HOW TAXES AND INFLATION AFFECT SAVINGS:
Let’s look at an example of how taxes and inflation affect your ability to save.
Amount Deposited Into Savings—————————————$1,500.00
Years Saved—————————————————————- 30 years
Savings Rate——————————————————————-1.0%
Federal Tax Rate————————————————————–25.0%
State Tax Rate——————————————————————–6.8%
Inflation Rate———————————————————————–1.0%
value of your $1,500 savings deposited in 30 years
without adjusting for inflation with adjusting for inflation
- If you pay taxes on earnings $1,840 $1,345
- if tax deferred or tax exempt $2,025 $1,500
This table illustrates how taxes and inflation impact the value of money. If taxes are paid on earnings, without adjusting for inflation, the accumulated sum is $1,840. However, when you adlust for inflation, the value of money is only $1,345. The present value of money actually reduced from $1,500 the initial amount deposited.
Two Important Points to Consider
The taxes you pay on your investment earnings can drastically reduce the amount you are able to accumulate in savings over 30 years. The example above shows how taxes and inflation affect the bottom line. The effect of taxes and inflation is dramatic. When you are planning for retirement, your plan is not complete without factoring in the negative impact of inflation and taxes. Always be aware that the future value of your savings is discounted by the inflation rate.
$100,000 saved today is worth only $97,100 a year from now if inflation is 3% a year. To create an effective savings strategy and grow your money above inflation and taxes, it is recommended that you employ tax-advantaged programs such as: Roth IRA’s, municipal bonds, permanent life insurance, indexed annuites and /or a financial leveraged program.
10 WAYS TO OVERCOME RISING TAXES AND INFLATION
Strategy #1: Start Savng Now
Traditional saving programs are great if you are under 40 years old and set up a plan to account for tax and inflation. You can use the money you save to fund financial leverage strategies. However, if you are in you 50’s or 60s or older with limited or no, retirement savings, you need to use the power of financial leverage NOW!. You must start today to address taxes, inflation and your ticking clock in order to accomplish your retirement savings goal.
Even if you are 55 and could save $20,000per year at 10% interest, in 10 years you would be 65 and your gross savings, withcompound interest, would be about $250,000. How long would $250,000last if you maintained your current life style? Now, imagine that you live to be 90. Do the math and you’ll see that you will run out of money in shortorder.
Strategy #2: Set Reasonable Savings Golds, and then Live Below Your Means.
If you are a business owner or professional over age 50, with no current savings, how much do you need to start saving if you currently earn $7500 per month but still struggle to pay your bills? The rule of thumb is you should be savings at least 10% of your net income or $750 every month. However, if you have no retirement savings, your savings, at that rate, would only amount to about $170,000 after 15 years. As we have already discussed, you will probably need more than that to deal with the realities of the future. Set your goals, and change your mind-set. Don’t just live within your means; live below your means, and have an extra cushion of financial security.
Strategy #3: Know what to expect, based on a long history of investor Experience
Let’s take another approach at saving for the future. Let’s say that, instead, you, at age 50, used the Power of Financial Leverage and borrowed $500,000 to fund an index annuity. If the annuity earned a rate of 7.2% over 15 years, your gross distribution over 25 years, beginning at age 65, would be more than $100,000 per year. The difference is the power of leverage: using other people’s money to make a lump sum payment and instantly fund your retirement. This allows the money to grow at a consistent rate, tax-deferred, with guaranteed interest returns, and no market volatility, all while out pacing inflation. visit our website for more details: http://financialleverage.gfdprograms.com
Most people, today, can’t tell you the advantages and disadvantages of investing in large company stocks, small company stocks, government bonds, or treasury bills. They also don’t understand the long-term effect of taxes and inflation on their 401(k), IRA, or 403(b)accounts.The stock market is extremely volatile today, due to high government debt, unemployment, the downturn in housing, and global instability. No one knows what the stock market is going to do in today’s new financial era. These uncharted waters, and the national economies are interwoven, complex and in transition.
