Dean Vagnozzi, the 46-year-old financial entrepreneur and President of A Better Financial Plan, LLC, believes in making your money work hard for you. Today. Waiting is not his style, and Vagnozzi believes if it’s locked up in retirement accounts or paid ahead, into your mortgage, it can’t be accessed until much later in life.
He is not your typical Financial Planner. He suggests you avoid your company’s 401k, not pay off your mortgage, and forego an IRA. With many new ideas, Vagnozzi will make you wealthier than you ever thought possible.
Needless to say, Vagnozzi is not a typical Financial Advisor – to learn more about him, see the article here. With energy and enthusiasm, he hits you with ideas you’ve never heard before—certainly not from a money manager. He suggests avoiding your company’s 401k plan. He advises against paying off your mortgage. He says to forego an IRA. And he will make you wealthier than you ever thought possible.
As a veteran financial planner, I’ve asked thousands of people attending hundreds of financial workshops over the past 10 years about the direction they believe taxes will move in the future. Everyone—and I mean everyone—answers that question the same way. Everyone thinks taxes are going to be higher.
This comes as no surprise, as American taxpayers are constantly reminded of rising national debts taken on the United States government, and the only means of revenue the government has at its disposal are taxes. Americans are typically (and rightfully so) interested in any opportunity to slide past Uncle Sam and keep more of their hard-earned wages in their own pockets, making the 401(k) and IRA popular financial vehicles allowing contributors to defer taxes until a later time.
The only problem with this strategy?
Those same tax-payers had just agreed that tax rates are expected to increase in the future.
In a traditional 401(k) account, a percentage of your (pre-tax) income is moved into an investment account until you are ready to collect your earnings at retirement. This is not a revelation, of course, and we all know this to be fact. But I can tell you from experience that hardly anyone ever mentally factors in what the bite out of his or her retirement income is going to look like when he or she becomes responsible for paying those taxes.
I would encourage all of my financial planning clients to seek out the 70-somethings in your life and ask them how they feel about the income tax that leaves their hands every time they draw on their qualified account. They’re not going to be smiling when they tell you the answer and I promise you, if they are honest, they are going to come clean with you that they hadn’t anticipated how much that tax bill would sting.
There is a cost to deferring your taxes; unfortunately, no one ever examines that cost for us to make a conscious decision over whether that cost is worth accepting.
Now, one of the first arguments people make against this fact goes something like this: “Yeah, but wait a minute—you’ve kept her in the same tax bracket. My accountant told me I will be in a lower tax bracket.” This particular response is why I look at my audience and I say, “If you are in a lower tax bracket when you retire, then it means you have FAILED FINANCIALLY!”
Who in their right minds would want a financial plan designed to be in a lower tax bracket when you retire? If you are in a lower tax bracket, it only means one of two things happened: either you didn’t save enough money, or the money you saved hasn’t performed well—both scenarios are not optimal.
Instead, it would make more financial sense for taxpayers to have a financial plan designed to be successful and lead to them retiring in a higher tax bracket than when they started saving. Putting a financial plan together assuming that you’ll be in a lower tax bracket is another way of you conceding that you are going to be a financial underachiever.
Why would you want to be that person?
How about you put a plan together based on your being successful and, as a result, being in a higher tax bracket?
When considering the perfect retirement scenario, we often think about having a comfortable house that has been paid off, grown children with families of their own, and a large enough sum of money in a retirement account that allows us to spend less time working and more time enjoying the pleasures of life with those we love most.
Unplanned expenses such as a deferred income tax are going to hurt—and, because our house is paid off and our kids are grown, the two biggest tax deductions we enjoyed our entire lives are gone when we need them most.
In the end, what did you get for this “perfect retirement?” Your money completely tied up and illiquid for 20 or 30 years?
This is why it’s so important for taxpayers to understand exactly where and how their hard-earned savings are being held.