What You Should Be Doing Now to Protect your Heirs from the Death of the Stretch IRA?

What to do now to protect your heirs from the Death of the Stretch IRA

What Should You Do Now About the Death of the Stretch IRA James Lange

This post is the fifth in a series about the Death of the Stretch IRA.  The four posts that precede this one spell out the details of the proposed legislation that will cost your family a lot of money.  In this post, I’m going to talk about some possible solutions to the problems that will be caused by the Death of the Stretch IRA that you should consider now.  As I said in my earlier posts, using Lange’s Cascading Beneficiary Plan to take advantage of the existing minimum required distribution rules that allow inherited IRAs to be stretched will, for most of you, produce a much more favorable result than any other option available.  The Death of the Stretch IRA legislation is designed to accelerate income taxes on retirement plans, so the Charitable Remainder Unitrust should be your “Plan B” that you consider only after the law changes.

How can Social Security help with the Death of the Stretch IRA?

If you’re considering retiring, the very first thing you should do is evaluate your Social Security benefits.  Many people feel that the best age to take Social Security benefits is 62 – get back what you paid into the system before it collapses, etc!  I used to agree with that line of thinking until noted economist Larry Kotlikoff brilliantly pointed out the flaw in my logic.  Larry told me that the last thing I should worry about was not getting back what we had paid into the system if my wife and I die young.  If you die, he said, you will have no financial worries – because you’re dead!  Our fear, he told me, should be that we might live a very long time and possibly outlive our money.  Wow!  What an attitude adjustment!  But after thinking about it, I realized Larry was right.  Your Social Security benefits will give you a guaranteed income that will last for the rest of your life, so it makes sense to maximize them and get the most you can.  I wrote an entire book on that subject – you can get it for free by going to the first page of this website – so I’m not going to cover those techniques in this blog.  Or, check out an earlier blog post that talks about my latest Social Security book The Little Black Book of Social Security Secrets, Couples Ages 62-70: Act Now, Retire Secure Later.   But, getting the highest Social Security benefit is something that you should be evaluating now, because it will benefit you before and after the Death of the Stretch IRA.

How much can you afford to spend every year in retirement?

Second, know exactly how much you can afford to spend every year during retirement, without having to worry about running out of money.  Many financial advisors point to a rule of thumb known as the Safe Withdrawal Rate, which is the amount that you should be able to withdraw from your assets over the course of your lifetime without worrying about running out of money.  And while there is certainly validity in knowing how much you can spend during the retirement, the problem with rules of thumb is that they are just that!  I have proven that there is also a benefit to spending your savings strategically – I discuss it at length in my flagship book, Retire Secure! – but the idea, sadly, is usually not included in general discussions about Safe Withdrawal Rates.  The bottom line?  Don’t rely on estimates – talk to someone who is skilled in running the numbers, and then check your numbers regularly.  That way, you won’t have to worry about running out of money, no matter when the Death of the Stretch IRA passes.

Are you paying to much to invest your money?

Third, know how much you are paying to invest your money.  As more and more people become educated about investment fees, the trend (thankfully) has been to move away from high-cost products such as annuities and front-loaded mutual funds, and from stockbrokers who survive by constantly buying and selling in their client’s accounts.  Instead, more people are looking toward low-cost mutual funds that can provide diversification, income and even growth without having to pay huge fees.  The cost that you pay to earn a return on your money is so important that I’ve even been known to suggest that it should be included as part of your Safe Withdrawal Rate calculation.  In years past, there was an odd prestige associated with the idea of having your money managed by a broker who charged high fees.  That is not the case anymore!  Americans are moving in droves to low-fee investments because they now fully understand how much they save over the long term.  And doing the same will benefit you no matter when the Death of the Stretch IRA legislation passes.

Please stop back soon!


For more information on this topic, please visit our Death of the Stretch IRA resource.

Back Door IRA, The Conclusion


Converting to a Roth IRA also comes with another very unique advantage. The IRS allows you a one-time opportunity to recharacterize or “undo” this conversion by October 15th of the following tax year. IRS publication 590 states that, “a recharacterization allows you to ‘undo’ or ‘reverse’ a rollover or conversion to a Roth IRA. To recharacterize, you generally instruct the trustee of the financial institution holding your Roth IRA to transfer the amount back to a traditional IRA (in a trustee-to-trustee or within the same trustee). If you do this by the due date for your tax return (including extensions), you can treat the contribution as made to the traditional IRA for that year (effectively ignoring the Roth IRA contribution)”. In the case of a Backdoor Roth IRA, you probably won’t think about recharacterizing. However, if you want to explore this option, we are here to help assist you, because like many of the other rules involved this can be complicated.


