How Much Should Retirees Stake in TIPS?

I’ve been traveling a lot recently, speaking to investor groups and promoting my new book, 30-Minute Money Solutions. Traipsing through airports gets a little old after a while, but the best part about these trips is that I get to hear what’s on investors’ minds.

One group I’ve been hearing from a lot lately is retirees and preretirees, many of whom are finding the current environment to be quite challenging, to put it mildly. With bond yields as low as they are, many retirees are complaining that it’s next to impossible to generate a livable income stream from their portfolios. To cover their day-to-day expenses, they’re having to choose between tapping their principal or venturing into higher-yielding, but also riskier, securities such as preferred stocks. Neither is an especially appealing prospect. Others, meanwhile, are concerned about what could happen to their bond portfolios if interest rates were to jump up, a topic I discussed in a recent article. [Read the full article]

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Spanish unions called Friday for demonstrations against a plan to raise the retirement age, the first hint of labor unrest since the government unveiled austerity measures to trim a ballooning deficit and restore credibility on markets rattled by the Greek debt crisis.

Nationwide rallies have been convened over a two-week period, starting February 23 in about 10 cities including Madrid, Barcelona and Valencia, General Workers Union leader Candido Mendez said at a news conference.

Besides the proposal to gradually up the retirement age from 65 to 67, unions are angry with a government plan to change pension formulas. In most cases that would mean a smaller pension in a country where the average one is about euro800 ($1,100) a month. [Read the full article]

Thanks to new rules that go into effect in January 2010, for the first time ever, every American with an IRA can qualify for conversion to a Roth IRA, creating the opportunity for tax-free growth of their retirement investment dollars. But converting a traditional IRA to a Roth is considered a taxable event, which means you’ll owe taxes on the money that is converted, less any nondeductible contributions made to the Traditional IRA.

If you’re considering converting IRA assets to a Roth, first determine how you’ll pay the associated taxes.

Part of the good news about Roth conversion is that the new 2010 rules include an option to spread the taxes out over two years, paying half each year. “If you convert in 2010, you’ll have until tax year 2012 to pay all the taxes, which means you won’t have to finish paying them until April 2013,” says Greg McBride, senior financial analyst at Bankrate.com. [Read the full article]

While most people are inclined to put taxes into the “out of my control” bucket, that doesn’t have to be the case. (For proof, one need look no further than the army of tax advisors and attorneys geared toward helping the well-heeled shave their tax bills.)

Key to cutting your tax bill is staying current on tax-law changes. Although there aren’t yet details on tax hikes likely to go into effect because of the federal stimulus plan, here’s a summary of recent and impending tax-law changes. I’ll also give you my thoughts on how you can act to either take advantage of these changes or minimize their effect on your bottom line. Some of these changes have an impact only on those in very high tax brackets, while others affect individuals of all income levels.

IRA ConversionsStarting this year, anyone will be able to convert an IRA, regardless of income limit. And those who convert in 2010 will be able to spread the conversion-related taxes over two years: 2011 and 2012. [Read the full article]

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