PREPARE FOR THE RETIREMENT TAX BITE. “One of the nastiest surprises awaiting some retirees is the devastating impact that taxes can have on their cash flow. Although many people welcome the upfront tax breaks of contributing to traditional IRAs and 401(k) plans during their working years, they’re not so thrilled when Uncle Sam demands his cut when they start tapping those retirement accounts. Imagine you are retired, plan to buy a new car for $30,000, and have all your savings tied up in a traditional IRA or company 401(k) plan. If you’re in the 25% tax bracket, you’ll need to withdraw $40,000 to have enough after-tax money to buy that $30,000 car. Ouch! Welcome to the IRA tax trap.”

Well, if you’re working, you’ll have to earn $40,000 to pay for that $30,000 car. That’s not so hot either.

UPDATE: Reader John MacDonald writes: “When they reach 70, they have to make withdrawals but since the banks are only paying 1.5% , their retirement principal becomes depleted at a faster rate. Financial planners used to factor in returns of 7-8% when figuring how long their clients’ money would last. That’s been thrown out the window….that’s a story the media haven’t written about. Middle class seniors thought they would be OK, but aren’t so sure today… they haven’t made money on stocks they held since 2000. …to add insult to injury, banks have been paying an anaemic 1% on CD’s….If they saved $500,000 for example over 40 years, it would throw off $30000 @ 6% but @1% it’s a puny $5000…Lots of belt tightening ….and no hope on the horizon.”

If we had a Republican president, the press would be pushing the poor-seniors angle a lot harder.