Tax-Free Retirement

The Top 4 Wealth Killers

#1- High Taxes- As Will Rogers said: “The difference between death and taxes is death doesn't get worse every time Congress meets.”

Were you aware that Americans have had tax rates as high as 94% in 1944 during World War II? In order to finance World War I (July 1914-November 1918) Congress passed the 1916 Revenue Act, and then the War Revenue Act of 1917. These two laws passed by Congress raised the highest income tax rate from 15% in 1916 to 67% in 1917 and then to 77% in 1918. War is expensive to taxpayers.

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Then Congress dropped the tax rates during the “roaring 1920s to 25% from 1925 through 1931. You might ask “Can the government do that? “They can! Then during the “GREAT DEPRESSION Congress again raised taxes from 25% to 63% for top income earners.

Along came World War II (From September 1939 – September 1945) that’s when the top income tax rates climbed to 94% on taxable incomes over $200,000 (or $2.5 Million in today’s dollars). Over the next three decades (1950s-1970s) top federal income tax rates would remain high and never dropping below 70%!

Then during the 1980s the ECONOMIC RECOVERY TAX ACT OF 1981 CUT THE HIGHEST tax rate of 70% to 50%. But in 1986 (just 5 years later) the TAX REFORM ACT OF 1986 created a broader tax base which contained fewer deductions, but brought the same revenue dropped the tax rate to 28%. Lawmakers claimed then that they would never have to raise the tax rate again. That lasted about 3 years. During the 1990s-2012, the top rate jumped again to 39.6%. From 2013 – 2017 another Act of Congress increased top tax rates again up to 43.4%.

You may ask why are you giving us all the tax history Doc? The point I am making is that tax laws are constantly changing by Congress and the sate of affairs in the World at large as well as our nation and which party has congressional control. Income taxes affect your Retirement plan.

Did you know that you will pay taxes on your current qualified retirement plan (e.g., 401k, 403b, IRA, SEP, etc.)? The tax deduction your favorite Uncle gave you was a tax trap, and you took the bait. Oh, by the way that favorite uncle is UNCLE SAM! Uncle Sam along with wife, 2 YOUR AUNT IRS is coming for your retirement plan when you start to make those withdrawals ad taking income. Question? If you were a farmer and you had SEED today and A huge HARVEST in the future, would you prefer to pay taxes on the SEED or the HARVEST? Now the question I am compelled to ask you at this stage of the game is “Do you believe TAXES are going to go UP in the future, stay the SAME or go DOWN?” But before you answer, I need to ask you another question (please humor the “Doc” …) with the current National DEBT at $31 TRILLION dollars where do you think FUTURE TAX RATES are headed? The answer should be obvious. What if I told you there was an IRS approved plan that could help you eliminate future taxes from your Retirement Savings plan. We are not taking about TAX EVASION but TAX AVOIDANCE. Reducing your tax burden in a way that IS LEGAL, MORAL and ETHICAL! The difference in the two is 15 years in prison for tax evasion.

#2- High Fees - I am surprised at the number of Retirement Plan Savers who are unaware that there are fees associated with their Employer Qualified Retirement Plan.

Taxes, Risks and Fees Click to see a 3 Minute Video

Were you aware that 401k and 403b fees can eat up anywhere from 30% -40% of your retirement savings over time? According to FORBES, an American business magazine owned by Integrated Whale Media Investments and the Forbes family which features articles on finance, industry, investing, and marketing topics, the total cost of your investment fees can be as much as 4.17%. With a taxable account (most qualified retirement plans including 401k and 403b plans) there are a number of expenses involved. According to another independent source, the 401k Average Book, the cost of owning a Mutual Fund can average between 0.88% to 1.88% based on the size of the employer. The Investment Companies are legally required to disclose these fees in a prospectus. As a Licensed Stockbroker for a well-known Brokerage Firm in Missouri was required to give a prospectus to each client. A prospectus is a disclosure document that describes a financial security for potential buyers. It commonly provides investors with material information about mutual funds, stocks, bonds and other investments fees associated with your 401k and 403b & other Qualified Retirement Plans. HIGH FEES can be lethal to say the least! The problem with most investors and 401k plan owners rarely took time to read the prospectus. It makes for enjoyable reading if you are awake and cannot sleep at night.

