If you've saved very much, you will likely be in a higher tax bracket when you retire.
In this episode, I'm going to address the question why will I be in a higher tax bracket
when I retire? You're going to be shocked when you learn the 4 reasons why most people
are in as high or higher tax bracket when they retire than when they were working. So,
my name is Doug Andrew and I've been a financial strategist for more than 46 years. And I've
helped people minimize taxes now for those 4 ½ decades. So, in this episode, I'm going
to teach you why most people even school teachers are not in lower tax bracket when they retire.
And how I've helped them eliminate unnecessary taxes instead of being caught in this tax
trap. So, get ready. Put on your seat belt. I'm going to blow you away and I'll show you
some resources where you can seeb where you stand as it relates to taxes during your golden
years. So, I'm going to give you actual examples of clients, people that I've met with; school
teachers who thought they were going to be in a lower tax bracket when they retire. But
let me use a metaphor first of all to explain this. I've noticed many Americans are going
down the highway of life (so to speak) trying to achieve this destination, we'll call it
financial independence. And people ask, "Well, when will I know if I can retire?" Or "How
will I know when I have enough money that I don't outlive my money?" Well, oft times
they are shocked when I say, "You've been going down the highway with one foot on the
gas pedal and the other foot on the break pedal. I wouldn't recommend that." And they
go, "What do you mean?" Well, the foot on the gas pedal would be putting money into
tax-deferred accounts like IRAs, 401Ks, 457s. 403Bs, whatever. This is where you're using
a qualified plan with the IRS where you can put in pre-tax dollars or tax deductible contributions
to an IRA. And that's what most people, in fact, 91% of Americans are sort of duped into
doing. Because they been told for decades, "Oh, you're going to be in a lower tax bracket
when you retire." And so, they think, "Hmmm, I get to use tax advantage contributions and
it grows tax-deferred. And later on when I withdraw the money, I'll be in a lower bracket.
So, that's smart." No, it has not been smart. In fact, it took the financial services industry
until just about 2015, 2016 where they began to go, "You know what? That has not been the
best advise for most people in America. They're not in lower brackets because they had the
other foot on the break pedal." What's that? They were sort of killing their only deductions
as they where going. So, they will put putting their foot on the break and they paid off
their house. And so, they no longer have that deduction in retirement. Many of them, the
children are gone, the dependents. And if the kids aren't gone, if your adult children
are still living with you, you can't deduct them anymore, okay? Most people in retirement
are not contributing money to IRAs or 401Ks because they don't have earned income to be
able to do that. So, you'll lose those deductions. And if you're a business owner, you lose all
those deductions if you sort of sold your business or stopped working. And guess what?
Congress, because of irresponsible government spending at the printing of money, they keep
raising taxes and so, most of the analyst agreed that we will likely be paying higher
tax in the long run. So, that is no longer true that you're going to be in a lower tax
bracket when you retire. So, that's why I talk about, "Golly, you have one foot on the
gas pedal, deferring, deferring, deferring. But the other foot on the break pedal. And
you're killing your tax deductions that you go." And so, even if you have less income
in retirement, people are shocked when they pay as much or more in taxes during retirement
than the rates they were paying when they were earning money. Let me give you some examples
to illustrate this. So, I've written 11 books thus far in my life. My goal is to write a
book every year the rest of my life. My very, very, very first book was this one right over
here --Missed Fortune. I self-published it and then Time Warner, Warner Business books
bought the rights. And they commission me to write several more books. My fourth book
in fact, we were so blessed. It became a New York Times and Wall Street Journal number
1 best seller. And in all of my financial books, I talk about this very concept here.
It's where I call it the IRA-401K dilemma. The tax-trap. How so many people thought they
were going to be in a lower tax bracket and that is not been true or axiomatic for more
than 25 years and yet people continue to be duped, I think into putting money into those.
It wasn't until 1997 when the government was hard up for taxes revenue that senator Harry
Roth said, "Hey, I have an idea. This is how we can get a windfall of tax revenue." Many
savvy Americans realizing that they're not in lower brackets when they retire because
they're killing their deductions. And so, that's allow them to roll money out or roll
it actually over from a traditional IRA or 401K into Roth. That made you must pay tax.
