Q. Have you written an article on what it would take to live off personal savings only? This would assume no Social Security, pensions, or other income.
I am 100 percent confident there will not be any Social Security for retirees in 20 to 25 years (which is my retirement window) and that deductions in our current paychecks are just funding a gap that will never be closed. Many of your articles discuss the subsidizing effect that Social security has on savings income— but I'm thinking it will personally take at least $1 million or $2 million to achieve a livable retirement income without Social Security benefits (let alone providing any inheritance to my children). Your thoughts? —G. C., Plano TX
A. Yes, you could retire at a normal retirement age without a dime from Social Security if you were a diligent saver. Suppose, for instance, that you wanted to replace 80 percent of your final salary at a retirement age of 67 and started saving when you were 30. Suppose also that your salary only rose with inflation of 3 percent and that you earned an annual return of 9 percent on your investments. If you saved 12 percent of your income (including any employer match as part of your savings) you would accumulate about 20 years of required income by age 67. That's a long haul, but very do-able.
While Social Security has a funding issue, I think it is a mistake to assume it will not exist when you retire. It is an essential program, absolutely necessary for the very survival of millions of older Americans. The day Social Security doesn't exist is the day Washington will burn and a guillotine will be located on the national mall for the televised beheading of some 535 politicians.
An employment tax increase of 2 percentage points would fix Social Security. Combine a smaller employment tax increase with an increase in the wage base limit, an increase in the retirement age, and a few other "adjustments" and the program will be OK. We can handle it.
The real monster in our future is the unfunded liabilities of Medicare and Medicaid. These liabilities dwarf Social Security. They make discussions of our current national debt look like rounding error. Healthcare is the biggest single issue we face.
Q. I have several IRAs as a result of rolling over 401(k) s from different employers at different times. I also have a SEP-IRA from a period when I was doing some contracting work. (My tax advisor at that time recommended a SEP-IRA over a standard IRA.)
I am now 70 and have taken a distribution from one of my IRAs to cover my annual required distribution (I believe). My question is: Do I have to withdraw money also from the SEP IRA if I have withdrawn enough to fully cover my required distribution? The money in the SEP is in a mutual fund that is closed to new investors. I would like to let that investment grow.
Also, I asked my CPA about my required distribution. He suggested I use the amount recommended by the investment company where my accounts are. I have a couple with Fidelity, one with Schwab and two in CDs paying 5 percent in different banks. I realize I should combine them, but I like things about the current institutions. —J.B., by email
A. You can calculate the RMD for each IRA account and then take the total from only one of the accounts— so, yes; you can avoid making withdrawals from the fund that is closed to new investors. Over time I believe you will find the flow of monthly statements and other paperwork bothersome and confusing. You’ll simplify your life (and your tax return) if you start to work on consolidating accounts. It’s an easy matter, for instance, to roll a SEP IRA into another IRA or into an IRA Rollover account.
Both Fidelity and Schwab are good choices for that consolidation and you’ll find that consolidating into one of them may also open the door for you to eliminate your regular bank checking account. Both outfits offer checking accounts for day to day transactions.