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How new Treasury Secretary Janet Yellen will impact retirement in the future

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Janet Yellen is a formidable figure in U.S. economics — and as the newly-appointed Treasury secretary, she’s expected to be a transformational force when it comes to retirement security as well.

During her interviews for the position, the Treasury leader said changes must be made for future retirees. When senators asked her about her potential role in retirement security as part of her nomination hearing, she mentioned various proposals President Biden had supported in his campaigns, and what she’d do to help.

Yellen, who served as the chair for the Federal Reserve between 2014 and 2018, mentioned offering tax incentives for small businesses wanting to start retirement programs, bolstering the Social Security system, giving workers without 401(k) plans access to an “automatic 401(k)” and balancing tax benefits for all income levels.

“There are many possible options for making retirement contributions more generous to middle-income families,” she said. Yellen added she’d be researching the myriad ways to fix the growing problem.

See:Yellen champions Biden’s economic plan at confirmation hearing

“We believe she can play a very vital role in expanding opportunities for American workers and retirees in many ways,” said Paul Richman, chief government and political affairs officer at Insured Retirement Institute, a trade organization that advocates for the retirement industry. Her role as Treasury secretary will directly and indirectly affect retirement savings.

There are already four bills dedicated to retirement security working their ways through Congress, which could help middle-class families build a nest egg in some capacity, Richman said. The new Treasury secretary has the strength and ability of addressing and balancing these numerous concerns, said Eugene Steuerle, co-founder of the nonpartisan Urban-Brookings Tax Policy Center. The government can no longer deal with issues one at a time.

“Janet Yellen is supremely qualified to recognize the need to deal with these issues simultaneously, which would be a dramatic change from the way we do things,” he said. “She is someone with the capability to deal with issues at that level and my fear for the economy as a whole is without doing that, a lot of our long-term problems in terms of growth and getting money to the people who have the greatest needs will continue to fall at the wayside.”

As the head of the Treasury department, which oversees the Internal Revenue Service, there are numerous avenues she can research and encourage the government to take in an attempt to alter the way Americans save money for their futures. Tax incentives and how accounts are taxed are two of the main factors in retirement planning — it’s one of the reasons people may be more inclined to invest in one type of an account over another, such as a 401(k) plan instead of an individual retirement account (IRA) or a Roth account over a traditional one. There are also tax-advantageous employer-sponsored retirement programs and tax credits that can be investigated further.

A plan for Social Security

Yellen will also be heavily involved in what happens to Social Security, the fate of which is currently in limbo as Congress figures out how to fix its insolvency issue. If the government does nothing, the program’s trust funds will be depleted by 2035 (or sooner thanks to the pandemic), at which point Americans will receive only about 80% of the benefits they’re owed.

“Social Security reform has not been a short-term priority since 1983 and the date of reckoning has finally arrived,” Steuerle said. Medicare is also in dire need of attention. During her Senate interviews, Yellen said the government needs to find a way to deliver health care in a cost-effective manner.

Also see: Yellen says smartest thing to do now is ‘act big’ to help struggling Americans

Yellen also addressed concerns about Social Security in her written responses to senators’ questions. “Having a strong Social Security program is essential in order to ensure a secure retirement for all Americans, especially for our most vulnerable populations,” Yellen said. She mentioned Biden’s proposals — including taxing workers who earn more than $400,000 and boosting benefits for survivors, low-lifetime income workers and older beneficiaries.

While retirement security appeared to be a priority for Yellen, there are other pressing matters — such as the consequences of the pandemic, said John Scott, director of Pew Charitable Trust’s retirement savings project. But that too will affect future retirement security, considering so many Americans have lost jobs or wages or had to halt or tap into their retirement savings. “Some of these immediate steps will also have an indirect or spillover effect on retirement security,” Scott said.

Even if Yellen is not directly involved in every conversation about retirement proposals — considering she will have a long list of tasks as Treasury secretary — she will be the one “setting the table for the debate,” Scott said. She also has experience in government and working with members of both parties, which will benefit her in this role.

