Is a ‘Tax Train Wreck’ Threatening Your Retirement?

Here’s How to Prepare for the Gathering Storm

In my wealth management practice, I am committed to helping my clients live a life of significance and purpose. What does that mean? Well, the specifics are different for everyone, but I believe every person’s strategy should include a comprehensive approach to financial planning. Most especially, I believe it means a retirement plan that takes into account the impact of taxes on your retirement distributions.

Why is this so important? There’s a storm brewing that can put your retirement security in jeopardy: taxes will be increasing.

This is the reason I’ve dedicated my professional life to becoming an expert in tax-free retirement planning, through the philosophy of The Power of Zero. Written by my mentor, David McKnight, an industry expert on tax-free retirement, this book shows retirees how to achieve the life they desire – tax-free.

In this article, I want to explain why it’s so important to focus on lowering your tax burden, with the goal of getting to zero. To do so, I want to share some thoughts from the forward to David McKnight’s book, written by Ed Slott, a CPA and author.

How We Know Increased Taxes are On the Horizon

For decades, Ed Slott and other industry experts have been warning consumers and financial advisors that the writing is on the wall. The notion of increased taxes isn’t a prediction. Rather, it’s the oncoming result of something much more straightforward: math.

You see, the American government will soon need huge cash infusions to meet its commitments to entitlement programs like Social Security, and it will have no choice but to raise taxes on those of us who have worked hard, sacrificed, saved, and played by the rules. We were told to put money away for retirement in tax-deferred accounts like 401(k)s and IRAs, and many of us did.

Those who saved the most diligently, though, will soon realize that a substantial chunk of those taxdeferred retirement savings are sitting ducks for a revenue-hungry Uncle Sam. In fact, as your 401(k) or IRA funds grow, so does the government’s share, since it is a partner in your savings. But unlike a traditional business partner, Uncle Sam can increase his partnership percentage of your tax-deferred savings whenever he needs more money, and that day is coming soon.

The question is, then, “Are you prepared?” You can be, but unfortunately, for most people the answer is “no,” because they believe that there is no way this can happen to them.

But it can – and it likely will. We have had federal income tax rates exceeding 90%. In fact, from 1936 to 1981, the top federal income tax rate never went below 70%! Higher taxes, of course, mean less money for your retirement years.

The 0% Tax Bracket: Understanding the ‘Taxable Bucket’

If you keep contributing to tax-deferred accounts on the assumption that you’ll be in a lower income tax bracket in retirement, it’s time to rethink your retirement plan.

Even if you think you are prepared with a plan, it is unlikely that you are. In fact, in most cases, the kind of planning you need to do now to avoid the oncoming “tax disaster train” is not being done.

If you have to wonder if you have a plan to reduce your income taxes now and in the future, then you do not have a plan. If you don’t have a plan, you will end up with “The Government Plan.” As you can imagine, that is not the plan that is best for you.

The plan that you need must be implemented by you and be done as soon as possible, before the “tax train wreck” arrives.

You need to create a plan to move your tax-deferred funds from accounts that are forever being taxed to accounts that are never taxed. Your best defense is offense—to build tax-free savings.

The good news is that right now we are in the lowest tax rates in recent history. Now is the time to strike in order to create tax-free income for your retirement years and beyond. Even your loved ones can benefit from the planning you do now. The tax code actually includes several tax moves you can make to create tax-free retirement income, but few people take advantage of them. For example, Roth IRAs and life insurance alone can help you and your family end up with more money than you have now, and with more of it tax-free.

The Time to Act is Now to Achieve Tax-Free Retirement

There will never be a more cost-effective time to leverage your current assets into tax-free assets. As you move your tax-deferred funds to tax-free territory, you reduce the impact of future tax hikes on your retirement savings.

By following the principles in The Power of Zero – which I have built my wealth management practice on – you can access a road map of how to get to the 0% tax bracket, virtually eliminating the tax risk, which, if not addressed, will easily consume a solid portion of your retirement savings.

How Hanson Wealth Management Can Help

I believe knowledge is powerful, and I hope this article has been a wake-up call. It’s time to face reality. When taxes increase, your tax-deferred accounts like 401(k)s and IRAs are the low-hanging fruit waiting to be picked by Uncle Sam.

I’m dedicated to helping my clients keep more of their hard-earned retirement savings out of the government’s reach. If you like the sound of tax-free, schedule a strategy session with me today. Together, we can implement a financial plan that help you pay less, keep more, and live the retirement of your dreams.