Pathfinder’s Wheeler: Seniors Considering Retiring Next Year Face ‘Perfect Storm’

Monday, 19 Nov 2012 07:41 AM

By Michael Kling

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Even if the fiscal cliff is avoided, seniors considering retirement next year face unresolved questions on taxes, inflation and healthcare.

"It's kind of a perfect storm in 2013 when you think about it," Jason Wheeler, CEO of Pathfinder Wealth Consulting, told CNBC.

If you're one of the 7 million Americans turning 65 before 2013, don't quit your day job, many financial advisors say.

Editor's Note: Economist Warns: 50% Unemployment, 100% Inflation Possible

Taxes on investments is a chief question. When the Bush tax cuts expire Jan. 1, the top tax rate on capital gains will increase from 15 to 23.8 percent. The top rate on dividends will jump from 15 to 43.4 percent.

Another uncertainty is whether tax cuts would be retroactive to Jan. 1 if a deal is reached after the country falls off the fiscal cliff, financial planners warn.

Seniors shouldn't depend on Social Security, according to CNBC, as Social Security payments, which are adjusted to inflation, will increase just 1.7 percent in 2013, compared with an increase of 3.6 percent in 2012.

Moreover, inflation might hurt seniors with fixed-income investments like bonds.

With interest rates staying low due to the Federal Reserve's quantitative easing efforts, seniors with fixed-income investments will be hard-pressed to generate adequate incomes.

The wealthy will see higher taxes to help fund Obamacare next year, and Medicare premiums will jump from $104.20 to $120 a month.

"More and more people are going to be responsible for their healthcare costs as they get older," Wheeler told CNBC. "Even with Medicare, and as companies stop providing coverage to their retirees, those costs loom large for seniors."

Estimating how much money seniors will need in retirement is another dilemma. Many investors will have to lower their lifestyle expectations in retirement, according to BlackRock's Investor Watch survey.

Forty-two percent of non-retired survey respondents said they have lowered their retirement lifestyle expectations. Half the respondents have pushed their planned retirement date back or are unsure when they'll retire.

"It's common for investors to underestimate how much money they will need to cover themselves for their life when retired," Frank Purcell, head of BlackRock's U.S. retail business, said in a statement.

While approximately one-third of the respondents expect to spend less than 15 years in retirement, a healthy couple aged 65 in the United States has a 50 percent chance that at least one of them will live to the age of 92, according to BlackRock.

Editor's Note: Economist Warns: 50% Unemployment, 100% Inflation Possible

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