“A Treasury secretary in particular gets a lot of attention because of their decisions,” Scott said. “I’m speaking outside retirement security, but what they say can affect the stock market. Someone like her makes retirement policy a priority, not just generally but with specific initiatives, and I think it can have a big impact going forward.”



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My brother owes $10K to our late father’s estate. There’s no loan agreement and I’m executor. How should I approach repayment?

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Dear Quentin,

My father passed and I am the executor of his will.

We sold the house and Dad’s assets with my brother’s help. Probate is done. We are ready to distribute the remainder of my father’s estate, but my brother owes the estate $10,000.

He feels that if he had paid this money back before Dad passed, he would still get half back, and therefore owes $5,000. (Dad also told me that he owed the money before he passed.)

My father’s will says his estate should be split 50/50. I feel my brother owes $10,000 to the estate. I do not want to rock the boat, and will do the right thing in order to keep peace.

What is the proper way to split $200,000 in cash when he owes the estate $10,000? For the record, my brother will abide by whatever I decide. Thank you in advance for your help.

Trying to Do the Right & Proper Thing

Dear Right & Proper,

You are right to not look for trouble where there is none.

Given that there is no notarized loan agreement between your brother and your late father and there is money to be distributed, it would seem simpler and faster to have him sign a note now saying he owes the estate $10,000 and deduct the $5,000 from his eventual inheritance. Done and done. He could, after all, say that the loan was only due to be repaid when your father was alive or, indeed, say the loan was a gift. (The subject of countless episodes of “Judge Judy.”)

Your story is a cautionary tale of what could go wrong. “A hug or a handshake is not sufficient to bind someone to loan repayment. Loans and repayment obligations should be spelled out in writing and include repayment terms upon the testator’s death,” according to the Absolute Trust Counsel, a California law firm. “It is the responsibility of the executor to collect the balance due. An estate cannot be settled until all loans are collected and all debts settled or paid.”

“When an estate is insolvent, the collection of outstanding loans becomes especially important. Creditors want to be paid and will pursue all available resources to accomplish that,” the firm adds. “Many times, unpaid loans create dissension among heirs. In some cases, heirs who owe money still expect to receive an equal share of an estate.”

There is a healthy cash sum from which to deduct your brother’s loan: $105,000 for you and $95,000 for him. It could get sticky otherwise.

Thankfully, your brother also wants to do what’s right and proper.

You can email The Moneyist with any financial and ethical questions related to coronavirus at qfottrell@marketwatch.com

The Moneyist: ‘Warren Buffett and Harry Potter couldn’t get those two retired early’: Our spendthrift neighbors said our adviser was ‘lousy.’ So how come WE retired early?

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These money and investing tips can help you sail the stock market’s choppy seas

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Don’t miss these top money and investing features:

These money and investing stories, popular with MarketWatch readers over the past week, give you tips about how to navigate the financial markets after February’s bumpy second half and signs pointing to March blowing in with more unpredictable winds.



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This 57-year-old said ‘screw this’ to San Francisco — and retired to ‘delightful’ Albuquerque, where she slashed her expenses by 70%

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When Roberta Reinstein moved to the Bay Area roughly 30 years ago to go to law school, it felt to her like a different place than it does now.

“It was possible for a student to live there…it was filled with artists,” she says. But Reinstein, 57, watched as real-estate prices skyrocketed (in just the past decade or so, home values have nearly doubled, according to Zillow) and many artists and less wealthy people had to move out. Nowadays, “San Francisco is only for the wealthy — the super wealthy — unless you’re willing to live with five roommates,” she jokes.


Do you have an interesting retirement story? Email helpmeretire@marketwatch.com with your story.

As she was watching San Francisco become a hub for the rich, she had a financial setback of her own: a divorce, in which she and her spouse had to split up their assets. And the divorce necessitated she move out of the family home, so she was spending $4,000 a month on a tiny pad to share with her daughter, Eva, she says.

