savers approaching retirement age
Young workers getting a head start on a savings plan
Anyone wishing for stress-free golden years

Über den Autor

Ed Slott is a professional CPA, tax advisor, and a Professor of Practice at The American College of Financial Services. He publishes the hit newsletter Ed Slott's IRA Advisor and his writing on finance has appeared in the Wall Street Journal, the New York Times, and USA Today.

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