The New Retirement Reality4 min read
The New Retirement Reality
We all want to enjoy our retirement years surrounded by those we love and doing the things we enjoy and during the journey toward retirement we also want peace of mind knowing we’re on the right path, but there’s a problem. Big institutions have eroded the possibility of that dream ever coming true. Stock market risk and burdensome taxes during retirement have created a retirement crisis that has affected most Americans and has probably affected people you know.
According to countless economists, advisors, and financial publications, we’re on the precipice of the greatest retirement crisis in the history of the World. An environment where people are too frail to work and too broke to retire will be the new normal for many elderly Americans. So, with a world of information at her fingertips why is it we keep doing the same thing that caused the problem in the first place; putting your money in a qualified retirement plan like a 401k and hope everything will work out. Look around, that message is everywhere. But is just not working out and now many are calling the 401K a lousy idea and a financial flop. I’m sure many people working in their golden years followed conventional wisdom and yet rather than building a secure future for themselves and their family, they find it a struggle to make ends meet and worry about becoming a burden.
Nobody should have to feel hopeless during retirement but look around at your family and friends, most of them are not winning financially either but they just didn’t know what else to do besides follow the crowd. Some people know the keys to financial Independence and take a different path. They have learned that to achieve different results you have to do something different. Once the course has been corrected peace of mind, control and confidence for the future is returned as well as the path to financial Independence. For decades large Banks, corporations and the well-informed have been utilizing tax-free and risk-free principles to grow enormous amounts of wealth. But it’s not just a plan for the affluent; we can take advantage of this asset class as well by learning a few key concepts and taking the small steps necessary you can ensure your retirement goals are reached.
Have you ever heard it takes big risks to have big rewards? What if you could earn stock market like returns without any market risk? Indexing is a basic but very powerful strategy to avoid market risk by participating in the gains of the market but not suffering any of the losses during the bad years. Market risk conventional wisdom promotes the idea of an average rate of return but that is, yet another pitfall people find themselves being misled by. If we have $10,000 and earn a 100% return the first year, we double our money and end up with $20,000. Let’s say the next year, the market or asset corrects, and we have a 50% loss. 100% gain followed by a 50% loss, the average return is calculated by adding up the losses and gains and dividing by the number of years in this case 25% which sounds great.
But wait a minute we started with $10,000 and we ended up with $10,000 so what’s our actual or real return? We actually didn’t make any money at all so our actual return is zero now can you see how average rate of return is almost meaningless and why a broker could say you averaged a X percent return, but your actual statement shows something quite different. Have you ever considered it may not be the size of the nest egg that matters the most but rather the cash flow that Nest Egg can generate? Most people concentrate on building that Nest Egg as large as they can, after all that’s how they get paid right? However, that large nest egg is not all yours, remember you haven’t paid taxes on so a lot of it belongs to the IRS, and they get to decide how much they keep by determining your tax rates.
Because most people who save for retirement save inside pre-tax plans such as 401ks and IRAs they have deferred their taxes believing they will pay less tax in retirement. So, here’s a question…in the future do you believe taxes will go up, go down, or stay the same? We all might have our own opinion on that, but the Congressional budget office has already answered that question for us. Not only do they say taxes must go up, but they must go up substantially! Studies based on the government’s current debt situation concluded that with no changes to Social Security, Medicare, and Medicaid the lowest tax bracket would have to increase by 2.5 times to sustain those programs. Here’s the really bad news they also said that the 25% bracket would rise to 63% and the highest bracket 39.6% percent would need to rise to 88%. Can you imagine 88% of your nest egg going to the IRS in taxes (that’s a risk you should not be willing to take with your life savings).
The harsh reality most Americans are faced with at retirement is a choice; do I live on half the money, so it doesn’t run out as fast or do I go back to work. Do you really want to continue down a path leading to retirement that could end with you being too frail to work and too broke to retire? You owe it to yourself and your loved ones to create your retirement years and have the financial resources to make wonderful memories and to create a family legacy you’re proud of that will be remembered for generations.