Between 1926 and 2008, large stocks averaged 9.8% return, small stocks averaged 10.5%, and bonds avaraged 3.5%, treasury bills averaged 3.1%, and inflation avaraged about 3%. With that said, what hard working, business owner has time to monitor, track and compare this kind of information. Moreover, it took over 84 years to get a reasonable and consistent average that beats inflation.Who knows what the future holds. So, how can you know what to expect? How can you strategically, and carefully, save for your retiement in a world of constant chabge? The Power Of Financial Leverage will point you in the right direction.
Strategy# 4: Msnage Risk Wisely
Most investment include some element of risk, such as volatility risk, inflation risk, interest returns risk, liquidty risk., or long-term growth risk. Most planners will tell you that , over the log-term , the greater the risk, the greater the reward, but there are no guarantees. Let’s say that you are 45 years old and want to accumulate v$1million by age 65. Let’s say that you are very successful, and you do it. You busted your tail and achieved your goal 5 years early. You were able to save that $1million by age 60 but the market went wild as it did 2007-2009 and you lost 60% of your savings. What would you say about your ability to manage risk? You might have been very careful and, even diversified, but the simple fact is, you cannot time the stock market, or predict it’s performance over the long run,. You dd what you could to reduce your risk, but there were many factors to consider, such as; inflation, tax increases, fluctuating rate of return, government fiscal policies, and the impact of gobal change on the market and on the economy.
Strategyn# 5: Diversify, Diversity, Diversity
Many advisors believe that simply diversifying your investment portfolio will reduce most of the risk we mentioned above. However, most of the time, to them diversity means focussing on stocks, bonds, and/ or investing in common stock of businesses in different industries. These adsisors often suggest that you invest in only “GOOD Quality” firms . The question is; are the 30 companies, which make up the Dow Jones Industrial Average, the good, quality firms, or could it be the S&p 500 companies? Even if you spread your investment among 30 different firms, you can’t tame inflation risk, interest risk, or government fiscal policies that impact these stocks. The other recommendation they give to investors of 401(k)s, 403(b)s, mutual funds, and variable annuities is to invest in broad based mutual funds, with”low” management fees. The question is how many savers in these programs have the time and expertise to monitor and reallocate their investments consistently to minimize the impact of taxation, inflation, global volatility, and government fiscal policies.
Strategy #6: Create and Maintain a Long-Term Investment Goal
It’s difficult to tell a business who is 55 to maintain a long-term goal if he has no retiement savings. Based on a recent Bloomberg financial report, investors might have to invest for a minimum of 5-10 years to know if they will get an average rate of retun of 10% on his portfolio, especially when investing in common stock. Investors in large company stocks they need 15 years. Bloomberg reported that the average rate of return over 84 years for large company stock has been 9.8%. So, the major risk, with the concept of maintaining long-term perspective, is the risk of limited time. Add to that inflation risk, taxes, and global issus, and it gets more complex. Also changing government policies may help some companies to perform exceptionally well, while causing other companies to cut back or go out of business due to the changes in deman for their goods and services.
Strategy#7; Avoid the temptation to Invest Your TIME
For most business owners, their focus is best spent on building their business. In today’s challenging business environment, you have to be on top of the issues and at the top of your game. Managing your investment portfolio and, carefully, timing market growth is a low priority in the great scheme of things. You may enjoy spending hours and hours in front of the computer,reading articles and magazines on investment strategy and timing. Your business may even be able to operate at some level without your constant, but is that the wisest course of action for you? What is truly the best use of your time?
No one can time their investment perfectly; even the professionals don’t have 20/20 timing vision for porfolios. That’s why the Power of Financial Leverage is so important. With leverage strategies, there is no need for timing your investment. You will have a lump sum working for you at a specific rateof return over the next 5-10 years. Using the rule of 72, a rate of 7.2% will double your money over 10n years. All interest earned is linked to the S&P 500 up to a cap, but without any of the downside risk associated with putting money directly into the stock market.The bottom line effect of your being able to focus your energy on your business as well as all the money you’ll save on financial magazine and investment newsletters. Avoid the temptation to invest your valuable time in this area, invest it in your business instead.
Please visit our website for more info, read up on broker fees, how to avoid loads, commission and expensive investment advice –http://financialleverage.gfdprograms.com
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