While Backdoor Roth IRAs can be beneficial to many investors, they aren’t for everyone. They come with their limitations and complications. There are precautions that need to be taken to reap the full benefits of any financial decision. This is an area where a highly informed financial advisor can help you make an educated and calculated decision. You should always consult with your financial advisor and tax professional to help avoid tax ramifications.

As always, we are here to help and can look at your specific financial situation and chart the right path for you. If you are interested in learning more about whether or not a Backdoor Roth would be right for you and your specific situation, please call us and we would be happy to discuss this with you. As always, we enjoy the opportunity to assist you in addressing your financial matters.

Financial Check-Up


Complimentary Financial Check-up

If you are currently not a client of The Lange Financial Group, we would like to offer you a complimentary, one-hour, private consultation with one of our professionals at absolutely no cost or obligation to you.

To schedule your financial check-up, please call 412-521-2732 or fill out our Pre-Qualification Form here.

Thank you,
James Lange



This article is for informational purposes only. This information is not intended to be a substitute for specific individualized tax, legal or investment planning advice as individual situations will vary. For specific advice about your situation, please consult with a lawyer or financial professional.

The Roth IRA offers tax deferral on any earnings in the account. Withdrawals from the account may be tax free, as long as they are considered qualified. Limitations and restrictions may apply. Withdrawals prior to age 59 ½ may result in a 10% IRS penalty tax. Future tax laws can change at any time and may impact the benefits of Roth IRAs. Their tax treatment may change.

Roth IRA account owners should consider the potential tax ramifications, age and contribution deductibility limits in regard to executing a re-characterization of a Roth IRA to a Traditional IRA.

The views stated in this letter are not necessarily the opinion of The Lange Financial Group, LLC, and should not be construed, directly or indirectly, as an offer to buy or sell any securities mentioned herein. Investors should be aware that there are risks inherent in all investments, such as fluctuations in investment principal. With any investment vehicle, past performance is not a guarantee of future results. Material discussed herewith is meant for general illustration and/or informational purposes only, please note that individual situations can vary. Therefore, the information should be relied upon when coordinated with individual professional advice. This material contains forward looking statements and projections. There are no guarantees that these results will be achieved. © Academy of Preferred Financial Advisors, 2014


John C. Bogle – A Financial Industry Giant Addresses Congress

John Bogle, The Lange Money Hour, James Lange, Pittsburgh, PA Wednesday, October 1, 2014Join us this Wednesday, October 1 at 7:05 p.m. on KQV 1410 AM for The Lange Money Hour, Where Smart Money Talks.

Program also streams live at www.kqv.com

Encore presentations air on KQV EVERY SUNDAY at 9:00 a.m.

The three legs of America’s retirement system are shaky, neither structurally efficient nor fiscally stable. That’s what the U.S. Senate Finance Committee heard on September 16, during testimony by a man Fortune Magazine labeled one of four giants of American Finance: John C. Bogle, founder and now retired CEO of the Vanguard Group, the world’s largest mutual fund company, with more than 3 trillion dollars under management.

To hear why Mr. Bogle believes the situation is so precarious, tune in tomorrow evening at 7:05, as The Lange Money Hour welcomes him back to the show.

Over the course of his 63-year career, Mr. Bogle has changed the face of investing. A pioneer in the concept of index mutual funds, collective portfolios of stocks that mimic the movement of a defined market sector rather than a selection of individual companies, he is credited with creating the first index fund available to individual investors, the Vanguard 500.

Mr. Bogle has written a dozen books, including his 1994 bestseller Bogle on Mutual Funds to most recently The Clash of the Cultures: Investment vs. Speculation. At 85, he remains an active industry observer, appearing regularly on national financial media outlets. He recently described the personal mission he has set for himself in his retirement – “to speak out for truth and integrity and character in the world of finance, striving to build a better world for investors—honest-to-God, down-to-earth human beings who deserve a fair shake.”

You can watch his 6-minute Congressional testimony here:


We’re honored to have Mr. Bogle back as a guest on The Lange Money Hour. Please plan to join us Wednesday, Oct. 1, 2014 at 7:05 on KQV 1410 for an interesting and informative hour. The program will also stream live at www.kqv.com.

