Why retirement plans are a big fat tax idiot

Happy tax day!

Let’s rap about why retirement plans are the basic b*tch of the financial industry.

The not-so-obvious reason is the illusory tax benefits masquerading as some kind of amazing feat of mathematical wizardry.

Enter, the professionals.

The Society of Actuaries (which helps guide the design of pension and retirement plans) tells the general public what most financial planners have known for decades but have never told their clients:

“It doesn’t make any difference whether [the taxes] are taken away from you at the beginning (tax-exempt) or at the end (tax-deferred). It’s the same fraction of your money that is left to you.”

If tax rates are the same, then it don’t matter whether you invest in a retirement plan or not.

But… what does matter is net retirement income adjusted for inflation in the future vs net income now.

People use retirement plans because they get a tax break right now.

Which mean… They see more income now. And… They like that.

I get it.

But… why are you saving for retirement?

If it was just for a tax break right now, there’s an easier way to save more money in taxes: make less money.

But I suspect no one wants to do that.

What people hope is there will be more money for them in the future because they’ll be in a lower tax bracket because their advisor said so.

But this rarely happens.

Deferring the tax usually results in lower retirement income because… remember how your advisor told you that your investments have to beat inflation to grow your savings in real terms?

Well, they was right.

But… what they neglected to add was your retirement income must do the same to allow you to maintain your standard of living.

And inflating your income on a set schedule is problematic in a tax-deferred retirement account because all that does is increase the tax you pay over time.

As you withdraw more money to maintain that standard of living, it pushes your income higher which… causes you to pay more tax which… eventually pushes you into a higher tax bracket.

And… it lowers your net income.

You have two choices: you can stick your head in the sand or… you can figure out how to solve this problem.

To do the latter, go join my email list to get more info on the how-to. Do it, now.

David Lewis

This post brought to you by //The Rogue Agent//. David has been a life insurance agent, and worked with some of the oldest and most respected mutual life insurance companies in the U.S., since 2004. Learn more about him and his business, here.

This post brought to you by //The Rogue Agent//. David has been a life insurance agent, and worked with some of the oldest and most respected mutual life insurance companies in the U.S., since 2004. Learn more about him and his business, here.