Retirement Planning
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When you think about your retirement, do you think about the amount of money you have, or do you think about how much income you will have? For instance, if you have 401(k) or IRA, it is completely tax infested.
I was working with a client, and I asked him how much money he had in his 401(k) and he looked at the balance and told me he had $850,000. I said to him “You really don’t.” He said, “Yes, I do, look at the balance on my statement.” I repeated to him “No you don’t.” He looked at me and asked me what I meant? I went on to tell him all the money in 401(K) is not his. I told him; I understand what the balance on 401(k) account says but he forgot a portion of the money in his 401(k) is his uncle’s. By the way, all of us have the same Uncle and his name is Uncle Sam (The IRS!). I told him he would be truly fortunate to have $425,000 out of the $850,000 after Uncle Sam (The IRS) takes his part, the Medicare Tax and then the State takes their portion.
Although you may not realize it, since 2003 we have had an exceptionally low Federal Income Tax rates compared to the average since Federal Income Taxes began in 1913. Since 1913, the average high Federal Tax Rate is around 60%. Currently, the high tax rate is 37%.
What would you say is more likely to happen first regarding federal taxes; will taxes most likely go up or most likely go down? If you said “Most Likely go up” you are not alone. Like you, most people believe taxes will be going up. Taxes, along with stock market losses, destroy most retirement accounts like 401(k)’s, IRA” s etc. Very few private companies (about 14%) offer pensions any longer.
Has the financial professional you work with every talked about “Tax diversification”? Are you familiar with a financial tool that can result in you potentially not paying any taxes on the growth? How about a financial product that at this point has not lost money in any one year?
If you are where a farmer, what is there more of? The seeds or the harvest? So, if taxes are involved, if you could choose to either tax the seeds or the harvest which one would you choose? The seeds of course because there is less to tax in seeds compared to the harvest!
Call me to look at strategies in “Tax Diversification” in your financial portfolio.