If you can’t tune in October 1, 2104, KQV will rebroadcast the show at 9:00 a.m. this Sunday. You can also access the audio archive of past programs including written transcripts on the Lange Financial Group website, www.paytaxeslater.com. Click on RADIO.

Finally, mark your calendar for Wednesday, October 15th at 7:05 p.m., when Pittsburgh City Controller Michael Lamb will join us for the next new edition of The Lange Money Hour.


Social Security Analyzed – Part 2 of 2

Running the Numbers for a Single Social Security Recipient

To accurately compare the financial benefits of waiting until age 70 to take benefits vs. starting to at age 62, we are going to assume that you will not spend any of your benefits from the time you start collecting until the time you reach age 70. In fact, we are going to assume that you will reinvest all the benefits you’ve received, until age 70. If we don’t make that assumption, it is extremely difficult to make an “apples to apples” comparison.

For our example, we have two single people with identical earnings records. One starts collecting at age 62 and invests all the benefits at 4%. The other one waits until age 70 to begin collecting.

The gold line on the chart on page 3 represents the accumulation over time for the 62-year-old, and the green line represents the accumulation over time for the one who waited until age 70 to begin taking benefits.

If you take benefits at 62, you receive 75% of what you would have received if you waited until age 66, and if you wait until age 70 you will receive 132% of what you would have received had you taken benefits at age 66. By waiting until age 70 you will see a 76% increase in your monthly benefit from what you would have received at age 62.

The math here may not be immediately obvious so, consider an example. If your PIA at 66 is $100, and you decide to begin benefits at age 62 you will get $75. If you wait until 70, you will get $132. The additional amount you would get for waiting is $57 ($132-$75 = $57). The percentage by which you will have increased your benefit is 76% ($57/$75).

The person who waits until age 70 to take Social Security and lives past age 81 will ultimately receive a lot more in benefits than the person who takes the benefit at age 62 (age 81 is roughly the break-even point). That assumes a 4% (after tax) rate of return. If you assume a lower rate of return, the break-even age would be even younger. Now, you might think that age 81 is a long time to wait to break-even, but let’s think about the issues of long-term financial goals and concerns in more detail.

If you don’t absolutely need your Social Security benefits to maintain a reasonable lifestyle, and you anticipate living past age 81 (or even if you only think you only have a reasonable chance of surviving until age 81), here is why you should consider waiting. You may think the conservative thing to do is to take it early because if you don’t survive to age 81 you will “win.” That is the way I used to think about it until I was enlightened.

Larry Kotlikoff, an economist at Boston University, and a guest on The Lange Money Hour, taught me a better way to think about it. “Don’t think like an actuary,” declares Larry, “think like an economist.” You have to think about what you should be afraid of and what you should not be afraid of for financial purposes. For financial purposes, you should not fear an early death. You will be dead, and therefore you will have no more financial problems. What you should be afraid of, though, is living a long time and not having enough income to meet your needs. The big problem you could face is not having enough money to comfortably sustain you over your extended lifetime.

What you are doing when you hold off on taking Social Security is ensuring a greater income into your old age. In our example, if you live to age 95, the difference, in terms of the total amount collected, would be $3,345,019 vs. $2,587,914. That’s more than $750,000 additional dollars in your own pocket. The key concept to understand is this: the longer you live, the bigger the difference in the amount you collect and the greater your financial security if you live a long time.

Let’s face it, if you begin taking benefits at age 62 and you don’t absolutely need them, and you die shortly thereafter…well y ou are dead. No more worries. “But wait,” you say, “what about my spouse who is still alive. I want to take care of him/her too.” Exactly. Remember, in the previous example we are only talking about an individual who is not married. As will be seen, marriage introduces a completely new set of concerns that make waiting longer to collect benefits even more lucrative.

To receive the rest of the chapter, please e-mail us at admin@paytaxeslater.com or call Alice at (412) 521-2732.


Social Security Analyzed – Part 1 of 2

We have been “running the numbers” for Social Security benefit optimization to help clients choose the best strategy. We also analyzed Social Security more deeply that we ever have before in order to write our new book, Retire Secure! for Same-Sex Couples. This post is an adaption of a portion of the chapter on Social Security in the book that is applicable to everyone. If, after reading this excerpt you would like the rest of the chapter, please e-mail or call our office and we would be happy to send you the rest of the chapter. Of course we also offer custom analysis.

There are several sophisticated strategies that can be successfully used to maximize your benefits if you are married. But we find that many clients and readers need to understand some of the basic concepts and strategies before we move to the more sophisticated strategies which are usually possible if you are married.

