Stop the tax and inflation power curve.
In this episode, we are going to address the question "Why or How do most people run out
of money in retirement?"
Why do retirees run out of money?
I want you to learn this so that you don't run out of money.
And you got to stop what I call the tax and inflation power curve.
So, I've been a financial strategist, retirement planning specialist for more than 45 years.
And I learn this concept very early in my career.
And I was like blown away that a lot of financial advisors never do learn this.
And that's why they get caught in the trap of just giving the same old, same old financial
advise.
Just participate in the companies 401K and put it in the market.
When the market crashes, they always comes back and you'll probably be in a lower tax
bracket when you retire.
So, defer, defer.
And everybody is doing it.
Well I was sort of a contrarian.
I said, "Wait a minute, you're not taking into consideration what we call tax and inflation
power curve."
And this is what causes people, retirees, especially to outlive their money.
So, let's talk about this curve.
If I was drawing this, this would be a curve where your dollars, your net spendable income
is dramatically reduced as we go down the road in life because of 2 big things that
erode away that money or that purchasing power --taxes and inflation.
Now, there's actually a third one that people deal with in retirement.
And that's market volatility.
But in this episode, let's talk about taxes, first.
When people retire, so many times I would have them come in because at retirement planning
is something totally different than maybe what you did for retirement planning.
And I would always tell my clients...
Okay, they weren't clients before.
This is the first meeting.
And I'd say, "Bring your after tax IRAs, 401K, 457, whatever.
Bring your after tax statements."
Then the go, "After-tax statements?"
I knew they didn't have them.
And so, I was "Oh, I have to calculate it for you."
So, they came in.
And let's say they have a million dollars in this account.
And they're just thumping themselves on the chest.
And "Look, we have a million bucks in this."
I'm going, "Oh, what about your partner?"
They go, "What?
What partner?"
Well, the government.
Okay?
Uncle Sam has been your partner.
That's not all your money.
"What do you mean?
That's my money."
I said, "No.
Only about two thirds of that.
See, that million isn't your money.
You agreed to postpone tax, procrastinate until you retire thinking you're going to
be in a lower tax bracket.
That million isn't all your money.
Only about maybe 650 to 700 thousand of that is your money in your tax bracket.
If you were earning 10% which most were not, that means if you pull out 100,000, you pay
tax of 30,000.
You only netting 70,000 to but gas and groceries.
People go, "Well, I need 100,000" because of the inflation power curve.
Because the purchasing power of the dollar went down.
They thought a million bucks was going to be a big deal.
And now, a million bucks only buy what a half a million did several years earlier.
So, let's throw in the impact of inflation and why people have to pull out more and more
to have the net spendable income they need to have the same gas, groceries, haircuts,
golf green fees they could've had 15 years earlier when the dollars worth more.
First of all, we had the problem of tax.
When people said, "Well, I need a net of 100,000 to buy gas and groceries Because of inflation,
how much more do I need to withdraw out of my IRA or 401K that I'll net 100,000 after
paying the tax."
And I go, "Well, you're in a 33% tax bracket.
That means you have to pull out 50% more.
They go, "What?"
No, do that math.
You have to pull out 150,000, pay tax of a third.
50 to net 100.
In a 33-percent bracket, you have to pull out 50% more to have same net spendable income.
Well, what if I can't afford to take 150?
Yeah, you're only earning 10% and you're having to pull out 15% to net 10.
Because inflation took it's toll on the purchasing power of those dollars.
Because down the road, inflation at 5% will double the cost of living about every 14.4
years, every 15 years.
But a lot of people for expenses like health care, prescriptions and so forth, the cost
go up double digit.
So, let's say in retirement, inflation on all of the things that you're needing money
for, not just food or gas or whatever.
But usually your medical and all of the prescriptions and medications that you need.
Usually those have been going up more in double digit inflation.
At 10% inflation, the cost of living will double every 7.2 years.
So, that means at age 67, you're going to need twice as much money.