But you want to get the taxes over and done with sooner than later. And then have it grow
tax-free from now on and then be able to access it tax-free. Now, that's a step in the right
direction. I've never own an IRA or 401K, never will. But I've never owned a Roth-IRA
or 401K, I never will. My favorite vehicle which I call the Laser Fund is sometimes referred
to as the rich man's roth, and I snicker because you don't have to be rich to have a laser
fund. But the rich can't own a Roth. They make too much money. When senator Harry Roth
did that, it was because it triggered tax revenue for the government. They did it for
them, not for you. But nonetheless, only about 9% of Americans understand that concept. And
so, I've used the metaphor for years of farmer with the seed, okay? If you were farmer and
you bought seed in the spring time and you had the choice that when you bought the seed
that you're going to plant that you could not pay tax on what you pay for the seed.
Now, this will be a traditional IRA or 401K. The seed money, the contributions, you don't
have to pay tax. You get a tax advantage contribution, okay? And so, you plant the seed and you irrigate,
you cultivate, you work hard and in the fall of life I'm talking about, you finally have
your harvest and now you sell your harvest. See, now you have to pay tax on what you sell
your harvest for. Most people when I word that way, I say, "Would you rather get a tax
break on the seed or would you rather enjoy the harvest without tax." And they go, "I
think I'd rather have the harvest be tax-free." Well, that's what a Roth is designed to do
for people who really understand this. Because if you believe that future taxes are going
to be higher, and frankly most Americans do. I speak to thousands of Americans every year.
And I'll be in a ballroom with 2,000 people. And I'll ask, "How many of you think that
in the long run, taxes in this country will be lower?" I get nothing but crickets. "How
many think they're going to be the same?" Maybe 1 or 2 hands go up. "How many think
they're going to be higher?" And a sea of hands goes up. And I go. "So, why are you
continuing to defer, postpone, delay the inevitable and accumulate your nest egg to some future
perceived, unknown advantage? And then withdraw your money down the road when you know taxes
will be higher? That doesn't make any sense. You want to get the taxes over and done with
sooner than later and enjoy tax-free accumulation and tax-free income down the road. And if
taxes go up, that will likely provide 33% more in net spendable income. I prove this
in a lot of my educational videos on this channel. So, let me give you an actual example
of husband and wife that were both school teachers that came to me years ago. So, these
2 school teachers, husband and wife, they had been saving meticulously into the state's
401K and 4013B's this was about 15-20 years ago, in fact. They knew that when they retired
as school teachers, they would only get 2% for every year of service that they taught.
They had taught school for about 30 years each. 2% times 30 years is 60%. So, the knew
they would only get about 60% of what they had been earning. And at the time, I think
the last 5 years before they retired, they had been averaging about 5,000 a month to
60,000 a year. And so, if they retire, the defined benefit pension in the state that
they lived in was going to be 3,000 a month or 36,000 a year. And of course as they're
teaching school, they're thinking, "We can't get by on just two thirds of 60% of what we've
been earning." So, they meticulously sock away money in the state's 401K and 403Bs.
Now, this couple had, at the time, $250,000 in those tax-deferred IRAs or 401Ks and they've
been told, "Oh, you're going to be in a lower bracket when you retire." Well, their accountant
said, "Well, okay. If you don't need the money, don't take it out. Continue to defer." And
so, as you probably know after age 59 ½, you can access your money out of an IRA or
401K without a 10% early withdrawal penalty. And I was telling them, "NO. Get the money
out. Get the taxes over and one with sooner than later." And they go, "Our CPAs says,
If you don't need the money, leave it there. Continue to defer." So, we have software that
shows the darkness of the night if you do that versus the brightness of your future.
If you just get the taxes over and done with and reposition the net after tax money into
something that's going to be tax-free from now on. Most CPAs don't know that that's what
I'm doing is repositioning to something tax-free. If they learn that, they go, "What's tax-free?"
