Reducing taxes might matter more for retirement savings than earning more money. One account doubling yearly for 20 years reaches $1 million tax-free, but with a 28% tax rate it ends up at just $51,353. Wealthy people spend serious effort minimizing taxes through specialized accounts.
You have a problem. You need to save more money for retirement. Like, a lot of money. But how? Sure, you could sell a kidney or put your daughter's Beanie Baby collection up on eBay, but before you do that, let's look at a more practical option. The only way to save more money without making more money is to pay less. I'm talking about taxes.
What are we talking about? Practice?
No, taxes. The single greatest difference between wealthy and middle-class Americans is the amount of time and effort the wealthy spend thinking thinking of ways to minimize the effect of taxes on their savings. So how significant is the effect of taxes? Check it out! Here are two identical accounts—both start at $1 and double every year. After 20 years, the balance in the non-taxable account amounts to over $1 million dollars.
Holy moly!
So what happens in the taxed account? Well, the majority of Americans are in the 28% tax bracket.
So we'll start with a dollar, double it and tax it, double it and tax it, double it, tax it, double it, tax it, double it, tax it, double it, tax it, double it, tax it...
After 20 years in a taxed account, your balance is $51,353. Big difference? I'd say. Sure, you paid a lot in taxes, but the crippling effect of taxes on the earning potential of your account goes far beyond what you pay to Uncle Sam. Of course, the millionaires and billionaires of this world know this lesson well. Let's face it, Bill Gates and Warren Buffett didn't build their massive fortunes by letting Uncle Sam get his share of every dollar they saved. So how do we protect our money from taxes and make sure they don't cripple our savings? There are financial instruments out there that hold the answer, and now you're asking the right questions.
