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« Financial Algebra | Main | Free Money Finance March Money Madness, Round 2, Posts 13-16 »

March 03, 2010


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I thought the comment in the article that some retirees find the ability to tap into their retirement funds for the first time is "akin to winning the lottery" and they find it easy to overspend. I wonder how common it is for retirees to actually have sufficient retirement funds but blow through them and end up struggling anyway? If someone makes it to retirement with plenty of savings, I would think it safe to assume they must have developed the financial skills and discipline to manage their retirement funds well, but maybe not.

I had recently read in Kiplinger's magazine (if I recall was while I was waiting at the dentist's office) an article referecing a recently published book on where one should live once retired (would fit in your category, FMF, of relocating to a less expensive state). I apologize that I don't have more specifics regarding the book or article...just wondering if anyone out there read about it.

My point is: in the article it outlined specific money-saving states, mainly regarding taxes, etc. I read that certain states do not impose taxes on your Social Security benefits OR your IRA OR pension OR 401(K) benefits/withdrawals. One of those states was Pennsylvania. Does anyone out there know the specifics/facts regarding which states do not impose a Federal tax (maybe they were talking about state taxes?). It really doesn't seem possible to be completely exempt from paying taxes on IRA withdrawals... and I was hoping someone in the PF 'blogosphere' could attest to the claims. I will 'Google' the magazine (latest issue, I think) to see if I can link to it in a later comment.

Sorry for the long comment...

Re Downsizing your home.
One reason might well be to move from a multi-story home into a single story home.

My wife, who is healthy in all respects apart from arthritis, would find it really hard if we had a 2 story home and the master bedroom was upstairs. This is something that is not even on your radar when you are young and active, but as soon as you have difficulty going up and down stairs it becomes a huge problem. Just think how many times a day you go from the kitchen to the bedroom when you are retired - it's a lot believe me. Our other piece of real estate is a 3 story condo that we used to use as a weekend getaway when the teenage kids were still living at home. That would be an impossibility for my wife these days. Fortunately our son & his wife and daughter live in it now which was a nice solution since I didn't want to sell it for tax reasons.

Re Moving to a new locale.
If you live in a very nice community in a very nice locale, the last thing a retiree would want to do is to move. The only reason for doing so would be if you hadn't planned properly for your retirement and find that you just can't live on your retirement income.

Re Refinance your mortgage.
You should be retiring if you still have a mortgage - plan on eliminating by the time retirement comes along.

Re Use Cash.
That's stupid! I say "Use credit cards and Bill Pay", get the cash rewards and save on stamps, but pay the cards off in full every month.

Re Curb your cars.
You still need two cars when you retire but you will find that as you move up through your 70's and especially after you reach the 80's you will be putting fewer and fewer miles on your cars. Insurance companies lower your rates significantly by the time you reach this point as long as you have a clean record.

Many of the other points on the list still apply when you are working and raising your family. Those habits should be well ingrained by the time you reach the "Golden Years".

When you move money out of an IRA it will trigger a form 1099-R sent to you and the IRS.
The money is reportable income and you have to declare it on both your Federal and State tax returns.
You probably know that you are not forced to take money out until you reach 70 1/2.
Maybe there are states that exempt this income, your state income tax booklet and tax form should clarify this.
One thing that many people do not realize is this.
When you are 70 1/2, even if you wait until year end to take your mandatory distribution from your IRA you can specify that some of the money be withheld for state and federal taxes. These tax payments are pro-rated by the IRS as if they arrived month by month and will not trigger extra fees for unpaid interest. In my case I have enough withheld to cover my total tax obligations and thus I don't have to file quarterly.


certain states don't impose taxes on any income because they have no income tax.

Those states are:

South Dakota,
Washington, and

So I don't know if Pennsylvannia has a special law for pension and 401k withdrawals but the states listed above don't need one because they don't tax any income ever.

All of these only affect state taxes though. There is nothing any state can do to keep the IRS at bay. The IRS doesn't care where you live: Maine, Washington, Canada, China, they are coming for you if you are a U.S. Citizen.

Old Limey, Apex:
Thanks for the information. I will be keeping an eye on this since my husband is looking to retire w/a pension in 2 years (venturing into a new career).

I agree with FMF...we're saving enough for retirement that we'll have plenty of cushion. It's a great idea to keep your expenses in check, but I don't want to spend my later years agonizing over our travel expenses or food budget.

At your question of "Why do you still have a mortgage at retirement"?

The one big reason I can see is that some people couldn't afford to buy a home of their own until later in life. I'm almost 40, and STILL cannot afford a home of my own. One day, I hope to, but at this point, if that day ever comes, I'll obviously still have my mortgage, if I'm ever lucky enough to retire.

Also, these 15 tips might be for those retirees who never made much money in their life. There are some people (like myself) who could save almost all of their income (another impossibility, we all have basic bills to keep a roof over our head and food in our belly), and still never have enough to retire on, because we simply do not make very much. So we'll find any tips on surviving helpful! :)

Reality is that if you can't afford it by 40,barring some windfall you probably shouldn't buy a home. It is far more likely to lose value and be a distraction. Rent a home if that is how you want to live and save the excess cash for retirement. Just my opinion.

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