Would a Tax Hike Ruin Your Retirement?

Would a Tax Hike Ruin Your Retirement?

On April 27, 2010, the National Commission on Fiscal Responsibility and Reform – which you probably know as the Debt Commission – held its first official meeting. This commission is charged by the president to figure out how to get a handle on America’s humongous national debt, which currently stands at a staggering $13 trillion+. According to a recent report issued to Congress by the Treasury department, the debt is expected to reach – hold onto something – $19.6 trillion by 2015.

What exactly has this got to do with your life, and why am I even discussing this topic on a personal finance blog? Well, the straightforward answer is because this is YOUR debt and YOU have to pay for it. And, the only currency to pay for it – as far as I know – is called tax revenue (or expense, from your standpoint as the taxpayer).

It’s Not All That Complicated

If you read this blog regularly, you know that I don’t care much for political ideologies – because I think they often make people say and/or do things they very well know are dishonest or make no sense. So, politics aside, this is the deal: As a nation, we’re in debt up to our eyeballs because for quite a while now, we have been spending w-a-a-a-a-y much more than we collect in tax revenue.

Fact is, regardless of the way any pundit words it, there are only two ways to fix the problem: reduce spending or bring in more revenue (i.e., increase taxes) – or some combination of the two.

Now if you were to take a wild guess as to which of these two options is the most likely to happen, which would it be? Do you believe that Congress will significantly reduce entitlements like Social Security, Medicare, and Medicaid? Or significantly cut other forms of spending? The thing is, we’ve tried this several times before, and after all the “cutting,” spending still finds a way to increase every year.

Actually, President Obama made some remarks to open the Debt Commission’s first meeting, during which he spoke about some spending remedies his administration has ALREADY implemented in an attempt to fix the problem. And then he said this: 

But these steps – while significant – are not enough. …this alone will not make up for the years in which those in Washington refused to live within their means. And it will not make up for the chronic failure to level with the American people about the costs of the services they value.

There’s not much to say about spending cuts, except that anyone would be incredibly naïve to believe that anything significant will happen on that side of the equation.

Regarding the possibility of increased taxes, this is what the President said, word for word: 

Now, I have said that it’s important that we not restrict the review or recommendations of this commission in any way. Everything must be on the table.

Can you guess what “everything” means? Folks, I predict taxes, including YOURS, will increase!

Okay, I could be completely wrong. But is it preposterous to think that it’s only a matter of time before someone who drives while heavily intoxicated will cause a major fatality? Or to predict a strong possibility of rain when the skies above me turn dark and full of zigzagging lightening streaks?

May I Recommend You SERIOUSLY Reexamine Your Retirement Strategy?

Every day, I see people planning for their retirement income using tax-deferred accounts that simply postpone taxes into the future because their financial advisors tell them this is what they should be doing. I really wonder:

• If any of the clients of those so-called advisors, who followed their advice and are actually retired, are now truly happy with that advice?
• If these advisors ever bother to do the math and show their clients some realistic numbers to depict what might happen once they are actually retired?
• Or if they just show their clients how much money they’ll have BEFORE-tax and send them on their way, as if that matters more to investors than how much they get to spend AFTER-tax?

Why not plan for your future retirement using income-tax free alternatives, rather than gambling that your taxes will be lower, when any honest professional in this field is predicting higher taxes?

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