IRAs and 401(k)s
IRAs and 401(k)s are typically subject to market volatility. At any time you can lose your hard-earned principal with a market downturn. Additionally, IRAs and 401(k)s may end up costing you much more in taxes than you’ve been told.
Increasing Taxes Could Mean Trouble
401(k)s and traditional IRAs are funded with pre-tax dollars. Your money grows tax-deferred and when you take distributions in retirement, that money is taxed according to your level of income and the current tax rates at that time.
- Remember, you are postponing, not avoiding taxes.
Do you think future tax rates will likely be lower, the same, or higher? If you are like the thousands of people we’ve asked that question, you probably answered higher. Most believe that the massive national debt and out-of-control government spending will make higher taxes a reality. How else will bloated government pay for its addiction to overspending?
- If you think taxes will be higher, why use financial strategies that postpone your taxes?
The likely answer a traditional financial advisor would give to this question is that you’ll most likely be in a lower tax bracket when you retire. Thus you’ll pay less in taxes. Is this true?
In your earning years, common and powerful tax deductions exist, such as mortgage interest and dependent children. As you contribute to your 401(k)s and IRAs, tax breaks are also readily available. Many also deduct business expenses that further reduce their tax burden.
As you start to take distributions from your traditional IRA and 401(k) during retirement, there is a very real chance that you might have similar income or lower, but still end up paying substantial percentages to Uncle Sam, due to most of your deductions being gone. Think about it; your children are no longer dependents on your tax forms, your house is paid off, and you’re no longer contributing to your 401(k). If you owned a business earlier, you’ve most likely sold it or are not involved, thus losing the tax deduction there, as well.
If you were a farmer, would you rather pay taxes on the seed or the harvest? Every day you set money aside for retirement, you are either choosing to pay a little on the seed now and have it over and done with, or pay later on the harvest when taxes are most likely higher.
We teach a strategy of paying taxes on the seed so you can enjoy the harvest, tax-free. You can take the unpredictability of increasing tax rates out of your retirement equation.
Market Volatility & Lack of Safety may Steal your Retirement
You’ve saved just like you’ve been told for decades. Over the years you’ve been tempted to draw on your retirement nest egg but you’ve resisted. Discipline and “buy and hold” have been your north star. As you drive home from work and are listening to the daily news, you hear reports that the market is in a tail spin, again. You’ve already lost 30% of your sacred nest egg, and you do a quick calculation that today’s losses mean a couple more percentage points. The losses have literally stolen a decade of your discipline in just a matter of months. “Am I going to postpone my retirement and work longer?” you ask yourself with a sigh.
This happened twice in “the lost decade” of 2000-2010. In 2001-2003, and again in 2008 most Americans lost about 40% in the value of their IRAs and 401(k)s. Read more about why this will most likely continue the next 10 years here.
In our eyes, the loss of principal due to volatile markets is unacceptable. While high risk may be necessary for parachuting and skate boarding, we believe that retirement planning should not be an extreme sport. Your money can grow in a protected environment, without being subject to losses due to market craziness, and can be positioned to last as long as you do.
Retirement should have an abundance of stability and predictability … not instability and worry.
Our clients enjoy products that provide safety of principal and still achieve very competitive rates of return. Two of our financial strategies employ a powerful engine called indexing. Indexing allows your principal to be protected during volatile periods of time, but also gives you upside growth potential during market upswings.
Properly structured and maximum-funded Indexed Universal Life policies, or what we call IUL LASER Funds, and a few groundbreaking annuities allow you to protect your principal, and at the same time enjoy the miracle of compound interest.
Disclaimer: Life Insurance Policies are not investments, and accordingly should not be purchased as an investment.
Committed to Your Success
We have helped many highly successful people accumulate their money safely, earning predictable, tax-free rates of return, with historical annual average rates of 5–10%. What that means is, when they retire, every $1 million dollars they have accumulated can generate $70,000 – $100,000 per year of tax-free income (aka tax free retirement), without depleting the principal on their nest egg!