Charitable IRA Provision Extended For Two Weeks

Congress has finally passed a bill, introduced in 2013,┬áto extend certain credits and other tax provisions. Among the provisions it extends is the ability to make transfers of IRA funds to certain (mostly public) charities, up to $100,000, provided the IRA owner has reached age 70 1/2. It’s a provision limited in scope and usefulness, but in any case it was only extended to the end of 2014, at which point it expires again, perhaps to be resurrected again next year, Tax provisions that fall in and out of the law are really useless, because they don’t permit taxpayers to engage in careful planning. Either make it a permanent part of the law, or drop it entirely.

An Argument for Defined Benefit Pension Plans

An article from the Callan Investments Institute argues in favor of defined benefit pension plans, which are surely out of favor these days. Those points are worth considering:
1. DB plans are cost effective and reliable in delivering retirement income security-mostly because they generally have professional management, rather than relying on participants to make investment decisions.
2. DB plans in the public sector are underfunded because politicians chose to defer their obligations to do so, not because of any inherent problems in the type of plan.
3. Even if DB plans are doing well in their investment returns, that is not a basis for increasing benefits, because over the long run, returns will be average. That is, no one can achieve above average returns indefinitely.
4. DB plan funding surpluses and deficits are expected over the normal cycle of investment returns.
5. DB plans that have an actuarially sound funding policy will achieve 100% funding over time. A sound funding policy has three elements- adequate funding, intergenerational equity and cost stability.

Is There a Second Act in Life?

Perhaps there is, but it takes some planning to achieve and enjoy it. I’m not an expert on this topic, although there appear to be many people who claim to be such. Second act activities can be rewarding, but you need to be careful to avoid just becoming the way someone else makes money from your labor. Here are some resources that I’ve noticed: a book called Second Act Careers by Nancy Collamer, and these websites:;;;; Check these sites and make your own decisions.

Mistakes Too Many People Make With IRAs

So many people have IRAs, whether because they have set them up for annual contributions or used them for rollovers from employer retirement plans; and so many banks and mutual fund companies attempt to administer them; that it is no surprise that errors occur:

Here, based on an article on, are the top 5: 1. Outdated beneficiary forms, which are not changed after a divorce or death, or a change in the overall estate plan. 2. Naming your estate as the IRA beneficiary, which shortens the period over which distributions must be taken from IRAs. 3. Naming a child as the beneficiary without the control that a trust can provide over spending the IRA, particularly for children who have a “problem” with money. 4. Naming a minor child as the IRA beneficiary without naming a guardian to hold the IRA distributions on behalf of the minor. 5. Losing the beneficiary designation form and relying upon the IRA provider having a copy, which doesn’t always happen.

IRAs offer many tax and financial advantages, but some thought is required as to how they will work when beneficiaries become entitled to them.

How to Have Enough Money for the Rest of your Life

Apart from marrying a very wealthy person, or correctly guessing the winning lottery numbers, there are some helpful ways to ensure that you will be likely to have enough to live on in your retirement years:

Get a realistic estimate of how long you’re going to live. Try for example. This will give you an idea of how long your money must last.

Next, consider the 4% rule of thumb: you can reasonably expect to be able to withdraw 4% of your retirement savings each year. If you’re likely to live longer than a normal life expectancy, maybe less than 4%. There are different opinions on that number as being an appropriate one.

Have some flexibility in your withdrawals. If investment values are down, try to restrain your spending.

Review the allocation of your investments among the various categories, to make sure you have the proper balance for your age and risk aversion.

Keep your accounts simple- avoid having a large number of accounts. you can usually cover all investment categories with just a half dozen or so funds.

Consider retiring later. A statistic, for what it’s worth, indicates that waiting until age 70 will give you a very high percentage likelihood of success in stretching out your retirement savings, while retirement at 62 reduces it significantly.

Of course, the golden rule: spend less, save more.

The Retirement Transition Process

Much has been written about the process of transitioning from the daily working world to the world of retirement. Of course, these two worlds can overlap, as many people continue to work after they have begun the retirement process. But there are some dividing lines, and things to do as you cross those lines:

First is health, as it should be. When you reach age 65, Medicare will send you birthday wishes and advise you of tests and vaccinations to which you are entitled under Medicare coverage. Things like pneumonia and shingles shots, a physical examination, colonoscopy, etc. Review this list and check off the items as you complete them.

Second is health insurance, which is vitally important. If you sign up for both parts of Medicare, you will still need supplemental insurance. Most people will benefit from assistance from health insurance/Medicare professionals in making these choices.

Third, consider changes in investments. As you get older, how should your mix of investments change? You might decide to have a more conservative lineup. Again, you’ll probably need professional help.

Fourth, consider your retirement income. When should you take Social Security? A very complicated question. When should you and when must you start taking distributions from retirement plans and IRAs? There is no answer that covers everyone.

Fifth, is your estate plan a sensible one, and do you have documents to carry it out- will, power of attorney, healthcare directive, among others? See a lawyer, don’t buy a kit, which rarely works out the way you think.

Finally, decide what kinds of activities you will pursue in retirement: travel, part-time work, hobbies, new kinds of work. Find something to do.


