I was on a call the other day with an estate planning attorney. He wanted to better understand how the nation could afford to send so much money to 'the people and to small business owners.'
I asked his if he understood how many trillions of dollars were in pre-tax retirement accounts our country. He was pretty close when he said 'I don't know for sure but it is north of $20 trillion!' He further said, 'so are they planning to increase taxes as more and more baby-boomers enter retirement and withdrawal from that massive nest-egg they have built-up?
If so, the government will obviously have to step-in and lower taxes or that will cause a tax nightmare for people who don't plan ahead.'
What does it mean that the Social Security Trust is expected to run a shortfall in 2034? Combine that with now having to pay for a stimulus package like the CARES Stimulus Package of 2020 over the coming years, when will taxes have to BEGIN going up to prepare to cover these necessities?
Where Does It Come From?
Money for a government comes from two sources: it can be printed or it can be created from taxes.
It seems like an obvious solution that American's will be tapping into their pool of tax-deferred monies on a monthly basis for the better part of the next 20-30 years with the majority of baby boomers being in retirement and tapping into their tax-deferred monies during that time.
So let's start with what a 'Stimulus Package' really is. From the word "stimulus' it means to 'stimulate' or to 'invigorate' or 'energize' the economy. The money created for it does not come from 'thin air' and no we did not 'sell some of the gold in Fort Knox' because that would mean there would have to still be gold in Fort Knox.
What will happen is our country will crank up the printing presses and print money for the foreseeable future to cover it. After-all it was a bill placed into law.
Who Pays For It?
So the question, who will pay for it? Well, really we all will. It is our duty and as American's it is part of our duty to our country. I am grateful to be able to do my part and everyone will play a role in paying for it in the coming years. Higher taxes on purchases (so even people visiting America will pay for it), higher real estate taxes and of course higher income taxes are all likely. All we have to do is look to our neighbors 'across the pond' in Europe and see how high their taxes are to understand where the money comes from to pay for these programs.
Right now in 2020 most American's are in one of the lowest tax environments that they have been in for most of their lives. However, most of these same people who are saving or have saved for retirement are also inadvertently joining the massive group of people who may pay the most for the stimulus package.
How is that?
Finding Your Assets
Do this simple exercise and see where you fall. List three categories or buckets of assets:
- Tax-Deferred (401k/403b/pension)
- Taxable (checking/savings/stocks/bonds)
- Tax-free or Tax-Exempt (Roth IRA/Cash Value Life Insurance/Muni Bonds).
When you add up each category which 'bucket' do you have an overabundance of assets?
If 'bucket #1' is where you fall don't feel bad, most American's who have religously saved for retirement fall here as well. Is it from our 'belief' that is so engrained in us that until we have 'mathematical proof' that we need to rethink this strategy we are going to keep doing what we have always done? Possibly so.
Now to help you re-think that belief. Take a 'wheat seed' and pretend for a minute that the seed represents a $1.00 bill that you are going to save for retirement. If you plant/save that 'wheat seed' it will at some future date germinate in to a large plant that will have around 110 wheat seeds to harvest.
So ask yourself; would you rather DEFER paying taxes on that 1 wheat seed and pay 'whatever the new tax-rate is at harvest on all 110 wheat seeds? Or how much more of your money would you be able to KEEP if you were to pay taxes on the wheat seed BEFORE you plant it so that at harvest ALL 110 seeds of wheat are TAX-FREE?
Doing Your Part
You see we will all do our part and pay for the stimulus package. But do you want to 'do your part, your civic duty and pay the required taxes' or 'go above and beyond and pay much much more?'
The choice is there for each of us.
What planning are you doing today to understand the options that you have to keep as much of your money as you can in the future?