Ponzi Scheme Safe Harbor not for Pump-and-Dump Scheme
We are consumed with thinking about retirement. Our televisions are loaded with retirement advertising. From simple questions like are you going to outlive your retirement to more complex issues about how sheep in Asia effect rice in China. Really? The retirement industry is huge and employs lots of people that have to be paid some way and advertising that costs and prospectuses and lawyers etc… Where does it end? More importantly who is paying for all that?
All that to my way of thinking pales in comparison the what I call the big lie. “Put money away for retirement” they say. “You will pay less taxes when you pull it out because you will be making less money” Sounds reasonable. In fact that would be great if it worked that way. Talk about shrinking the size of government. Fully 10,000 baby boomers are retiring everyday, paying in less taxes and taking more out of Social Security at the same time. It looks like our elected officials are the poster children for unintended consequences. How could they do that to themselves? How long can that last?
Well guess what. It actually does not work that way. Say it ain’t so! Nope, sorry. First I would point you to the Federal Income Tax Brackets for 2014. For married filing joint taxpayers the 25% tax bracket starts at $73,800 and ends at $148,850. Most people work toward a goal of bringing in 70% of what they were making before they retired. If you were at the top of that bracket and took the 30% hit in income you would still be in the 25% bracket. Actual case. I prepared a tax return for a client in 2012 that had all w-2 income and he made $200,000. In 2013 his income was all retirement money. How much did he receive? Of course it was $200,000. Same ol, same ol. Definitely no change in taxes.
Secondly, tax rates never go down. They are always going up. Our government is addicted to spending more than they bring in. What is the last thing you want to worry about when you retire? What is always going up? What will be taking out a larger chunk of your retirement every year forcing you to decide to either withdraw less and squeeze the budget or take out more and hope the market continues to go up? Taxes.
Rumor has it that Pelosi and her ilk want to tax your retirement where it sits. Obama says you only need a certain amount to retire on anyway. Just think about all the risks you will be concerned about when you retire with your 401k plans and your IRAs. Taxes going up, markets going down, your financial institution’s solvency or (say it ain’t so) another Bernie Madoff. And what about that rice in China? Are you tired of counting sheep yet?
I think there are better ways to retire than doing what everyone else is being told to do. Sheep will always be either slaughtered or sheared. Don’t be a sheep.