What other factors point to the thought that this may be the lowest tax bracket you will ever be in (what we call Defining Moment #2)?
The continual decline in the overall labor force will pose a huge problem. We already know that from a percentage standpoint, there will be fewer taxpaying workers than there are retirees who are and will be on government programs. And they will be living longer. Watch for my Demographics blog (next week). This is a serious issue that virtually no financial planner is discussing with their client.
So let’s take a look at this: we have a declining workforce in the United States, we have an aging population living longer on government programs, we have a government that’s spending like it’s on crack, and we have $50+ trillion in future government financial burdens. Unfortunately the only source of revenue for the Federal Government comes from you, in the form of taxes.
From the government’s standpoint, do you think they are going to lower taxes or raise taxes? Decrease or increase government benefits? You may start to put a few things together about your qualified plans here and why the government is highly motivated to stay in charge of them.
Afterall, who owns the pen on those accounts? Who’s your partner? The government. They control it all. When you open your statement on your 401k how much of it is yours? You have no idea. Why do you have no idea? Your plan is taxed at the tax rate you qualify for when you begin to withdraw funds. What’s that rate? No one knows. Do you think the government may be in need in the near future? Do you think they may need to raise taxes? You must start putting this together folks.
Ever thought why they made some changes recently to IRAs? Was it really for our benefit? Could they raid investment accounts? Of course they can. That’s why they created these things in the first place…another lesson on Demographics. You must understand when Qualified Plans were created and why – Demographics blog next week will address this issue.
Imagine now, if you can, your future savings and retirement money being taxed at two times today’s levels. Once again this is an estimate from the government’s GAO. Traditional thinkers and the so called experts from the government –please key in on from where they are experts–are now telling us that in order to survive in the future, where we will all be living longer, we must save more money now…and specifically into these types of accounts where they control the rules.
Upsetting isn’t it? “Save more now so we can control it later.” This is why this one bugs us so much.
If given a choice would you want to receive money now, when taxes are the lowest, or later when taxes may be much higher? If you are successful and are saving money and deferring the taxes to a later date, you may want to rethink the dilemna awaiting for you. The old adage “You will probably retire to two-thirds of your income thus be in a lower tax bracket” may be floating around in your mind.
But THINK about that for a minute! What determines your tax bracket? Your income. So, your planner is telling you to work your whole life, save, put it at risk so you can lower your income to a smaller tax bracket when you finally retire?
Sorry, but I’ve yet to meet a client who plans on drastically reducing their lifestyle at retirement. The typically plan to maintain their lifestlye. For one, they now can travel, play more golf, and spend time with hobbies.
If anything, you have MORE expenses NOT less. This concept is pure foolish on it’s face but absurd when you take this Defining Moment to heart. There’s one sure-fire way to accomplish what this advice states and that is to lose most of your savings and investments. Tell you what, that’s easy to accomplish. If that’s your planner’s strategy, fire them.
So finally, do you really want to retire to the least amount of money so you are in the lowest tax bracket or do you want to maintain your current lifestyle? Maybe even retire to the MOST amount of money…but you can’t say that in today’s world can you.
How then, in an increasing tax environment, certain demographic changes, and a desire to not have the least amount of money in retirement, does this way of thinking still permeate most plans?
If it’s your plan, you need a good dose of Financial Caffeine and we’re just the guys to serve it to you.
Kelly O’Connor – firstname.lastname@example.org