And I have to educated them about my favorite vehicle. It's called the laser fund, a max-funded
index universal life insurance contract. Well, this couple, their accountant said, "No, leave
it there." So, the 250,000 was earning about 7.2% and so, that will double to 250,000 to
500,000 by the time they're 70 ½. Well, I took that 500,000 and we took ou RMD's, required
minimum distributions under the tax law. Because when you hit 70 ½., now it's age 72, the
government will penalize you 50% if you do not take what they say you're supposed to
take based upon your L/E, that means life expectancy. So, if your life expectancy is
20 years, you have to take out one twentieth. If next year is it's 19 years, you have to
take out one nineteenth and then one eighteenth and one seventeenth. They want you to take
out more and more so they can get the taxes revenue they've been planning on. Those are
called RMDs. You can't believe how many Americans take RMDs. It's the worst advise I've ever
heard. And people say, "Well, if it's bad advise, why do they tell you to do that on
CNBC?" And I go, "Who's funding CNBC?" Government revenuers. Why would they ever kill a partnership
where they get a third, 40, 50. They can change the percentage if they're hard up for the
money. And they have that partnership forever on what your accounts will continue to grow
to. My software shows this couple conservatively, if taxes even didn't go up that they would
pay at least a quarter of a million dollars in taxes during their life expectancy before
it transfer down to their kids. And they went "Wait a minute, that's all we have right now
is 250,000." I said, "You're going to pay 250,000 if taxes go up, you're going to pay
more than that." And they went, "Wow. Yeah, you're showing us the big picture. So, what's
your recommendation?" And I said, "You want to get that money out and the taxes over and
done with in a 5-year period. We actually were able to access about 60,000 a year for
5 years. It's 300,000 because the money was still growing. And they were going "Huh, we're
going to have to pay tax." The tax was about $12,500 a year. I said, "No. Pay it." You're
not saving by putting it off. Pay the $12,500 each year for 5 years." That was 60,000 in
tax. You pay 60,000 in tax instead of a quarter of a million in taxes by continuing to defer.
And reposition the net after tax money into my favorite vehicle, the laser funds on him
and on his wife. Both in the partnership we're going to take out a max funded indexed universal
life policies. Well, long-story-short, they resisted it first. I felt like Sam-I-Am in
Green Eggs and Ham. "You will like this, you will see." After 5 years, we got he money
out of their IRAs and 401Ks and they only had to pay a minuscule portion in tax. In
fact, I actually offset the tax by creating new deductions on their real estate portfolio.
They had some rental properties. But they were going to pay 60,000 instead of 250,000
by doing what I call the roll out. We offset the 60,000 by using some real estate strategies
and resurrecting deductions that they had been kiling. And that is explained in my books.
The story is in my most is in my most recent books which is called The LASER Fund. You
can read it in here. We reduce their tax from 60 down to 20. And then we did another piece
of real estate and we reduce it down basically to zero. After 5 years, we got 300,000 out
over into their indexed universal life policies. We were generating double the net spendable
income taht they would've taken even before tax out of their IRAs and 401Ks. They were
going, "Thank you, thank you Sam-I-am, we like these Green Eggs and Ham." Yeap, I can
tell you dozens of stories like that where I have saved people 750,000 if unnecessary
tax. Another couple, both physicians, 1.2 million in unnecessary tax. We have a couple
we talk about in this book in California. We took them from a high as tax bracket to
a zero-percent tax bracket in 5 years. They know have 8 million dollars in their index
universal life policies generating between 600 to 800 thousand dollars a year of tax-free
income. They are thrilled. And so, most people don't realize they're going to be in as higher,
higher tax bracket, let me connect the dots and tell you why and what's coming. So, where
we're headed in the future? The congressional budget office, the general accountability
office, they are studying where taxes are going to have to go because of bail outs,
because of pandemics, because of government spending. Because of initiatives like forgiveness
of student loans, free college tuition, medicare for all. If those are past, it is estimated
that the government is going to need to shell out approaching 100 trillion dollars in the
next 10 years for those initiatives. If you divide that by 10 years, that's 10 trillion
a year which is double what the IRS collects in taxes in an entire year. And what about
their current budget of 5 trillion or more? Where's the money going to come from? That's
why the GAO, general accountability office estimates taxes will likely go to 50, 60 and
70%. Get your money out of those IRAs or 401Ks while your tax rates are lower. Reposition
it into something that's going to be tax-free from now on. Because I can assure you if you
have any type of respectable retirement nest egg, you will likely be in as high or higher
tax-bracket in the future even if you have less income. So, don't delay, don't get into
tax-trap. I can assure you, you'll be glad that you reposition to a tax-free strategy
sooner than later. If you would like to learn more about why, I would implore to read and
study this book. But don't pay 20 bucks for the book. I will gift you a free copy. Here's
how. If you go to laserfund.com. L-A-S-E-R, fund, ".com" and you simply contribute $5.95
towards the shipping and handling, I will pay for the book and send it out to you. And
you can read the book. It's 300 pages of charts, graphs and explanations and 62 client stories.
And there's also options there to listen and learn, watch and learn. But this is the beginning
of your brighter future when you understand the negative impact of taxes and how to make
yourself immune from taxes going up by converting to tax-free.