Charitable IRA Rollover Still Unsettled

Several sessions of the US Congress have eventually passed provisions permitting contribution of IRA amounts to charities. It’s always been a limited right, applicable only to those who have reached age 70 1/2, limited in amount to $100,000, and somewhat limited as to what charities could receive it. It’s really more symbolic than anything else, because anyone can withdraw from an IRA, distribute the funds to a charity and get an income tax deduction. The benefit of a charitable IRA rollover was that the amount withdrawn was not included in income. There was no income tax deduction for the transfer, but the absence of income treatment and a deduction meant that there was no risk of having itemized deductions limited because of high income, and there was less chance that Social Security benefits might be taxable in part, again because of high income.

The problem has been that the provision of the Internal Revenue Code expires and Congress doesn’t act to restore it until late in the year. As of October 7, the provision has not been revived for 2014, and it’s unlikely anything will occur until until December.

Either the provision will or will not come back into the Internal Revenue Code. It’s a bar to intelligent planning that potential donors won’t know until the last minute whether the benefit is available. More importantly, those who have large IRA accumulations should make longer term plans as to their disposition: who should be the beneficiaries when the owner dies and how should benefits be received (outright or in trust). This is part of the overall wealth/estate planning process, based on a plan that encompasses all forms of wealth, the varying needs of family members and the desire to benefit charities.

The Problem of Elder Investment Abuse

As members of the large baby boom generation get older, worries about the adequacy of retirement income tend to grow. Too often, that leads to attempts to boost that income with more aggressive planning. That makes older people more likely to fall prey to unethical salespeople, whose aim is to sell whatever makes the most income for them, regardless of the needs or investment profile of the buyer. The result that has occurred far too often is that older people are talked into buying products that promise higher returns than traditional investments, but that are far riskier than is appropriate and that carry high fees. Often, people are talked into investments that lock them in for long periods of time when they need the funds invested sooner. There are strict securities industry rules and governmental regulations to prevent and punish this kind of behavior, but that hasn’t stopped unethical salesmen from taking advantage of individual investors who are often unsophisticated investors. In addition to out-and-out crooks like Bernie Madoff, there are people pushing the envelope too far by selling bad investment products and hiding the fees charged. More education is needed for senior investors, to help them choose the best investments for their particular situation; and they have to be encouraged to take action when they have been mistreated, rather than failing to act out of embarrassment.

What is Unretirement? How Much Do You Need to Retire?

Two recent books discuss these questions. Apparently, the key to a successful retirement is to write a book about it. In a book called Unretirement, author Chris Farrell explains that it means you retire a little later. If you retire from the work you’re doing now, find something else you can do that you will enjoy. Easy to say, I suppose. If you find that kind of work, delay using your retirement savings and delay starting Social Security benefits. In the second book, You Can Retire Sooner Than You Think: The 5 Money Secrets of the Happiest Retirees, author Wes Moss suggests that the base line amount needed for a happy retirement is $500,000. I didn’t read the book, so I don’t know how he reached this conclusion, but surely the amount you need depends on where you live and, most importantly, your health and that of your spouse, if you’re married. It’s not difficult to determine what you need: what are your current expenses and which of them disappear when you retire? What sources of income do you have, such as Social Security and pensions? What gap must you fill from retirement savings and how much do you need to fill that gap? When you know what you need, think about what else you want and whether you scan afford it. It makes sense to work longer and save more. It makes sense to delay Social Security. And, above all, it makes sense to do whatever you can to maintain your health as you approach retirement.

Preying on Senior Citizens With Scams and Flim-Flams

A Pennsylvania lawyer was disbarred recently after a hearing that revealed a years-long practice of high pressure selling of estate planning or probate avoidance kits. For a substantial fee, individuals signed up to have living trusts prepared. Nearly all of them never saw or spoke with the lawyer who was preparing the trust, which he did based on forms provided to him by national sellers of these products. All contact seems to have occurred through non-lawyer salespeople. When the trusts were prepared and delivered, the selaesperson then embarked on a fast-talking, aggressive effort to sell annuities that included high fees. The disciplinary board that reviewed the evidence concluded that a number of rules applicable to lawyers had not been complied with: in nearly every situation, the lawyer never met with the “clients”; no analysis was done to determine that a living trust was appropriate; fees were divided with non-lawyers; etc. In short, older people paid a lot of money for something that usually wasn’t necessary or appropriate, and were pressured into buying products that were poor investments. Unfortunately, this isn’t the only circumstance we are seeing, in Pennsylvania and elsewhere, of senior citizens being sold a bill of goods and cheated out of at least part of their retirement funds.

This is not to say that annuities can’t be a good investment. Many very savvy investment advisors suggest them to clients when they are appropriate. But they can’t be appropriate in every situation. And when they are, sellers should provide the best annuity product for the clients, not the one that earns the highest fees. And having estate planning done through a kit that you buy from a non-lawyer who knows nothing about you or the applicable law makes as much sense as buying medical or dental care on-line: “tooth hurt? we’ll tell you how to fix it yourself with our dental drill delivered to your home.”