We're Not in Kansas Anymore Strategies for Retiring Rich in a Totally Changed World

Chapter 1 FORGET KANSAS, GET TO KNOW OZ. WE'RE NOT IN KANSAS ANYMORE It's one of the greatest moments in one of the greatest movies of all time, The Wizard of Oz. Dorothy Gale, played by Judy Garland, has just been transported along with her little terrier, Toto, from the Kansas farm where she lives with her auntie Em and uncle Henry to a mysterious place called Oz. The flat, mono- tone Kansas prairie has been replaced by a bizarre landscape bursting with color and lush with exotic flowers and plants. Bedazzled, Dorothy looks around, trying to gain her bearings in this unfamiliar terrain. And then she utters those famous words to her little dog: "Toto, I have a feeling we're not in Kansas anymore." When it comes to describing the situation most of us face today when planning for retirement, I can hardly think of a better line: We're not in Kansas anymore. The old, familiar landscape we once took for granted, the cozy, secure world where you could count on the combination of government largesse and an employer-funded pension to provide you with a comfy retirement, has given way to a totally new environment, one as alien to the world we knew before as Oz is to Kansas. Granted, in this new retirement world we don't have to deal with such nasty creatures as the Wicked Witch of the West or her army of freaky flying monkeys, as Dorothy, the Tin Man, the Scarecrow, and the Cowardly Lion did. But the twenty-first- century retirement-planning landscape is nonetheless teeming with daunting challenges of a different breed. We must learn how to get the most out of financial instruments that retirees a generation ago never had to concern themselves with, an alphanumeric soup of 401(k)s, 403(b)s, 457 plans, IRAs, Keoghs, SEPs, and so on. (IRAs, Keoghs, and SEPs, oh my!) And then there are the myriad rules concerning IRA rollovers, early withdrawal penalties, borrowing regulations, and RMDs (required minimum distributions). On top of all this, we've got to invest our retirement savings and thus learn to navigate the often treacherous waters of the financial markets, where sudden setbacks can sometimes undo years of diligent saving. In short, just as Dorothy had to familiarize herself with the strange ways of Oz in order to find her way back home, so too must we develop retirement-planning strategies that offer the best chance of success given the new realities we face. In this chapter I'll bring you up to speed on the new retirement landscape, including a number of distinctly positive developments stemming from recent changes in the tax laws that can increase our chances of achieving a comfortable retirement. Only by coming to grips with the various changes that have transformed the world of retirement planning and understanding how those changes affect you can you sensibly plan for your own retirement. Changes in the Financial Aspects of Retirement Social Security Ain't What It Used to Be Traditionally, retirement-planning experts have told us to think of our income sources during retirement as a three-legged stool, the first leg being Social Security, the second company-funded pensions, and the third personal savings. In fact, however, this stool would have been pretty lopsided because for most people the role of that first leg, Social Security, was much, much bigger than the other two. But today's and future generations of retirees aren't going to get anything remotely approaching the kind of windfall Social Security recipients received in years past. For one thing, there aren't enough workers paying into the system to provide benefits comparable to those past generations received. You don't have to be a financial whiz to figure out that fewer people putting money into the system and more drawing it out spells troubleUpdegrave, Walter is the author of 'We're Not in Kansas Anymore Strategies for Retiring Rich in a Totally Changed World', published 2004 under ISBN 9781400047895 and ISBN 1400047897.