Are You Retiring with a Tax Bomb?

Tax Bomb

Are you Retiring with a Tax Bomb? Most people that save for retirement and pay down debt during their working years end up in the same or a higher tax bracket during their retirement years. Is this statement MYTH or FACT?

First, consider that typical recommendations of investing tax deferred will usually put you in a higher tax bracket when retirement begins.

THE FACTS

1. Distributions from tax deferred accounts are totally taxable.
2. Taxable accounts count as income, which have compounded through the years.
3. Your mortgage deduction--your biggest deduction--may be gone.
4. Social security could be taxed up to 85%.
5. Pension is taxable income.
6. Most likely you're not itemizing on your taxes at retirement--that triggers more income.
7. You're retired. Hopefully, that means you go on more trips, out for dinner and can actually spend more money enjoying yourself because you're not working.
8. You will need more money because items cost more. It's called inflation!

So why do advisers/institutions say you can live on 70% of the income you made while working? So you will! One big reason is they want to retain your retirement money at their institution to collect fees to pay their bills, and so the adviser can retire off of you.

Most advisers tell you that asset allocation within your portfolio is key, but the Real Answer is to have Asset Tax Allocation. That means splitting your assets so that 1/3 are taxable, 1/3 are tax deferred and 1/3 are tax free. Balance is essential to everything, right?

If you're like 80-90% of the clients I see, an extra-large portion of your life savings are in tax deferred places. This is one of the best accumulators of wealth, but also one of the worst distributors of wealth. On top of that, if they raise tax rates....it only gets worse.

This is what I call a TAX BOMB! Are you sitting on one?