For now, however, we will forget about the marriage issue. A point of contention regarding Social Security is when to begin receiving benefits: as soon as you are eligible, several years later, or even waiting until you are age 70. Let’s just talk about whether it makes sense, in general, to take Social Security early. For discussion’s sake, let’s assume your attitude is, “Well, gee, I’m retired, I’m 62 years old, I’ve been paying into this system for my whole life, and now it’s time for me to get some money out.” Should you start collecting Social Security benefits at 62?

Comparison of Taking Social Security at Age 62 or Age 70

First, it is important to understand that the dollar amount of your retirement benefit depends upon the age at which you begin to collect it. Let’s assume you were born between 1943 and 1954. Your Full Retirement Age (FRA) is 66. This is set by law. The amount you will get if you begin to collect benefits at age 66 is called your Primary Insurance Amount (PIA). If you begin to collect benefits at a different age, the amount you will receive is a function of your PIA. If you begin early, you obviously start receiving an income earlier, but allowing for interest, etc. (details to follow) you will receive less per month than if you had waited. If you start taking benefits at 62, the earliest age at which you can begin to collect benefits, you will suffer the maximum reduction in benefits. If you begin to collect benefits after full retirement age, you will receive larger benefits. You can get the largest benefit by waiting until age 70. So, the two extremes would be signing up for benefits at age 62, or waiting and taking at age 70. The earlier you collect, the lower your  benefit will be for the rest of your life.

The table on the left shows the percentage of your PIA (the amount you would get at age 66) that you will receive based on the age when you apply. For every year that you wait to collect benefits after Full Retirement Age (FRA) you will earn an extra 8% per year. Please note this table doesn’t include Cost of Living Adjustments (COLA), which in all instances make the advantages of waiting even greater.

Our next post will touch on running the numbers for a single Social Security recipient as well as Social Security breakdown analysis with benefits reinvested at 4%.

Important Tax Birthdays

The “Happy Birthday” song is traditionally sung to celebrate the anniversary of someone’s birth. In 1998, the Guinness Book of World Records proclaimed that very song as the most recognized song in the English language, followed by “For He’s a Jolly Good Fellow.” Its roots can be traced back to a song entitled, “Good Morning to All,” which was written and composed by American sisters and kindergarten teachers, Patty and Mildred Hill in 1893.

Throughout the years, many other versions and styles of the “Happy Birthday” song were created. One of the most famous versions of this song was sung by Marilyn Monroe to then U.S. President John F. Kennedy in May 1962. Another famous version of the song was sung by John Lennon and Paul McCartney. They shifted the melody to a traditional rock song and increased its complexity and style on their unforgettable double album, “The Beatles” (commonly referred to as the “White Album”) in 1968.

Traditionally, birthdays are fun events, but when it comes to taxes, birthdays have a special place. From a tax standpoint, birthdays are not always “fun” and very often are different and not created the same.

The table below contains some important tax birthdays (after the age of 50) that can dramatically affect your income taxes:

It is very important that as you plan for or reach any of these milestone birthdays that you are working with a qualified financial advisor who can review your specific situation to determine what tax reduction strategies would be best for you.

Contact us today to discuss some of these strategies. If you are a Western Pennsylvania resident, schedule a free initial consultation with us by calling us at 412-521-2732.  Residents outside of Southwestern Pennsylvania should call for more information. Jim’s services are available via the phone or through the Internet. Send an e-mail to admin@paytaxeslater.com.

Important Tax Birthdays

Numbers to Know: COLA for 2014

The Social Security Administration has announced new cost-of-living adjustment, or COLA, numbers for 2014.  The cost-of-living adjustment is decided by comparing consumer prices in July, August, and September of each year to the prior year’s numbers.  Since 1975, Social Security increases have averaged around 4%—less than 2%, only six times.  This year we will see one of the smallest COLAs since the program was adopted, just 1.5%.

Advocates for seniors say the 2013 Consumer Price Index measurements aren’t entirely fair.  While gasoline and electronics prices were down significantly in 2013, the cost of food increased slightly, and housing, medical, and utility costs rose dramatically.  Unfortunately, seniors generally spend more on healthcare goods and services, so they are facing dramatic increases in their spending.

