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Retirement hangs on fiscal cliff

By Jennie L. Phipps · Bankrate.com
Monday, November 12, 2012
Posted: 1 pm ET

If we fall off the fiscal cliff, retirees could face a 17 percent increase in their 2013 income taxes, predicts CFP professional Leon LaBrecque, a lawyer and certified public accountant.

LaBrecque weighed the impact of eight unpleasant financial problems he believes retirees -- and those on the brink of retirement -- are most likely to encounter as a result of the nation sliding over the cliff. He estimates the dollar impact and predicts the likelihood of Congress passing a solution.

He says that for retirees and those doing retirement planning, "The most dangerous one of all is the expiration of the Bush tax cuts because it changes everything."

Here's his list:

  1. Expiration of the Bush income and estate taxes ($246 billion impact). This will hit everyone who pays income taxes and anyone whose estate is over $1 million. The fix: Extend all or some tax brackets and extend the current estate tax limits. Probability of Congress taking this step: very high.
  2. Alternative minimum tax, or AMT, patch ($50 billion impact). This law was designed to extract money from millionaires who wiggled out of paying taxes. The AMT isn't indexed for inflation, so now it is hitting some people who make as little as $40,000. The fix: another patch. Probability of it passing Congress: very high.
  3. Sequestration ($109 billion impact). These federal spending cuts were mandated by Congress last year as part of a deal to raise the nation's debt ceiling. Social Security and Medicaid aren't affected, but Medicare Part D could get a 2 percent haircut, pushing up what Medicare recipients pay. The fix: new budget cuts. Probability of these passing: slightly above zero.
  4. Expiration of the payroll tax holiday ($115 billion impact). President Barack Obama cut payroll taxes by 2 percentage points to stimulate the economy. The fix: Extend the cuts. Probability of passage: slight.
  5. Unearned income Medicare contribution tax ($24 billion impact). This affects singles with incomes greater than $200,000 and couples with incomes greater than $250,000. The fix: Repeal the Affordable Care Act. Probability: subzero.
  6. Expiration of the debt ceiling ($300 billion impact). The whole world would feel the pain if the U.S. couldn't borrow. The fix: Raise the debt ceiling. Probability of passage: good.
  7. Doc fix ($15 billion to $22 billion impact). Physicians who treat Medicare patients will take a sharp pay cut. The fix: Adjust Medicare pay guidelines. Probability of passage: maybe. (Docs can afford good lobbyists.)
  8. Small-business and stimulus tax breaks ($27 billion impact). This involves a host of small tax breaks, including the individual retirement account charitable rollover, which allows people older than 70½ to make mandatory IRA withdrawals by sending the money directly to a charity. These donations aren't tax-deductible, but neither do they count as income, which could result in higher taxes on Social Security or higher Medicare premiums. The law expired last year, but some are still hoping it will be extended retroactively. Likelihood of passage: 50-50.
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105 Comments
James Pinckney
December 01, 2012 at 2:31 pm

Congress works for the USA. They know FIRST HAND that the economy remains weak. They(Congress) have good salary,benefits and pension and medical insurance. We voters must remind our Representatives and Senators that they are there NOT TO HARM the country. Iam sure they(congress) are watching their own portfolios.

James

James Pinckney
December 01, 2012 at 2:29 pm

Congress works for the USA. They know FIRST HAND that the economy remains weak. They(Congress) have good salary,benefits and pension and medical insurance. We voters must remind our Representatives and Senators that they are there NOT TO HARM the country. Iam sure they(congress) are watching their own portfolos.

James

Ed
December 01, 2012 at 1:24 pm

The wealthy, if $250,000 makes you filthy rich, can stimulate the economy more than Government putting shrimp on treadmills and allocating $150,000 for a park for albino squirrels. Giving Obama the chance to raise the national debt at his discretion is like leaving a child alone in a candy store.

WW
December 01, 2012 at 12:48 pm

All congressional members are out for themselves. It is obvious but they count on stupid citizens to keep them in congress. They have no fear of loosing their jobs because they know we are dumb and we citizens really won't do anything about it---they think the majority of people are lazy to say the least.

We need to send a message to our dems & republicans congress people within our districts and voice our opinions that they need to seek compromise on the Cliff issues and other potential legislation. They need to know that they work for us first.

Lyle
December 01, 2012 at 12:36 pm

When you have the money that a lot of multi millionaire's do, you donate a lot of your annual income to university's, churches, and many chairties that are tax deductable. Now where do you think this same money would go if it was given to our government and letting them hand it out. On the flip side, if these rich people did not give the money that they do what do you think the cost of going to schools would be and the same with all the other charitable organizations would they survive?

The rate of 14% compared to the income tax of 30% percent is like oil and water being compared to as the same.

Betty
December 01, 2012 at 12:32 pm

News flash! Retirees fell of the fiscal cliff already. Retirements were not included in the renewal of the Bush tax when it was renewed last time. My retirement decreased $75.00 a month as of January following that vote!!! So does this mean they have come up with another way to increase my taxes???

William
December 01, 2012 at 12:15 pm

I do not think their has ever been as many undereducatd voters as there is today. I see posts stating "Tell the repubs to take their money and leave." Ok, now if you do that take 90% of all the American assets, funds, bonds and kiss them goodbye. It would be an economic armegeddon for America. Ignorance raises it's ugly head once more. I am a Republican, I voted Democrat for president. I want stability in the government. He has a plan let's see it out. My next thing I am very worried about is the Black vote in America. When was racism deemed only a white problem. Voting for a man based entirely on his skin color is ignorant. As ignorant as segregation was in the 40's.

babs
December 01, 2012 at 12:02 pm

The debt ceiling is a joke. It is like allowing students to be in charge of their grade.
I have a lot more to say but this had to be commented on.

r brostek
December 01, 2012 at 11:39 am

No. 1 Get rid of the electoral collage permanetly for once and for all. The old days are over. No 2 get rid of these politicians who are well off and are in the house of reps that dictate yes i said dictate to me what i have to do in my life in america. The rich will get theirs in time but now VOTERS!!!! call your repulican dictators and tell them they are finished and go elseware to live with their money. and take bonehead Baynor with them

Flo Dari
December 01, 2012 at 11:26 am

And, Romney and the like only pay 14% taxes. While, I, a single taxpayer pay's approx. 30% out of my salary . INEQUITY. And, why doesn't the American people go after Politicians' lucrative pensions and medical insurance; as opposed to scapegoating working class union workers??