Jim Lorenzen, CFP®, AIF®
Back during the 1990s, many Americans, particularly baby-boomers, were focusing on accumulation. Many of us can remember the focus on mutual funds and a rising stock market. Today, these same boomers are thinking more about protecting what they’ve saved.
The problem, as is often the case, is Uncle Sam.
For years I’ve believed that our 401(k) and other tax-deferred account statements are misleading. Someone who’s successful and in his/her 50’s might open their retirement account statement and see a balance of $600,000, for example, and believe they actually have $600,000!
Not likely. For someone in a 28% federal bracket, for example (we’ll ignore state taxes for now, but you shouldn’t), the statement should read:
Your money: $432,000
The Federal Government’s money: $168,000, unless your tax bracket changes and unless the federal government decides to change how much will be required to fund government operations. If more is required, the government can increase it’s share of your retirement account without your consent.
And, there lies the problem.
According to this chart, federal finances may experience a bleak future.
I aplogize for the poor image quality, but the upper-left depicts the annual deficits both past and projected, while the lower left chart shows the effect of these accumulated deficits
There’s more you should know about this and how this issue, combined with a few others, has important implications for baby boomers who need to navigate the retirement maze in the face of potential rising interest rates, inflation, and tax-increases – all during the years when they’ll be tapping into their nest-eggs. I’ve included this and a few other charts – all much more legible – and additional information you might find interesting, as well.
