Why Future Taxes Could Change Your Retirement

It's the One of a Kind Financial Show Daily, and I'm your host, Mike Milligan. It's Thursday, August 13th. I'm in San Juan, Puerto Rico, my home, working in my studio. And it's 46 days until I personally turn 50 years old. If you want to follow along more on that, go to my LinkedIn, www.linkedin.com/in/mikemilligancfp. That's a lot to remember. Just look for me, Mike Milligan, CFP. I'm everywhere there. It's a big show today. CPI landed yesterday. The market moved. Japan reported wholesale inflation overnight, and it's running north of 7%. And I want to come back to tax planning conversation we started last Monday because the July federal deficit number is one of the most important tax signals you're going to see all year. And that came out yesterday. Educate, coach, plan. That's my mission. And my mantra is never miss a moment. Let's go, folks.

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I've been talking about CPI on the show all week and that Fed's number would be an important barometer of what the Fed will do and how the markets will react. Well, the number came in exactly as forecasted. Headline CPO or CPI, Consumer Price Index, Up 0.1% for the month, 3.4% year over year. Core CPI up 0.2% for the month, 2.5% year over year. Again, those numbers, 3.4% year over year, 2.5% on core. Both are a little bit of a step down from June's numbers of 3.5% headline CPI And 2.6% on the core CPI. They're in line, they're moderating, and that's quiet. It's actually good news, by the way. And the market took it as such. The S&P 500 rose 0.26% to close at 7,748, down 7 points for the week, less than a very small negative for the week. The NASDAQ gained 0.54%. to 26,588, lifted by AI names. The Dow slipped a hair. It was actually down for the day to 53,770. Treasury yields though drifted lower on the print. Now here's what actually shifted under the hood with that CPI number. Per the CME FedWatch tool, odds of a September rate hike by the Federal Open Market Committee, the Fed, Fell to around 41%. That's down 9 points from 50% the day before. Notice that number. The debate has quietly moved from will they increase rates to will they hold. And hold is a very different setup than the fear of the hike, which we were living in much of June and July. But inflation is still 3.4%. The Fed's target is 2%. We are not there yet.

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Then overnight Wednesday coming into Thursday, as the markets opened in Japan for Thursday while we were asleep, we realized that inflation is not just an American story. Japan reported July Producer Price Index inflation at 7.2% year over year. That undershot the forecast of 7.4%, and it eased slightly from June's 7.3%. But 7.2% wholesale inflation is a big number, folks. Electricity in Japan were the largest single contributor to that inflation. Now, here's what makes Japan interesting for us. Their consumer inflation is only 1.9%. Their producer inflation is 7.2. That gap exists because the Takahashi administration is subsidizing energy costs to shield consumers. That subsidy is a policy choice, and policy choices eventually have a bill attached to it. Some Bank of Japan board members are already calling for faster rate hikes. Why do you care in Virginia, Illinois, Texas, California, Hawaii, Florida, even Puerto Rico, wherever you're listening? Because a weaker yen and Japanese rate hikes ripple into US Treasury yields and into the dollar. Global inflation is a system. When one big economy has a 7% producer inflation, It does not stay contained. That is signal literacy. We're not chasing returns as much as we're building the one-of-a-kind financial plan. But we at One Oak Financial, me, Mike Milligan, as the educator on the One of a Kind Financial Show Daily, we're here to show you where problems can come from.