In 15 years, you're going to need 4 times as much because he keeps doubling.
So, let's say 100,000 used to cut it.
In 7 years, you're going to need withdraw 200,000 to buy the same gallons of gas and
loaves of bread that 100,000 bought earlier.
Even if you tighten your belt and you live on 50,000 out of IRAs and 401Ks, in 7 to 10
years, you're going to need 100,000 to buy the same goods and services you used to buy
for 50,000, you need 100,000.
And it doesn't just go up another 50.
It doubles again in 7.2 years.
So, 15 years in retirement, you are having to withdraw 4 times what you did 15 years
earlier to have the same lifestyle.
This is called the inflation power curve.
When you combine the effective tax and inflation in that power curve, this is the reason why
people outlive their money because they have to keep taking out more and more money after
tax and to make up for inflation to have the same essential needs or things that they want
in retirement.
And most people's retirement nest eggs cannot continue to do that.
So, what do people do?
They're forced to cut their lifestyle.
The golden years of their life.
Or they're forced when they ran out of money to rely on social security, charity welfare,
your children for support.
Is that what you spent your entire lifetime to do?
Well, let me tell you what you have to do to avoid this.
So, what you need to do is eliminate the dangers of taxes and inflation.
And while we're at it, let's eliminate the danger of market volatility.
This is what I've been helping people do for 45 years.
And I get all kinds of thank-you notes.
Because there's 2 strategies here.
In order to eliminate the dangers of taxes requiring that you need have to give up a
third of everything and taxes will be going up for the future.
Most people see that.
Because of the irresponsible government spending, the printing of money and economic stimulus,
programs and trillions of dollars.
Where's that money going to come from?
They have to tax.
And so, the general accountability office and the congressional budget office says,
"Taxes will likely to go up to 50, 60 or 70 percent."
Especially if popular ideas like free college or medicare for all gets passed.
Heaven forbid, they're estimating those are going to cost 90 to 100 trillion.
Do you know the IRS only brings in an income between 3 trillion, 4 trillion a year?
And yet, they want to shell out 100 trillion to do that?
Where's the money going to come from?
Higher taxes.
So, the best way to make your self immune is to convert your retirement income, your
retirement strategies to tax-free income.
And I'm not talking about a Roth.
A Roth is a step in the right direction.
What I use, I've termed The Laser Fund.
The LASER is an acronym that stands for Liquid Assets Safely Earning Returns.
The Laser Fund is what many savvy CPA and Tax attorneys refer to as the Rich Man's Roth.
And I snicker because you don't have to be rich to have one.
But see, the rich can't own a Roth.
They make too much money.
So, there's tons of advantages that the Laser Fund has over a Roth.
Been it allows me to have tax-free income.
If I have a million bucks, it generates 80 to 100 thousand a year of tax-free income.
I'm immune from taxes going up to whatever level.
Also, I link my returns in my Laser Fund to the things that inflate.
I don't like inflation anymore than you do.
But it doesn't hurt me.
It helps me.
See, if inflation is at 5, I usually earn at least 10.
I've always earned at least 5.5% greater than the inflation rate of the time.
Because I link my returns to the things that inflate.
If inflation goes to 10, I earn 15.
If it goes to 20, I earn 25.
And it's very predictable.
Most financial advisors don't know how to link your returns on your serious money especially
in retirement to the things that inflate.
So, inflation doesn't hurt me.
But you cannot rowing upstream at the rate of 1/2/3 miles an hour and have the current
of inflation coming down at 10.
If the current of inflation is coming down at 10, you better be going 10-15 miles and
hour to beat that inflation.
You can learn to do that.
And I've written about it in all of my books.
My most recent book is called The Laser Fund.
Click on this episode and you'll have the opportunity to receive a copy of the book
absolutely free.
I pay for the books, you pay $5.95 shipping and handling.
And you can learn the value of this.
And also, how to protect yourself from market volatility.
But the first key is let's get rid of the danger of the tax and inflation power curve.