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Steps to Retirement Planning
You have probably heard a lot about the Roth IRA conversion opportunities that became available beginning on January 1, 2010. The income limits that have prevented many willing conversion participants
from turning their traditional IRA into a Roth have been eliminated
starting in 2010. AND you can defer 50% of the taxes from the
conversion to your 2011 tax return and the other 50% to your 2012
return! In addition to the tax deferral benefits, this month's
column covers the benefits of tax diversification.
Other than tax-exempt municipal bonds, very few investments grow tax-free. The Roth IRA is the exception.
There are significant advantages to having a tax-free Roth account to
draw from in retirement. Just as asset allocation and investment
diversification are cornerstones of proper financial planning, having tax diversification will become increasingly important, especially during retirement.
By supplementing retirement income with tax-free income, you increase the likelihood of keeping yourself in a lower income tax bracket.
The final segment of the Roth conversion topic will appear next month when we address the additional advantages of the tax-free stretch IRA. |
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The "oldest" baby boomers turned 64 starting on
January 1 of this year. According to projections, 7,918 people will
turn 60 each day in the U.S. |
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Economics 101
"Black Friday Spending Rose Slightly"
The
Wall Street Journal headline above captures well the muted optimism
among shoppers this holiday shopping season. The sub-headline,
however, might be even more telling: "Aggressive Sales Lure Hordes of
Shoppers, but They're Still Slow to Open Wallets."
The
Financial Times echoed these sentiments, reporting that shoppers were
maintaining a "utilitarian focus that has replaced bubble-era
excess." Purchases reflected a "prevailing tone of practicality,"
with common household items like vacuum cleaners, coffee makers,
towels, and bedding among the popular items sold.
Overall,
shoppers spent close to $11 billion on Black Friday according to The
Wall Street Journal, an increase of roughly half a percent over 2008's
dismal showing. Let's face it-last year was an unmitigated
disaster for retailers as shell-shocked shoppers went into a
fear-induced hibernation. The fact that this year's numbers were
only a half a percent better is not much cause for celebration.
The
consensus among retailers appears to be that things aren't that
bad...but they are still far from good. Increased sales of basic
household goods are certainly better than no sales at all, but they are
a far cry from the extravagant (and highly profitable) spending on
luxurious discretionary items of the mid-2000s.
So,
what are we to make of Black Friday 2009? Unfortunately, our view
is that we should get used to it. This is it: the "New
Normal." This is what a modern-day depression looks like.
The economy does not tumble year after year; it stalls out. It
contracts by, say, a percent or two one year, then returns to tepid
growth for a year or two before falling into contraction again; and the
cycle repeats for a decade or more.
This is precisely what Japan
experienced throughout the 1990s and 2000s. The Land of the
Rising Sun has yet to recover from its credit bubble of the late 1980s,
and the country's aging demographics virtually insure that it never
will.
The United States is not Japan, of course. It is
a different country with its own unique credit and demographic issues
with which to contend. Still, Japan's experience is
instructive. It teaches us that there is no fast recovery from a
massive credit crisis accompanied by aging demographics.
You can read the Wall Street Journal and Financial Times articles here:
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Should Old Acquaintance Be Forgot...
The
most famous New Year's Eve celebration in the US happens in New
York's Time Square. What year was it when the crystal ball
dropped in Times Square for the first time?
Be the first to reply with the correct answer and win a prize! |
| Contact Us
202 West 7th Street
Carroll, Iowa 51401
Phone: 866-792-6668 (Toll Free)
712-792-6400 (Local) Fax 712-792-6670 | |
Depositing to Your Retirement System for Temporary Time During Your Federal Service
There are often questions around whether time worked as a temporary federal employee counts when calculating your retirement benefits. This time was often worked early in a federal employee's career before thinking about retirement was even a blip on the radar screen. Here's what you need to know for the CSRS retirement system.
CSRS (this applies to FERS Transferees, as well) - The calculations are a little complicated in this retirement system,because the rules changed on October 1, 1982. If you have temporary time before that date, it is treated one way. Temporary time after 10/1/82 is treated another way. Sometimes, employees will have tempoary time that spans both time periods.
If you worked temporary time before 10/1/82 (you'll know this was temp time if your SF-50 for the covered time period says FICA in Box 30), to get full credit for retirement eligibility and your annuity computation you will need to make a deposit. You can request the amount of this deposit on form SF2803. If you do not make a deposit, you will receive credit for retirement eligibility and the annuity computation BUT your annuity will be reduced by 10% of the deposit due.
If your temporary time is after 10/1/82, you must make a deposit in order to get full credit for elibility and annuity computation purposes. If a deposit is not made, you still get credit for eligilbity purposes, but no credit for the annuity computation.
For example, if you had 3 years of temporary time (where you were contributing to Social Security but not
the CSRS retirement system) starting on Janaury 1, 1983 and have not
had any breaks in service, you would be eligible to retire in 2013
(with 30 years of service, depending
on your age). Rather than 56.25% of your High 3 (rate for 30 years of
service), you would only receive 50.25% of your High 3 unless you made
a deposit for the temporary time. Your time counts for eligibility but not for purposes of the annuity calculation.
Next month's Alphabet Soup will cover how temporary time and deposits work for those in the FERS retirement system. |
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Tax Facts
Tax receipts collected by the US government are down 17% on a
year-over-year basis. Outlays paid by the government are up +21%
on a year-over-year basis (source: Treasury
Department). |
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TSP Returns
The
roller coaster ride is over - for 2009, at least. All funds came
in with positive annual returns, although recovery to pre-2008 account
values is still in the future. 2010, perhaps?
G Fund
December - .25%
2009 Total Return - 2.97%
F Fund
December - (1.55%)
2009 Total Return - 5.99%
C Fund
December - 1.94%
2009 Total Return - 26.68%
S Fund
December - 6.57%
2009 Total Return - 34.85%
I Fund
December - 1.43%
2009 Total Return - 30.04%
LIFECYCLE FUND RETURNS
L Income
December - .59%
2009 Total Return - 8.57%
L 2010
December - .70%
2009 Total Return - 10.03%
L 2020
December 1.50%
2009 Total Return - 19.14%
L 2030
December - 1.85%
2009 Total Return - 22.48%
L 2040
December - 2.12%
2009 Total Return - 25.19%
Returns courtesy of :
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And The Answer Was...
Last
month's quiz asked, "In the original Grinch movie (animated), whose
voice was the Grinch." The correct answer? Boris Karloff. | |
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Letter from the Editor As
an advisor working with federal employees, I always think it's a good
idea to start your year off with an assessment of your financial
picture, what your current TSP allocations are - and whether they're
still appropriate - and whether there are any federal benefits changes
that affect you. This year, I'll add an additional consideration
- the conversion of any traditional IRA funds to a Roth IRA. If one of
your New Year's resolutions is to get your financial resources in
order, why not start with a free retirement assessment? This
comprehensive analysis will show you whether it's practical to retire
at 55 (just because you're eligible doesn't mean you can), and what the
risks are for retiring early or waiting longer to leave federal
employment. To get your personalized printout, call or e-mail me
to schedule your appointment.
Here's to starting the new year off right -
Cordially,
John Sklenar
202 West 7th Street
Carroll, Iowa 51401
Email: federal.info@sklenar.com
Website: www.sklenar.com
Phone: 866-792-6668 (Toll Free)
712-792-6400 (Local) Fax 712-792-6670
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