How to Create Certainty for Your Future

Benjamin Franklin famously said, “In this world nothing can be said to be certain, except death and taxes.” While there’s no way out of the first one, there is something each of us can do to alleviate the second one. I’m not saying we should avoid paying our fair share—taxes are important; they go toward wonderful things we enjoy in this nation, like education, roads, libraries, safety and security. However, there’s no need to pay excess tax—and in fact, paying more than necessary can put you at risk of outliving your money at a time when you’ll need it most.

During retirement, most Americans experience what I call the Deduction Reduction, which puts them in a tax bracket that is as high or higher than during their earning years. Why? By then many people have paid off their mortgage, so they lose out on those tax deductions. They usually have no more dependents at home, so those handy deductions are gone. And business expenses? Those retired with their career. Combine fewer deductions with what will likely be continued tax increases in the future (how else will Uncle Sam continue to pay for his out-of-control spending?), and you have a recipe for much higher taxes than anticipated.

This is why every sound retirement strategy should include financial vehicles that provide the best tax advantages possible, including:

• After-Tax Dollars – Ideally, you want to be able to put in money that has already been taxed at today’s rates, not tomorrow’s. With tax rates going up in the future (to unknown amounts), getting taxes over and done will likely be incredibly important and financially significant. I like to refer to this as paying taxes on the “seed” rather than on the “harvest.”

• Income-Tax Free – Ideally, when you take money out, it should be income-tax free. If done properly, it won’t be regarded as taxable income.

• Tax-Free Gains – Your money should be able to increase in value due to competitive interest without being subject to taxes due on the gains.

• Tax-Free Transfer – When you pass away and your money transfers to your heirs, it should be able to do so free of income-tax.

In the four decades that I have been a financial strategist, I have only seen one money accumulation vehicle that accumulates money totally tax-favored and later allows you to access your money totally tax-free. Then when you ultimately pass away, it blossoms (increases) in value and transfers to your heirs totally income-tax free—the Max-Funded, Tax-Advantaged insurance contract*.

Now I don’t recommend that every retirement dollar you set aside be in an MFTA contract, but it can be an important part of your overall approach—especially when compared to traditional accounts like 401(k)s or IRAs.

To illustrate, let’s say that you want $100,000 per year during retirement for living expenses, charitable giving, travel and fun, and between all the taxes you pay, you’ll be in a 33% tax bracket. If you had your money in a 401(k), in order to net $100,000, you would need to pull $150,000 a year, because $50,000, or 1/3, would be going to pay Uncle Sam!

However, if your money were in a properly structured and max-funded, tax-advantaged insurance contract, you could take a zero-cost loan of $100,000 each year, and you would net … $100,000. Zero dollars would go to taxes!

Think about it—how much longer would your hard-earned money last if you didn’t have to pay tax on that money? How much more peace of mind would you have if you didn’t have to worry about your money running out, due to increasing taxes eating away at your distributions?

Empowering yourself with strategies like these can be the difference between depleting your retirement nest egg in seven to 11 years, versus never outliving your money (based on the same net spendable income).

It’s not a tax loophole—it’s simply a strategy that has been used by the wealthy, both personally and in business, to protect and perpetuate wealth for decades. The IRS has fully defined these benefits within Internal Revenue Code sections 7702, 72(e), and 101(a).

Having helped many highly successful people over the past forty-plus years, I’ve seen the positive impact—the confidence of a bright future—they gain from accumulating money safely, earning predictable, tax-free rates of return. When they retire, every $1 million dollars they have accumulated can generate $70,000 – $100,000 per year of tax-free income, without depleting the principal on their nest egg.

And the best part—when they pass on, their money blossoms and transfers to their heirs tax-free. So while as Ben said, you can’t avoid the certainty of death, you can soften the impact of the other inevitability—taxes. Not just for yourself, but for your posterity, as well.

To learn how Live Abundant has helped clients find confidence and certainty in their retirement, you can take this free mini-course from Doug Andrew by clicking here.

To your abundance,

Doug Andrew
NY Times Best Selling Author
National Radio Show Host