Tax risk made clear in one chart

Tax risk made clear in one chart

October 06, 2021
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Most Americans will owe taxes on their retirement income withdrawals. 

Up to 85% of Social Security distributions also will be taxable.  This can amount to thousands of dollars a year that are needed from other accounts to maintain lifestyle. 

Many don't realize this nor do many understand how to minimize these taxes.

This may mean you owe 20, or 30 or more years of taxes you must pay, when you are no longer earning an income. Tax increases are a direct threat to your retirement. If taxes go up, there is a likelihood your tax bill will go up. It’s not enough to know how much you should be saving, because if you have too much in your tax-postponed accounts, they will be a tax target...and you will only be able to watch as tax rates rise over time, then find that your financial plan delivers less than what your lifestyle needs. 

It's important to contribute the right amount of money into the right kinds of accounts. 

In the U.S., we have seen a correlation between debt to Gross Domestic Product (GDP) as a leading indicator of tax increases. The chart below illustrates how the highest marginal tax income rate trends with the debt-to-GDP ratio. Today, our debt is reaching unprecedented levels; therefore many anticipate U.S. tax rates will also increase in the near future.

The problem is that many financial planners and CPAs don't focus on your future taxes. Their focus is accumulation; not distribution. Distribution requires a different mindset, a different planning process, and an expert who can look at the long-term to structure your retirement assets in the most tax-efficient manner possible. 

That's our specialty. Contact us to discuss your plan.

1 - TheBalance.com, “Debt to GDP Ratio and National Debt,” https://www.thebalance.com/national-debt-by-year-compared-to-gdp-and-major-events-3306287. Published 03/25/21. Accessed 06/30/21.

2 - FRED Economic Data, “Federal Debt: Total Public Debt as Percent of Gross Domestic Product,” https:// fred.stlouisfed.org/series/GFDEGDQ188S. Updated 06/24/21. Accessed 06/30/21.

3 - Bradford Tax Institute, “History of Federal Income Tax Rates: 1913-2021,”https://bradfordtaxinstitute.com/Free_Resources/Federal-Income-Tax-Rates.aspx. Accessed 06/30/21.

4 - CNBC.com, “U.S. budget deficit for fiscal 2021 so far tops $2 trillion,” https://www.cnbc.com/2021/06/10/us-budget-deficit-for-fiscal-2021-so-far-tops-2-trillion.html. Published 06/10/21. Accessed 06/30/21.