Making It to 65 Is the Easy Part ...

There is both good news and bad news for retirees in the year just begun. On the plus side, the Internal Revenue Service has lengthened life expectancies. When required mandatory distributions (RMDs) kick in again for people starting withdrawals as they turn 72, they'll thus be forced to take smaller percentages of their previous year's ending values than under current rules, which still apply to those making 2021 distributions. The following graphic shows the revised life expectancies, which will be in effect starting in 2022. Figuring what you must take out requires taking the reciprocal of the years to live number and turning it into a percentage. Example: A traditional IRA, owned by a 75-year-old worth $100,000 as of Dec. 31, 2020, would require 1/22.9 or 4.36681% of that balance. Under the present rules that would dictate a minimum mandatory withdrawal of $4,368, taxed as ordinary income. Under the 2022 rules that would drop to 1/24.6 or 4.065% of the $100,000, or $4,065. That's $303, or 6.94% lower. People who don't really need to spend that extra money would rather save some tax money while keeping the extra $303 working and growing in their tax-sheltered IRA account. I have a side comment regarding our government's life expectancy chart. Why make average people do the math I just described to figure out how much they are required to take out each year? It would be some much simpler if the IRS simply gave you the percentage and had you multiply it by your previous year's IRA balance. The only reason I can think of is to hope to catch account holders making a mistake and withdrawing too little. The IRS then charges a 50% penalty on any 'under minimum' amount. Take care so that you don't get caught in this evil trap. Many brokerage firms are helpfully providing the correct RMD amounts on their annual 1099 statements. They cannot know, however, if their IRA owners have multiple IRAs in other places and choose to take required minimums from just one. The table below shows the history of IRA maximum contribution levels from 1990 through 2021. There was still a $2,000 per person, per year maximum as recently as 2001. One year later they bumped that up to $3,000 and began offering catch-up extras for those at least 50 years old. Here are some more of the IRS' confusing rules regarding who is still eligible to make IRA contributions in years, when you are 70.5 years or older. Nothing the government writes is ever simple, easy or even consistent. Politicians love to encourage you to be thrifty and save for retirement. That allows them to penalize you for doing the right thing and being successful in your investing. It doesn't take much in annual income for the IRS to tax you on 50% to 85% of your promised social security benefits. The amounts for individual and joint filers which trigger those taxes are shown below. The give with one hand and take back with the other doesn't end there. People with decent retirement income are then also raked for higher Medicare Part B premiums. The 2021 rates ratchet up from $148.50 to as high as $504.90 as income escalates. The maximum spread equals $356.40 per month or $4,277 annually for one person or up to $8,554 for a couple. The money grab doesn't stop there. It also applies to Medicare's prescription drug plans, Part D. Most people pay whatever the normal rate is their home state. As income rises, though, the cost of that same plan can rise from $12.30 monthly ($147.60 annually) to as high as $77.10 above and beyond the base rate, or $925.20 per person, per year. That's up to $1,850.40 per couple annualized. With the national debt rapidly approaching $30 trillion and federal deficits running wild, it's only a matter of time before up to 100% of social security benefits become taxable to all but the poorest retirees. The move to provide full financial benefits to millions of non-citizens also will put even more pressure on individuals who actually saved and invested as they were encouraged to do. Expect premiums on Medicare plans Part B and Part D to keep ratcheting up even further for well to do seniors. At some point means testing will filter down to much lower income levels and could even be used to try to deny social security benefits completely to those who lived frugally and invested well. My advice to anyone at or near their full retirement age is to start taking social security payments right away. It's likely you'll be grandfathered into the current system if you are already collecting than if you deferred collecting until 70, hoping for higher annual payments. That will be false economy if you later get screwed out of everything simply by following conventional financial planning advice. All you can do is try to make the best of a very flawed system that penalizes people who lived within their means while rewarding those who didn't. As for me, I am past my full retirement age, although still working, but started collecting social security at age 66, when the 50% penalty for earning more than a pittance finally disappeared.

Making It to 65 Is the Easy Part ...

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