Apart from plan administration fees, there are three basic types of fees that may be charged in connection with 401(k) plan investment options. These fees, which can be referred to by different terms, include:

1. Sales Charges (also known as loads or commissions). These are transaction costs for buying and selling of shares. They may be computed in different ways, depending upon the investment product.
2. Management Fees (also known as investment advisory fees or account maintenance fees). These are ongoing charges for managing the assets of the investment fund. They are generally stated as a percentage of the amount of assets invested in the fund. Sometimes management fees may be used to cover administrative expenses. The level of management fees can vary widely, depending on the investment manager and the nature of the investment product. Investment products that require significant management, research, and monitoring services generally will have higher fees.
3. Misc. Fees. This category covers services, such as recordkeeping, furnishing statements, toll-free telephone numbers, and investment advice, involved in the day-to-day management of 3 investment products. They may be stated either as a flat fee or as a percentage of the amount of assets invested in the fund.

There also are some fees that are unique to specific types of investments. Following are brief descriptions of some of the more common investments offered under 401(k) plans and explanations of the different terminology or unique fees associated with them

Why Should I Consider Fees?

In a 401(k) plan, your account balance will determine the amount of retirement income you will receive from the plan. While contributions to your account and the earnings on your investments will increase your retirement income, fees and expenses paid by your plan may substantially reduce the growth in your account which will reduce your retirement income. The following example demonstrates how fees and expenses can impact your account.

Assume that you are an employee with 35 years until retirement and a current 401(k) account balance of $25,000. If returns on investments in your account over the next 35 years average 7 percent and fees and expenses reduce your average returns by 0.5 percent, your account balance will grow to $227,000 at retirement, even if there are no further contributions to your account. If fees and expenses are 1.5 percent, however, your account balance will grow to only $163,000. The 1 percent difference in fees and expenses would reduce your account balance at retirement by 28 percent.

Investments and Related Fees

Most 401(k)-plan investment options pool the money of many individual investors. Pooling money makes it possible for individual participants to diversify investments, to benefit from economies of scale and to lower transaction costs. These funds may invest in stocks, bonds, real estate, and other investments. Larger plans, by virtue of their size, are more likely to pool investments on their own – for example, by using a separate account held with a financial institution. Smaller plans generally invest in commingled pooled investment vehicles offered by financial institutions. Generally, the participant pays investment-related fees, usually charged as a percentage of assets invested.

Mutual funds. Mutual funds pool and invest the money of many people. Each investor owns shares in the mutual fund that represent a part of the mutual fund’s holdings. The portfolio of securities held by a mutual fund is managed by a professional investment adviser following a specific investment policy. In addition to investment management and administration fees, you may find these fees:

• Some mutual funds assess sales charges (see above for a discussion of sales charges). These charges may be paid when you invest in a fund (known as a front-end load) or when you sell shares (known as a back-end load, deferred sales charge, or redemption fee). A front-end load is deducted up front and, therefore, reduces the amount of your initial investment. A back-end load is determined by how long you keep your investment. There are various types of back-end loads, including some which decrease and eventually disappear over time. A back-end load is paid when the shares are sold, so if you decide to sell a fund share when a back-end load is in effect, you will be charged the load
• Mutual funds also may charge what are known as Rule 12b-1 fees, which are ongoing fees paid out of fund assets. Rule 12b-1 fees may be used to pay commissions to brokers and other salespersons, to pay for advertising and other costs of promoting the fund to investors, and to pay plan service providers as part of a bundled services arrangement. Some mutual funds may be advertised as “no-load” funds. This can mean there is no front- or back-end load. However, there may be a 12b-1 fee.
• Target date retirement funds, which are often mutual funds, hold stocks, bonds, and cash investments. These funds are designed to make investing for retirement more convenient by automatically changing your investment mix or asset allocation over time. Target date funds may charge different fees even with the same target date. If a target date fund invests in other mutual funds (often called a “fund-of-funds”), fees may be charged by both the target date fund and the other funds.

#3- Market Loss-Will Rogers Quote: “People should be more concerned with the return of their principal than the RETURN on their principal!”

CLICK HERE to view a 3-Minute Video on how the next market crash will affect your retirement savings!

The last bear market we experienced here in the United States ended in March of 2009, since then, we are currently in the second longest running bull market in history. We have experienced several market corrections, defined as declines greater than 10% but lower than 20%, but no bear market. We are currently positioned for another bear market. The question that should be on your mind is will it be greater than the Housing Bust of 2008 when the average 401k became a 201k and most pre-retirees found out the next day that they had to work another 5-10 years. In his book #1 New York Times Bestseller book entitled “MONEY: Master the Game (7 Simple Steps to FINANCIAL FREEDOM), Tony Robbins says, “Invest like the wealthy, where you participate in market gains, but are GUARANTEED to never lose when the market drops”

You say “Doc”, is that strategy available to the average retirement plan saver like me?” The answer to your question is an emphatic, unequivocal and resounding YES! There is a strategy that when I discovered it in 2006 caused me to say goodbye to my hard-earned Series 7 Securities License and embrace this newfound (new to me) strategy that showed me how to help my clients never lose another dime when the market dropped but capture a respectable portion of the market gains when it went up.

