Did you know that you’re allowed to work while collecting Social Security retirement benefits? Whether or not your paycheck affects the amount of your Social Security depends on your age. When it comes to determining whether your benefits are affected, the government takes a three-tiered approach:

• Before You Reach Full Retirement Age. If you haven’t yet reached full retirement age (the range is from 65 to 67, depending on your year of birth), then earning too much money will result in a reduction of benefits. For 2010, you’re allowed to earn $14,260 before you’ll see a reduction in your social security check. For every $2 you earn over this limit, the social security administration will subtract $1 from your retirement benefits.
• The Year You Reach Full Retirement Age. In the year you reach full retirement age, the income limit still applies, but exceeding it has less of an effect on your retirement benefits. For every $3 you earn over the annual limit, the social security administration will subtract $1 from your benefits.
• After You Reach Full Retirement Age. After you’ve reached full retirement age, you can earn as you want, with no reduction in benefits.

To determine your full retirement age, you can visit www.ssa.gov.

The Mendel Law Firm, L.P. is a member of the American Academy of Estate Planning Attorneys.

This year marks a change in the law that governs who can and can’t convert a traditional IRA (or 401(k)) to a Roth IRA. In the past, there were income restrictions that prevented people above a certain income threshold from converting. This year, the income restrictions have been removed, and anyone can convert. But should you?

There are some things you’ll want to consider in deciding whether to convert to a Roth IRA:

• How will you pay the conversion tax? Traditional retirement accounts are taxed differently than Roths. Contributions to your traditional account are made with before-tax dollars. So, you don’t pay tax on the money when it goes into the account, instead, you’re taxed when you withdraw funds from the account. Roth contributions, on the other hand, are made with after-tax dollars. Although you pay income tax on your contribution money in the year it goes into the account, generally, all withdrawals including your gains, are tax-free.

To account for this difference, the IRS collects tax at the time you convert your traditional account to a Roth. You want to make sure you have enough funds outside your retirement account to pay for this tax. If you’ll need to make a withdrawal to cover the tax, then a conversion is likely a bad idea.

• Will you be in a higher tax bracket after you retire? Because of the way it’s taxed, a Roth makes sense for those who will be subject to higher income taxes after retirement.

• Do you have a while before you retire? The farther away retirement age is, the more time you have to earn back the money you’ll lay out in paying the conversion tax.

• Do you plan to pass the money in your account on to your heirs, instead of using it for retirement? If you have enough other income and assets to support you during retirement, and plan to use your retirement account to leave a legacy for your heirs, then the tax advantages mean converting to a Roth likely makes sense.

The Mendel Law Firm, L.P. is a member of the American Academy of Estate Planning Attorneys.

When you think about living frugally during retirement, what comes to mind? If you imagine a life of deprivation and self-denial, it’s time to rethink your definition of frugality.

Frugal living is just a matter of planning your spending and making the most of every dollar. Living frugally can actually mean living better – if you know what’s coming in and you have well-defined priorities for spending your money, you’ll be able to spend on the things that are most important to you.

The first step is to create a good, workable spending plan. You’ll want to write down exactly what your total income is, and then account for all of your expenses. When you’re listing your expenses, don’t forget annual expenses like property tax and Christmas spending. If you’re not sure what your expenses are, it’s a good idea to track your spending for a month or so to get a feel for where your money is really going.

Once you know what your actual expenses are, you can adjust them based on your priorities. Obviously, basic living expenses will come first, but you may want to rethink even these things in light of your new lifestyle. For example, some people find that moving to a smaller home is more in line with living as a retiree. There’s less upkeep involved, and utilities and taxes are lower. Also, you may be able to spend less on clothes and car expenses now that you’re no longer going to work every day.

With your spending plan in place, you’ll want to stay aware of what you’re actually spending so that you can compare your actual expenditures to your spending plan, and make any needed adjustments.

Finally, here are a few tips:

• Avoid debt like the plague. Taking on debt during retirement is a terrible waste of money, because when you have debt, you’re spending money on interest payments. Instead, make every effort to plan ahead so that you can pay cash for all of your purchases – even major ones.
• Make sure you have an emergency fund. One of the quickest ways to derail your spending plan is to have an unexpected financial emergency and not have cash available to cover the expense.
• Take advantage of senior discounts – including looking into whether your bank offers a fee-free senior checking account.

The Mendel Law Firm, L.P. is a member of the American Academy of Estate Planning Attorneys.