BRIGHTON, MI – 6/11/2016 — You’ve likely heard the adage, “It’s not what you earn, it’s what you keep.”
It makes little sense to implement an aggressive financial strategy, only to have the accompanying returns sacrificed on the altar of tax inefficiency. Add inflation and other potential factors and one has to wonder how much money they truly need to create sufficient income for retirement.
With higher capital gain taxes and the 3.8 percent Medicare investment income surtax, the importance of tax-efficient income strategies immediately becomes clear, especially when coupled with increasingly worrisome federal ledger issues. Consider that in September 2008, the national debt stood at $10.6 trillion. Today, it rings in at over $18 trillion, an exponential leap in barely eight years.
It’s a bill that’s quickly coming due. The Congressional Budget Office (CBO) estimates interest on federal debt will triple over the coming decade to tens of trillions of dollars, and warns rising government debt could reach 100 percent of GDP in 25 years.
Additionally, the Social Security Administration notes that nearly 75 million baby boomers continue to age. With that, the cost of Social Security, Medicare and Medicaid is rising with them. The current ratio of three workers for every retired person is far more difficult to maintain than the 42 to one ratio in 1935 when Social Security was first introduced, which will drive dramatic debt increases going forward.
Economists and other financial experts note that traditional methods for dealing with such staggering debt are all but exhausted. “Printing money” in the form of quantitative easing has been a staple of the Federal Reserve to boost economic growth over the past decade, but it carries inflation risks. With interest rates at historic lows for an extended period of time, they now have nowhere to go but up. Indeed, economic markets shuddered last December when the Federal Reserve raised interest rates to between 0.25 percent and 0.5 percent, the first such increase since the financial crisis. The result was swift and immediate, resulting in the worst January market start in United States’ history.
A second method, borrowing more money from other countries (notably China) makes little sense and only serves to further exacerbate the problem. A third option, spending cuts, is politically untenable, especially in an election year. It’s further unlikely given the bruising debt showdown (and resulting government shutdown) of 2013. Indeed, the most recent budget deal struck in Washington was specifically designed to avoid a repeat of just such a fight.
The only method left, and the one most tenable, according to some, is to raise taxes, something that would negatively impact the aforementioned income strategy.
“It’s not political, it’s mathematical,” says Jordan Main, a certified accountant who holds both an insurance license and a Series 65 and is the president of Main Financial Group in Brighton, Michigan. “We’ll have a new administration soon, and there will be little else they can do.”
One solution, he says, is to work with a tax professional in concert with your financial professional to utilize any available tax loopholes before they are closed, and to create tax-efficient strategies now, before tax laws are changed, to capitalize on potential “grandfather” provisions contained within the legislation.
This sort of asset positioning could become the norm moving forward, one reason financial professionals are increasingly focused on the issue. While Certified Public Accountants are well-versed in tax implications on the back-end, their expertise generally does not extend to specific retirement income strategies. The result is an increasing demand for a financial professional with a focus on providing reliable income in retirement who can also work with a qualified tax professional who has knowledge of the accompanying tax-implications that can help inform consumers of what strategies may be the most tax-efficient. It’s no longer a case of if their services will be needed, but when.
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Company Name: Main Financial Group
Contact Person: Jordan Main, President
Phone: (248) 347-6246
Country: United States