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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
ann
November 27, 2012 at 1:20 pm

if our politicians cut pay in have gave up retirement benefits which they should not have and payed there medical insurance like most of us do there will be less of a problem i thing its time we put it up to vote we tell the politicians what they get for pay and there is no benefits most are alto richer then 75 percent of the public

James mullen
November 26, 2012 at 5:21 am

I get a kick out of all this talk about, " are you better off now than you were 4 years ago". Had O'bama been elected 12 years ago, he would have had the luxury of following a president who dug us out of a hole, like Bush. No instead he got elected after Bush re-entered us into the hole. And just like his Dad, Bush underestimated the depth of that hole. Of course Clinton nor O'bama knew this until they got into office. And we all know how Congress worked with O'bama, so they could get the ball rolling on turning the economy around. NOT! No they were too busy for 4 years trying so hard, at the country's expense, to make O'bama look bad. Well he can't get elected again, so maybe they can turn their attention to working with O'bama. Romney isn't trusted by the people. He wants to help the middle class & small business's. Give me a break! That's something the Dem's. do. Bush said the same stuff. Hey John, remember those debates with Bush & Gore. Lots of talk about schools & health plans. What a joke! Besides the tax cuts what else did he accomplish? Besides that, we all know how he got elected. One of your top 5, I see. I can live with my vote.

Q Tip
November 19, 2012 at 5:04 pm

I don't know who RO is, but he obviously is clueless about our economy. I'm thinking that perhaps he is 19 years old, and flipping burgers. To say that Governor Romney is unethical and would invade Russia is absolutely ignorant. "Thanks to obama", he is better off, because he is probably forced to live with mommy and daddy, who are also covering his health care costs until he is 26 years old. This is the mentality that is sinking our society. The class warfare statement that the rich need to pay their 'fair share' is patently false, but the prevaricator in chief has succeeded in convincing the people like RO that they are evil. I never worked for a poor person, until that person was me, after b.o. tanked our economy. Good luck to you, RO. There are many lessons to learn, and you have yet to begin.

ted
November 18, 2012 at 2:36 pm

OBAMA IS A MAN WITH OUT A COUNTRY, TIME WELL TELL, HE DID NOTHING GOOD FOR THE U.S.A in FOUR YEARS, I HAVE NO WAY TO KNOW HOW THE JEWS ARE GOING TO TAKE THIS.WE ARE SET FOR A WAR WITH A LOT MORE THAN ANY ONE CAN THINK OF, YOU CAN CUSS BUSH ALL YOU WANT, BUT WAIT FOR THE NEXT YEAR, YOU BETTER GET OUT YOUR TURBA.

rob
November 18, 2012 at 9:04 am

In my humble opinion, I think it will take a life time to recover from the "bush" era. there was never a bush i didnt want...2wice! romney would have been like bush, only worse. who ever would have been in office, would have been stuck with a rap sheet a mile long. i guess its easier to blame the one you can see, than it is to remember how we got here. Romney would have been decent if we were all millionaires, like him, but most of us, are not. we will keep declining, who ever is in office. we will keep declining, until the rapture! its not coincidence....

John
November 17, 2012 at 9:56 pm

RO
I wish for you happiness and prosperity. However, under Oboma full prosperity will be some what difficult to obtain. Under Romney you would have a much easier time.
I have lived under 13 Presidents. 7 Democrats and 6 Republicans.
I served in the Armed Forces during the terms of 8 Presidents Eisenhower to Clinton.
I Rate the presidents that I have lived under in the following order: (1) Truman, (2) Eisenhower, (3) Reagan, (4) H. W. Bush, and (5) G. W. Bush.
The policies of Obama? He does not have any yet. They do not go into effect until 2013. Why do they call the current system the Bush Tax Cuts. Most of the policies that Obama has been following with the exception of Obama Care are policies of G.W. Bush. Exactly who is running the monetary policy now. Individuals appointed by G.W. Bush.
Obama is out to dismantle the free enterprise system. Through Obama Care, Banking Regulations, Redistribution of wealth, and Executive Orders to give Free Stuff to obtain his political gains. Obama believers in the Socialist System. Who did he study under. What were his parents and grandparents.
If you are better off today than you were 4 years ago, you are young and in your twenties or in an industry that has not been affective by the turn down of the last 4 years.
What was the interest rate you received in 2008/2009. What are you receiving now.
We are currently in World War III right now. It is called Muslim Extremist. Russia currently is not a military threat. Russia is an economic threat. China is the next military threat.
Also, on an ethical scale I would rate Obama at 30 and Romney at 99.

RO
November 17, 2012 at 8:04 pm

Romney was NOT an ehical individual

RO
November 17, 2012 at 8:02 pm

I am better off than I was 4 years ago, thanks to the policies of Obama - the free enterprise system has allowed me to work hard and earn a good wage, with NO government handouts. If Romney would have been elected - this country would have gone into a depression and he would have started World War 3 by invading Russsia

Cher H
November 17, 2012 at 1:25 pm

John, you are so correct. I guess there are many people in this country who do not have any common sense. To those of you who voted Obama in for another four years of what we have endured for the past four years deserves what we are getting. I am very afraid for our country and what is happening to it. Mr. Romney didn't win the election because the majority of the people who didn't vote for him are greedy and living off the rest of us with handouts that should not be given. Since when is it ethical and just to hand out free cell phones to people who then re-sell them for cash and apply for (and get) more? We are in an unstoppable motion to free-fall off the fiscal cliff and we shall see what happens then. It won't be pretty, and once again, the middle class will pay the price. And, contrary to what many of you who read this are thinking, I voted for Obama in 2008. I fell for his charisma and verbal, eloquent words. I really believed we finally had a person who would lead our country the way it should be run. However, once in office, it did not take long to see that there were no actions to back up the words, and now, another mistake has been made in the 2012 election. If anybody starts griping to me about the state of our country, I am going to ask them who they voted for.

John
November 17, 2012 at 12:49 pm

Obama is a complete failure. He was successful in dividing the country.

Those of us who made this country the greatest in the world are now going to see its’ decline.

Change will not come to this country until after the 2014 Congressional Election.

We have had a war on poverty since 1965. It is worst now than it has ever been. Our hard earned money has been wasted.

Corruption is still on the rise. Until it is reversed we will continue to roll down the hill. How many individuals went to jail after the economic crisis of 2008/2009.

If we keep on electing individuals that fail to have any sense of ethics, we are all doomed in the future.

Romney was an ethic individual. You all made your choice now live with it.