‘‘This (cost-of-living adjustment) is not enough to keep up with inflation, as it affects seniors,’’ said Max Richtman, who heads the National Committee to Preserve Social Security and Medicare.  ‘‘There are some things that become cheaper, but they are not things that seniors buy.  Laptop computers have gone down dramatically, but how many people at age 70 are buying laptop computers?’’  Nearly 58 million Americans receive Social Security benefits of some kind. This 1.5% COLA will add an average of only $17 to the typical American’s monthly benefit.

When should you apply for social security?

The answer is different for every person. However, did you know that if you delay the onset of benefits past age 66, you will earn delayed credits? For each year you delay the start of benefits, your benefit will increase by 8% per year up to age 70! (Horsesmouth, 2012)

Applying at age 70 earns you the most credits and can result in up to 32% more benefit! So if Bob Boomer waits until age 70 to apply, his $2,466 PIA will increase to $3,255 (not including cost-of-living adjustments)! (Horsesmouth, 2012)

A Social Security Analysis could help you on the right path to making the most out of your social security benefits. Contact us today and see if our social security experts can help you maximize your retirement. www.paytaxeslater.com

3 Myths About Social Security

Myth #1: By the time I retire, Social Security will be broke.

If you believe this, you are not alone. More and more Americans have become convinced that the Social Security system won’t be there when they need it. In an AARP survey released last year, only 35 percent of adults said they were very or somewhat confident about Social Security’s future.

It’s true that Social Security’s finances need work, because over the long term there will not be enough money to fully cover promised benefits. But radical changes aren’t needed. In 2010 a number of different proposals were put forward that, taken in combination, would put the program back on firm financial ground for the future, including changes such as raising the amount of wages subject to the payroll tax (now capped at $106,800) and benefit changes based on longer life expectancy.

Myth #2: The Social Security Trust Fund Assets are Worthless.

Any surplus payroll taxes not used for current benefits are used to purchase special-issue, interest-paying Treasury bonds. In other words, the surplus in the Social Security trust fund has been loaned to the federal government for its general use — the reserve of $2.6 trillion is not a heap of cash sitting in a vault. These bonds are backed by the full faith and credit of the federal government, just as they are for other Treasury bondholders. However, Treasury will soon need to pay back these bonds. This will put pressure on the federal budget, according to Social Security’s board of trustees. Even without any changes, Social Security can continue paying full benefits through 2037. After that, the revenue from payroll taxes will still cover about 75 percent of promised benefits.

Myth #3: I Could Invest Better on My Own.

Maybe you could, and maybe you couldn’t. But the point of Social Security isn’t to maximize the return on the payroll taxes you’ve contributed. Social Security is designed to be the one guaranteed part of your retirement income that can’t be outlived or lost in the stock market. It’s a secure base of income throughout your working life and retirement. And for many, it’s a lifeline. Social Security provides the majority of income for at least half of Americans over age 65; it is 90 percent or more of income for 43 percent of singles and 22 percent of married couples. You can, and should, invest in a retirement fund like a 401(k) or an individual retirement account. Maybe you’ll enjoy strong returns and avoid the market turmoil we have seen during the past decade. If not, you’ll still have Social Security to fall back on.

$250 Recovery Checks

The check is in the mail. This time it’s coming from the federal government in the form of $250 economic recovery payments. Back in February, President Obama signed into law The American Recovery and Reinvestment Act of 2009. The idea is to jumpstart the stalled economy and save jobs by putting more than $13 billion into the hands of more than 50 million Americans.

Vice President Joe Biden said, “These are checks that will make a big difference in the lives of older Americans and people with disabilities — many of whom have been hit especially hard by the economic crisis that has swept across the country.”

So, who will be getting checks? You qualify if you receive Social Security or Supplemental Security Income (SSI) with the exception of those receiving Medicaid in care facilities. The legislation also provides for a one-time payment to Veterans Affairs (VA) and Railroad Retirement Board (RRB) beneficiaries.

If you fall into one of these categories, it’s possible that you already have your check, since the first checks were mailed on May 7th. If you haven’t received your payment yet — don’t worry. They are being sent on a staggered basis throughout the month of May.

Keep in mind that you don’t have to do anything to receive your $250 payment. Checks are being mailed automatically and will be sent separately from your regular monthly payment. The Social Security Administration is advising that you don’t contact them unless you have not received your payment by June 4, 2009.

If you still have questions about your economic recovery payment, feel free to contact one of the professionals on the Lange team. Our toll-free number is 800-387-1129. You can also get answers online at www.socialsecurity.gov/payment.

Have fun stimulating the economy!