This is what we call in our industry “ZERO IS YOUR HERO.” Imagine a plan that guarantees you to never go backwards AGAIN!

It’s common knowledge that the top 10% income earners have access to the very sharpest CPAs, MBAs, Attorneys and Financial Experts that money can buy. The logical conclusion is that this retirement vehicle obviously meets and exceeds their high standards of safety and security while producing above average returns. So, the question is…what do they know that you don’t and why hasn’t your CPA or advisor told you about this? Do you really want to know the answer to that question?

So why hasn’t your CPA, Broker or Financial Advisor told you about this retirement vehicle? It’s important to remember that the financial strategies of the wealthy often take time to be recognized, understood, and assimilated by a CPA before they recommend it to their clients. Your securities advisor may have heard about it… but they don’t get a commission for life like they do with “securities” and because of this their Broker Dealer generally won’t allow them to offer it.

If your advisor tries to tell you it’s a “bad investment”, remember they may have a hidden agenda (their income); they don’t want to admit that it’s a great program or won’t admit they don’t understand it. If it was truly a bad investment …do you really think the wealthiest 10% in the U.S. would own over 50% of all of the policies?

The LIRP

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A LIRP is simply a life insurance retirement plan that has been specifically designed to maximize the accumulation of cash within the policy’s growth account. It accomplishes this by turning the traditional approach to life insurance in reverse. The traditional approach to life insurance that most so called financial gurus promote is buy as much life insurance as possible with as little money as necessary. With a LIRP, you are doing the reverse which is to buy as little life insurance as possible required by the IRS while putting as much money in the policy as is possible without disqualifying it to still be called life insurance. This allows the insurance contract to retain its tax-free position upon distribution or during your retirement years.

#4-Critical Illness- Critical Illness Insurance was developed by Dr. Marius Barnard (the brother of Christian Barnard, the doctor who performed the first successful open heart transplant surgery) in South Africa in 1983. Dr. Marius Barnard is known as the “Father of Critical Illness Insurance.

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Were you aware that the average age for the onset of a heart attack, stroke or cancer is not age 65- 80 but 44-51! That is correct as a former Registered Respiratory Therapist I have seen many and treated many survivors of heart attacks, stroke and cancer that were by comparative age “young.” This critical illness can invade the life of young people as well as the aged. Recently a 24-year-old healthy football plyer was hit by the helmet of a player on the opposing team on the field in a freak accident that caused him to go into an arrhythmia and consequently experience a CARDIAC ARREST! I cannot begin to tell you how many patients over the decades in my career as a Registered Respiratory Therapist I attended and rescued that were victims of “CARDIAC ARREST” (unfortunately some did not survive)! I can still almost hear the words “CODE BLUE”! As a Registered Respiratory Therapist, I was part of the “CODE BLUE” team and had to respond immediately to that signal that someone was at death’s door and needed immediate help.

The top three killers are cancer, heart attach and stroke. The truth of the matter is that many survive these critical and life altering events, but it may leave them unable to work for a while or permanently which in turn puts a hole in their savings and/or income. This is what powered Dr. Marius Barnard to find a solution to the financial woes of his patients saved with his legendary open-heart surgery built saw them sick again due to financial woes or altogether destitute due to surviving the heart transplants but unable to continue working. Were you aware that 60% of all bankruptcies are due to HIGH MEDICAL BILLS? These are NOT people without HEALTH INSURANCE but people that could not pay their bills and other non-covered medical bills like deductible, co-insurance, non-covered medications, and experimental procedures not covered by their health insurance policy. They lacked “Paycheck Insurance.” Many years ago, I worked for a Major Health Insurance company that marketed Disability Income Insurance. My first year with the company I ranked number #14 in the nation in one year for the sale of Disability Income Insurance. This was a large major health Insurance company called MUTUAL OF OMAHA. That was many years ago. Were you aware that you can have a LIRP (Life Insurance retirement Plan) that will not only give you tax-free income at retirement, eliminate high investment fees and market losses BUT also give you life insurance with a free rider called an ADBR (Accelerated Death Benefit Rider) that will allow you access to the death benefit in case of a critical illness. Not all Insurance Companies offer this free rider but the companies I represent as an advisor do. Not only do they cover HEART ATTACKS, STROKES AND CANCER but there are many other critical illnesses also covered (i.e., Paralysis, Blindness, ALS (Lou Gehrig’s disease), to name a few. Critical Illness can rob you of your funds and finances as well as your retirement fund. This is one of the most ignored wealth killers!

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