I agree, it’s pretty ambiguous.
H is convinced that federal income taxes will return to 1960s levels. The current plans, vague as they are, seem inadequate to address all of our country’s needs. I do wonder if he will eventually be proved correct. I’m fine with paying more than we currently do, but wonder how our kids will cope.
Will they reinstate all of the tax shelters from the 1960s too? Effective tax rates matter much more than nominal rates.
Lot of banter about reallocating retirement funds due to the election, the virus, etc. Been doing this professionally a long time. I typically don’t recommend reallocating because of the speed bumps (there’s always a new bump coming and it typically results in trying to time the market which just doesn’t work). That said, what I do find very necessary is to reallocate, not because of the news, but because you’re moving from an accumulation stage to one of preservation / income distribution. Many people nearing (and some in) retirement are still invested as if their focus was accumulation (overweight in equities). Believe it or not, I see a lot of 75/25 - 100/0 in equities / fixed income. They simply started a 401k and some personal investing, set it on auto pilot, and never changed it. Over a long period of time, that worked well. But that’s pretty easy to do when you don’t NEED to start pulling out the money. Income and distribution planning is a whole different ball game.
Not a big deal if you have millions, but if you’re counting on your retirement funds to provide steady, predictable income, go see an advisor and make sure you’re allocation supports your goals.
He should consider doing Roth conversions now if he truly believes that marginal rates will be going much higher in a few years.
Assuming he can afford to pay the tax now, makes a lot of sense.
“what I do find very necessary is to reallocate, not because of the news, but because you’re moving from an accumulation stage to one of preservation / income distribution.” - I agree.
We are newly retired (husband last year, me this summer). We handled the accumulation era on our own, and my husband did a nice job with that. But 2 years ago we decided we decided it was worthwhile to hire a fee only financial planner to help us set up for distribution era. We are glad we did because we have some bond ladders etc set up that gives us peace of mind during turbulent times. For now we are continuing with the planner because there has also been other good value add.
^ good example of shifting allocations due to life stage. Most people don’t know enough about bonds. Good to get advice.
H moved his 401k into a couple of bond funds and set future contributions to age-targeted funds at the end of September. We have ridden out every market since 1997 for his fed TSP account and wanted to lock in gains. He feels there’s more than just market risk right now and wants to sit out the next few months.
I moved some of my rollover IRA into bonds, but am still 70/30 stocks to bonds. Non-retirement savings is 50/50 money market and stock mutual funds.
I am getting ready to move to the distribution (Is that the right word) phase after saving slowly but surely through my entire career.
I have probably been too conservative over time (I’m about 50/50 or less stocks/bonds, plus a cash nest egg that as a supplement should get me through at least 4 years.
I have Just recently shifted from contributing from regular to Roth (govt/TSP). Once I retire I may do some additional conversion to ROTH (I think it will need to be outside of the TSP program).
I still worry I may not be “doing it quite right,” but I do sleep well (Enough) at night.
My boss and I had to go over my work goals for the year (HR requirement), so I told him today about my plans to retire early next year. I think he was surprised. But we did have a short discussion on some things that need to be transitioned before I leave.
I thought I would feel really relieved right now, but strangely I don’t.
Based on the election, we are 60% stocks, 20% bonds , and 20% cash even through we have 10-12 years before we plan on tapping them. I think taxes are going to up no matter who wins the election, but it might be net year instead of in a decade if the polls are correct. That means the economy will grow only slowly, if at all, and stocks are in for rough ride for a while. We will probably reinvest after the election.
We just bought a retirement home, nothing extravagant, took a mortgage, and I plan to work until around 70 so we don’t need to tap our funds for awhile. We are also considering converting most of our regular IRAs to Roths to avoid the RMDs, which we will not need considering social security- which we will use to pay of the mortgage if we maintain 2 homes, and with one of us working.
My wife is retiring soon from health care, it is a great time to go, way too stressful.
There is no “right”. The sleep well test is probably the best one out there. It’s your money. You have to be comfortable with it (the risk). Not much else really matters. Retirement is supposed to be fun, not full of money related stress.
This is also likely a lower income year for me so the tax rate could be lower by a couple of percent. If we think tax rates are likely to be higher this year, could be a good year to do a Roth conversion. But, would have to pay a fair bit in tax from assets.
We are also considering a Roth conversion this year, since we have been paying taxes at a higher rate than we “should” (we withdrew less than anticipated). I would rather convert than get a tax refund.
Our advisor has been making some moves recently to better position us in case the proverbial stuff hits the fan in the coming weeks/months. We lost half our money in the late 2000’s, and while we did build back up, we sure can’t afford that at this point. I don’t think I would be able to sleep if I didn’t have someone I trust helping us right now.
We sent the wire to pay off our mortgage. ? Done! This frees up our ability to buy some piece of land and a shack with a sewer pipe on it on credit if we need to. We thank the ‘hooders for this opportunity and will pay them back by trying hard to not become a burden on the society in our last years.
Is there a consensus about what will happen to tax rates if Biden wins?
Unless the Senate flips, nothing will happen except gridlock.
If the Senate flips, I would expect the TCJA to get repealed, and rates to return to what they were with increases if you make over $400k.
IMO of course, I don’t think there is a consensus.
IF they decide to increase tax rates, can they do it retroactively (as in decide in 2021 FOR 2021), or would they apply to the next year? I would prefer the first of course. I am retiring next year, so our income will drop enough to consider a fair amount of ROTH conversion.
Obviously, Congress can vote for anything, but generally, tax increases are not retro. They could phase it in, however, such as eliminate the LT cap gains in '21 (retro to Jan 1) and increase the marginal rates and payroll tax withholding in '22.