What will one million dollars $1,000,000 do for you in the following Economic Environment? Starting today at age 65.
Traditional Retirement Planning says find a Rate of Return such as 7% (commonly bonds) and draw an income from your principle $1,000,000. to produce around seventy thousand dollars $70,000 of retirement income along with other planning correct???
Now add an ever growing reality in today's uncertain economic environment.
- 78 million Baby Boomer's Retiring over the next 15 years
- Social Security Bankrupt projection 2017
- Medicare A Bankrupt now
- Medicaid State - grossly over budget…. Time bomb
- Iraq budget
- Katrina
- Iran
- Multi-trillion Dollar Deficit
- Etc…
In the midst of current economic circumstance 401(k) contribution limits are increasing but what will the tax rates be upon withdrawal of those funds? And how will the Government pay for it's monetary burdens? The highest revenue generator for the Federal Government is Taxes.
" Current Marginal Tax Rate roughly 35% " Historic Marginal Tax Rate roughly 70%
Do taxes and inflation stop because individuals may decide to retire? What type of effect will taxes and inflation have on your $70,000 retirement income? I will use a current tax rate for the following example. Taxes may be higher or lower in the future.
- Starting with $70,000 retirement income.
- Without adding inflation your net income is now roughly $56,000 ($14,000 TAX)
- The federal Treasury Department announced that April 2006 income tax collections of $315.1 billion were the second-highest in history
- Add inflation at 3% - now starting at roughly $54,000 down to $30,000 at age 85
- Net income drops by roughly 30% in the 1st 10 years
Cost of debt and Withdrawal rate in Retirement?
Can you always get 7% interest on your principle $1,000,000? Current rates are around 4%. One way the Federal Government stimulates the economy is to lower the cost of debt to the consumer. After 9/11 we saw historic lows for the cost of debt. What effect did that have on 7% bonds? In stead of $70,000 you may be starting at $40,000 to $50,000 retirement income.
It is also very important to understand the internal function of compound interest
- 30% of the Growth in an account accruing compound interest happens in the last 5 years.
- What happened in 2001?
There are wealth solutions to build assets in a way that takes in to account all of the variables discussed above and more to produce significantly higher retirement income.
- In the above scenario if you were able to spend down your principle you would see roughly a 62% increase in your retirement income and greatly minimize your tax burden due to your retirement income.
Macro-Economic Perspective
There are many more variables to consider when planning from a macro-economic perspective.
- The effects of taxations on different investment during the accumulation phase and upon withdrawal.
- What is the best diversification strategy during the accumulation phase?
- How will Long Term Care needs be addressed?
- Are your insurance dollars being used in the most efficient manner, business and personal?
- What are the wealth solutions to recover insurance cost and minimize your tax burden?
- What is the most effect way to transfer your assets to those you love or charitable causes?
- What is the most appropriate retirement plan solution if you own your business or individually.
- Why does spending down principle reduce taxes and generate more income?
- Etc….
Contact Us