One of the most frequent questions I hear clients ask is “what do you think taxes will do in the future?” Well, I don’t have a crystal ball, but common sense tells me that taxes will most definitely have to increase in the future. Why? Let me share a couple of facts with you.
- President Obama has signed a budget deal for the next two years that will raise the national debt ceiling from $18.5 trillion to $20 trillion, putting the US debt at almost twice the level it was when he first took office. (November 2nd, 2015)
- Total U.S. debt, including States, Municipalities, Personal and unfunded Medicare & Social Security liabilities are now in excess of $200 Trillion. (2014)
Give the monstrous levels of debt our country is currently experiencing, what do think will happen to taxes in the future?
Another interesting fact is to look at our country’s historical tax rates from 1913 to 2013:
As you can see from the chart, we are currently in an historically low tax rate environment. Again, my prediction is that taxes will have to increase in the future.
So if taxes end up increasing in the future, how does that affect our retirement situation? After all, the government has conditioned us to believe that we should be using tax-favored investments such as 401(k)’s and IRA’s to build our nest egg. These give us a tax break TODAY and allow us to pay taxes on them TOMORROW. Sounds logical, right?
Wrong. Let me pose a question. Is it smarter to pay tax on the SEED (funding), or tax on the HARVEST (distribution)?
Personally, I’d rather pay tax on the seed. I don’t need Uncle Sam to be my business partner when I decide to begin the distribution of my nest egg. In other words, I’d rather pay him off now, and then enjoy TAX FREE distributions when I retire, and am most likely to be in a higher tax environment. When taxes go up in the future, 401(k)’s and IRA’s are going to be taxed BEYOND RECOGNITION!
Another issue I have with traditional retirement investments such as 401(k)’s and IRA’s is loss of control. You see, the IRS dictates when you have access to these funds (without a penalty) and when you MUST begin drawing these funds (Required Minimum Distributions). My retirement solution allows me to access my funds ANYTIME I want…or never at all. Either way, it’s my choice, not Uncle Sam’s.
You may be wondering what type of investment I’m speaking about. If you’re that curious, email me your contact information to: email@example.com. If you send me your name, address and phone #, I will immediately send you a copy of a book that can change your financial future.
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