The
tax bracket both now and at retirement is totally meaningless as a
decision point of whether to invest in Roth or a Traditional IRA. What
matters is the amount of principal taxed. Again, a $1,000 IRA
investment as whatever tax bracket is chump change (only $100 to $390
depending on tax bracket) compared to what it grows to at the time of
withdrawal. For example, with a young person at age 23, given the
historical long term growth rates of the stock market (an average
doubling every 7 years), he/she gets to withdraw $64,000 a year for
each of 42 years starting at age 65. A minimal tax bracket of 10%
still dings him for a $6,400 tax payment each year for a Traditional
IRA compared to less than $400 in each of the years invested.
Remember, Roth IRA withdrawals are not taxed. So let's add it up on a
total lifetime basis. 42 years of paying taxes upon investment of
$1,000 for each of those 42 years is a maximum of $390 times 42 or
$16,380. For most people, because they are not in the 39% bracket, it
will be far less (at 10%, it would be $4,200 in tax). Now for the
retirement years - 42 years of you and likely your heirs of
withdrawing $64,000 a year in order to deplete the entire account
(which is the intent of generating IRA income, plus the government
basically forces you to withdraw each year, even at a measly 10% tax
bracket is 42 times $6,400 each year for a minimum lifetime tax of
$268,800, and possibly double or triple that for higher tax brackets.
So which do you think is better - a Traditional IRA with minimum
lifetime taxes of $268,800 or a Roth IRA with maximum lifetime taxes
of $16,380 and probably much less than that for most middle class
people? The answer should be very obvious. Don't let the Federal
government become your "investment partner" which it does
become with Traditional IRA investments.
Getting it Right - Welcome
The goal of this blog is to publish my thoughts on a variety of economic and political topics in the hopes that people who find them educational or beneficial will utilize them and/or forward to others who might find them interesting and/or worthwhile to promote to others, possibly including politicians who can push some of these ideas to fruition. The topics in my blog are meant to be of value on a long term basis, not a daily diary or political issue of the day log. If the information posted is useful to you, by all means utilize it and/or forward it as you see fit. If not useful, then merely ignore it. There are no universally agreed upon truisms and too little tolerance between some of those with opposing viewpoints to successfully convince the people with hardened opinions to move away from them. I am an analytical type person who will try to be as factual as I am able.
I disdain the current popularity of name calling and condemnation of viewpoints with no factual alternatives or logical solutions given that I see so often. If you don't have a solution based on fact and logic, then opt out of the discussion because you have nothing to contribute. My background is a degree in Economics from the University of Michigan and 39 years working in middle management jobs for a major retailer. My opinions are forged on the personal experence of life, family, friends, and work as well as triumphs and mistakes that I have made and hopefully learned from. My hope is that this blog helps you.
My first topic will be about personal finance. I chose that one first because most of us work long and hard just to survive but not all of us realize our dreams of becoming financially independent from the labors of our work. Much of our political votes/thinking also focus on the economy and in particular how well we are personally doing financially.
It is relatively simple, without sacrificing the enjoyment of living for 'today' and even at moderate incomes, to retire as a millionaire or multi-millionaire, if you focus on that goal consistently from a young age. It is also simple to ensure that your child or grandchild retires rich. It merely requires a one time gift of just $2,000 invested wisely and the passage of time. Please read my first post on this blog to learn more.
An index/schedule of past and future posts and their dates will always be updated so that it becomes the first post that you see below. If the date of a post that you wish to read is preceded by the word "Posted", then find it below or click on the title in the Blog archive to review.
Blog Archive
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