Growing up in Iowa, I was told a story that inspired imagination, encouraged thinking outside the box and highlighted there may be simple answers to complex problems.
As a busy train station town in central Iowa, Boone was growing. As it grew, they needed to change the flow of traffic in and out of town. The town decided to build an east-west bridge on the south side so people could come and go while avoiding a 30-minute train wait.
As with any bridge, engineers were hired, and the railroad bridge was designed and built. It wasn’t long and a flaw in the design was discovered. A semi hauling cargo to load onto a train used this new route. As it pulled through from south to north it was suddenly stopped… it was stuck under the bridge. The engineers had accounted for the clearance of a semi-truck moving through on flat ground. The problem was on the north side of the bridge there was a hill and as the ground rose the so did the truck’s height.
The driver was unable to move through or reverse. The police, fire department and even the engineers were called. After hours of trying to figure it out they were no closer to a solution. It was evident they were going to have to either damage the truck, bridge or both in order to get the truck out.
The word spread as it does in a small town, and a couple of kids hopped on their bikes to check it out. When they arrived, the police had set up a safety barrier. Looking at the situation the kids rode up to a nearby police officer and asked, “Why don’t they just let some air out of the trailer tires?”
The Power of Zero: The Tax Train is Coming
“An Historic Documentary. The Power of Zero: The Tax Train is Coming is the first major Hollywood documentary film to take an in-depth look at how the U.S. National Debt is setting the stage for massive tax increases within the next 10 years and how they’ll impact a retiring generation.
This film stars George Schultz, Ph.D., David Walker, CPA, Governor Gary Herbert (UT), Ed Slott, CPA, Tom Hegna, Van Mueller, David McKnight and other experts who explore our nations’ looming debt crisis and the proactive measures [you] can take to protect [your] retirement plans from the crush of higher taxes.”
Why We Recommend Everyone Watch the Movie
Well that’s easy. Knowledge is power. It really is that simple. Though this movie was filmed prior to COVID-19 the message found within it, applies more today than ever.
With the current National Debt exceeding $26 Trillion dollars something has to change. Something has to be done. David Walker, Comptroller General of the U.S. from 1998 to 2008 (Federal Government’s accountant) addresses our current situation and why things have to change.
The movie “The Power of Zero: The Tax Train is Coming” brings together some of the greatest economic minds giving us a glimpse into the possibilities and probabilities of future tax increases. When considering the factors involved in retirement planning taxes is one of 5 major considerations. As a foundational retirement consideration understanding how it affects you is imperative.
Is There a Simple Solution to this Complex Problem?
When we consider the National Debt and how we can fix our ever-growing deficit there are no simple solutions. Taglines and campaign slogans can’t account for the complexities of the situation. However, as it applies to our daily lives and retirement; it’s much simpler.
Consider 5 major forces and risks in retirement planning. Taxes, Market, Long-Term Care, Legacy and Longevity.
Taxes
The IRS is your retirement partner. Just like any business partner they will receive a portion of your retirement business (Powerful Perspective Shift for our Retirement Lifetime). However, unlike a regular business partner the IRS can increase their portion at any time. It can and will be done without your consent. Understanding and planning for this eventuality is why we recommend everyone start by watching the movie, “The Power of Zero: The Tax Train is Coming.”
Market
For the past 30 years the shift to tax deferred retirement savings plans (401k, 403b, etc.) have become the norm. The growth in these accounts depends upon the stock market. As you approach and enter retirement, market fluctuations compiled with increasing taxes can quickly deplete your nest egg.
Consider this. The risks taken at 40-years-old are not the same risks to take at 70. Moving from your financial accumulation period of life to your retirement distribution phase a risk aversion reassessment is required. And remember, tax deferred means you have yet to pay taxes on the money you saved. The IRS will get its share at some point.
Long-Term Care
Except for independently wealthy individuals the need for long term care is one of the most devastating risks to retirements. The average cost of a private room in a long term care facility in the Houston area is $74,825 (Genworth). The need for long term care facilities continues to grow as the overall population of the U.S. continues to age. Even estates capable of withstanding an additional of $75,000 per year cost should and can effectively plan for this possibility to protect their legacy.
Legacy
The reality is all retirement plans end the same way. What are you going to leave behind and to whom? Beneficiaries whether family, friends or charities need to be identified along with supplementary plans should something unexpected happen to them. Comprehensive retirement plans must account for the legal considerations of both incapacitation and death. Failure to create an estate plan addressing either situation will likely result in a significant loss.
Longevity
How do you make sure you don’t outlive your money? Centurions (100 years old or more) are one of the fastest growing demographics. With the advances in medicine we continue to live longer lives. It’s not ridiculous to think retiring at age 65 could mean 35 to 40 years of retirement. The idea of a 20-year retirement is gone. In today’s world a properly planned retirement needs to consider living at least twice that long.
Remember longevity is a risk multiplier! The longer you live the greater chance one of the other factors or risks will affect your plan.
Retirement Efficiency: Diversification
As I alluded to in the last statement there is an interplay between these 5 retirement factors and risks. None of them stand alone and because of this proper planning must use integrated solutions. Without getting into specifics, as they will differ between individual situations, the concept is universal. Diversification.
You’ve always heard, “Diversify your portfolio.” Typically, this is a statement about your investments to maximize growth potential while reducing risk. This practice should continue into retirement. However, it takes on a broader meaning and includes additional elements beyond the traditional application of investing in the stock market, bonds, precious metals, real estate, etc.
Retirement diversification includes the additional instruments of whole life insurance, annuities and trusts. Properly using these instruments provides lifetime benefits of; tax free income, guaranteed lifetime income, long term care coverage and legacy assurance. It’s important to know, depending on your personal risk aversion, properly adding these instruments to a retirement plan doesn’t mean discarding your current portfolio. Instead it is the strategic approach of realigning assets to increase your quality of life in retirement.
These instruments are used to increase the efficiency of retirement. They provide peace of mind allowing for investment growth while mitigating risk. It does take some doing, knowledge and a different perspective. Like letting a little air out of the tires allowed the truck to pull through, refill and move on took a different perspective. Developing a retirement plan accounting for the differences between the accumulation (working) and distribution (retirement) phases of life requires stepping back, taking a big picture look and assessing your personal situation.
Take the time to talk with a financial advisor and consider the possibilities. Solutions can be adopted and applied to make your retirement a low-stress retirement.
Action
Where to go from here?
First thing, as you can tell we highly recommend you watch “The Power of Zero: The Tax Train is Coming.” To help; we have purchased a promo code so you can watch it for free. Just click on the movie title in the text or the poster at the top of the page. Input your email and we will send you the link and code to watch the film.
Another option, if you have just a few minutes, click on the 6-question “Survey” in the bottom left of your screen. We are asking for feedback so we can better serve you. If there are topics you would like to see addressed in the blog, we would love to hear. We want to provide value to your life, and we can best do that by answering your questions. After filling out the survey we will email you the movie link and code as a thank you as well.