“When Eva was in high school I started to think, do I really need to be here? There are lots of other places I can go.” And the more she thought about it, the more she realized: “Screw this, I gotta get out of here,” Reinstein says with a laugh. “I was ready for a break from the high cost, crowds and Google-fueled insanity of the Bay Area.”

Plus, she loved to flip houses (she’d done a couple in California years ago, before the real-estate prices were so high) and knew that was out of the question for her to do in the Bay Area — so she and her new partner, Peter, considered where else they could live. “We thought for a microsecond that Arizona might be the place, but it was way too hot in the summer.”

Roberta Reinstein and her partner, Peter.


Roberta Reinstein

They settled on Albuquerque for a number of reasons, including the weather, affordability of real estate, access to outdoor activities and the fact that Reinstein’s best friend had recently moved there.

Here’s what life is like in ABQ.

The area: Though it’s perhaps best known for its annual hot-air balloon festival and being the setting for AMC’s hit show “Breaking Bad”, ABQ — which has a population of roughly 550,000 — has a lot more going for it than that. “Albuquerque is a delightful, quirky hidden gem,” says Reinstein.

The Albuquerque Skyline at dusk.


iStock

It’s an artsy spot — there are hundreds of galleries and art studios; monthly art crawls, and a robust performing-arts scene — and a city where outdoor enthusiasts flock to. That’s helped along by the miles of hiking and biking trails in the adjacent Sandia and Manzano Mountains, as well as the roughly 300 days of sunshine. (Though January average lows are in the mid-20s, and July highs hit the low 90s.) And Reinstein tells MarketWatch she loves that it’s a diverse city with its own unique cuisine and celebrations.

Of course, there are downsides: Overall crime is high, though Reinstein says that while there are some not-so-desirable neighborhoods, there are plenty of areas that are safe. She adds that she’s never been the victim of a crime other than someone stealing a hose from one of the homes she was flipping. And there is “a fair amount of poverty,” says Reinstein. Plus, she says, the city can feel like it has a lot of sprawl, and she misses great Asian food.

View of the mountains from Reinstein’s yard


Roberta Reinstein

Here’s what MarketWatch recently wrote about Albuquerque.

The cost: Though Reinstein doesn’t keep a strict budget, she estimates that she probably spends about $3,000 a month to live in Albuquerque — despite having pricey hobbies like owning two horses — it costs her $1,250 a month to board them, which is her most significant expense. She says that most things are cheaper in Albuquerque than they were in San Francisco, including energy and gas, and estimates that she spends roughly 70% less a month than she did in the Bay Area.

Reinstein at the nearby stables.

The biggest way she saves money is by not having a mortgage on her home: She bought the four-bedroom, three-bath home that sits on an acre of land for $240,000, using a combination of savings, her divorce settlement and proceeds from homes she bought and flipped in Arizona and New Mexico, she says. And she adds that you can get a “nice house in a decent neighborhood for under $200,000” with smaller homes to be had for $100,000 or so, and can rent a nice place for $700 to $800 a month. Plus, she drives an older car — “a ratty Toyota Tundra truck” — she explains, so she doesn’t have a car loan.

The sitting room in Reinstein’s home.


Roberta Reinstein

Indeed, the cost of living and property taxes in Albuquerque are slightly below average for the U.S., median homes cost under $200,000, according to Sperling’s Best Places — and you can read about New Mexico’s tax situation here.

The bottom line: Reinstein says she plans to stay. “People are super friendly,” she adds, noting that it’s easy to make friends and get involved in things here. She’s part of a ladies walking group in the neighborhood and has made friends from her barn. “I have like two people I still correspond with [from the Bay Area],” she jokes, adding that “I was so wrapped up in my own world there.” But in ABQ, she says: “I had to go back to managing my schedule because I can’t get stuff done. I have so much to do here.”



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