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Now, the story that matters most to your individual plan. I say taxes are the biggest expense you'll ever have in your life. I wrote about that in The One of a Kind Financial Plan and Retirement Déjà Vu, both available on Amazon. Well, then this week, the Treasury reported Wednesday that the US federal budget deficit for July alone was $432.3 billion. That is up about 40 8% from July of 2025. It is the highest monthly deficit since March 2021. And the fiscal year-to-date deficit is now nearly $1.8 trillion with 2 months left to go in this budget cycle. The United States budget cycle Is September— is October 1st through September 30th every year. So we still have August and September to report on this deficit. Well, where did the money go? Medicare, $174 billion in July alone, up from $103 billion in June. Guys, that should not surprise you. There's more 65-year-olds in America There's more people turning 65 years old in America right now than there ever has been in the history. We are at peak 65. Social Security spent an additional $141 billion to help with that deficit. Net interest on the debt with Treasury yields up, that was $104 billion. Those 3 numbers just for July. For the fiscal year to date, we have paid $1.17 trillion in interest on our national debt. That is more than the same period a year ago by $160 billion. That national debt now sits at $39.9 trillion, and we are days away from crossing the $40 trillion mark. Monday last week, we talked about tax planning. Today, I want to connect the dots. Here's the coaching moment. When you see the government running a $1.8 trillion deficit for the year with debt servicing running only behind Social Security and Medicare as a share of federal spending, you're looking at long-term pressure on one variable. future tax rates, not this year, not next year, over the arc of your retirement. Now, I am not making a political statement because that's not what we do on the One of a Kind Financial Show Daily. We're here to educate, coach, and plan. I am not predicting a specific tax law change. That would not be educational and it would not be responsible. What I am telling you is that the arithmetic of $39.9 trillion in debt and $931 billion in net interest points in one direction over time, the country is going to need more revenue than it currently collects. So what does an educated investor do? 3 educational concepts to know here. Number one, tax diversification. Most people I meet have almost all of their retirement money in one tax bucket. The pre-tax bucket, their traditional 401, traditional IRA. Every dollar that comes out gets taxed at whatever the future rate turns out to be. So tax diversification also means having Roth dollars and also having some after-tax brokerage dollars. So you have choices in retirement instead of just one lever. Number 2, that leads us to Roth conversions. A Roth conversion is when you voluntarily pay tax now at today's rates. Not the future rate, to move money from a pre-tax account into a Roth account where it will grow and come out tax-free for the rest of your life. Whether that math works for you depends on your income, your bracket, your state, your time horizon, and your legacy plan. It's not a universal yes for everyone. It's a personalized calculation. That is what we account for in the one-of-a-kind financial plan. And then third, location matters. Remember, number one was tax diversification. Number 2 was Roth conversion. Number 3, location matters as much as allocation. When you hold an asset pre-tax, Roth, and brokerage, it matters as much what you hold in those accounts. Assets that generate a lot of ordinary income look different in a Roth than they do in a taxable brokerage account. Same asset, different tax bill, different retirement outcome. None of what I just said is a recommendation. It's a framework, folks. This is educational context. The recommendation part is what happens when you and I sit down and look at your actual numbers. What I want you to take from this, that $432 billion monthly deficit, is that the future tax rate is a variable you can plan for, and the plan you write down today is what protects the plan and how it lives tomorrow.

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Today we have our own PPI read, the wholesale side of the inflation picture, and the natural follow-on to yesterday's CPI. We'll get a weekly jobless claim print today, and then late we'll get some retail sales and the University of Michigan sentiment survey. Personal update, day 5 of my challenge.

I did—

I've been drinking my water. I didn't get my steps in on Wednesday. I was too focused on work, and I didn't get my workout in, but it's one day at a time. I didn't miss a moment to be present with my clients, to record podcasts, To answer questions that matter. And most of all, I showed up for you on the One of a Kind Financial Show Daily. So that's the show for Thursday, August 13th. If you want to reach me, you could text the word ideas to the number 600-700. How that works is you pull out your cell phone, you go into your messages, and in the phone number section, just put 6 numbers, 600-700.

600-700.

700. I know it doesn't look like a number that you could text to, but it is. And then in the message line, write the word ideas. So text to 600-700, the word ideas comes directly to me. If you'd rather just put in the full number and make a phone call, call the office, 757-909-7151. Casey or Caitlin or— Natalia, whoever's answering the phone there, just tell them you heard me on the One of a Kind Financial Show Daily, and they'll make sure we connect. Deficits are today's numbers. Tax rates are tomorrow's variable, and your plan is the bridge between the two. This is Mike Milligan, Certified Financial Planner. Estoy aprendiendo. I am learning, and I think you are too. Educate, coach, plan. It's my mission on this. I hope I'm succeeding with you. And today, I'm never going to miss a moment. I'll see you Friday to close out the week. This has been the One of a Kind Financial Show Daily with your host, Mike Milligan. The content of the One of a Kind Financial Show Daily is intended for educational and informational purposes only. Nothing shared on the show constitutes investment, legal, Tax or accounting advice, and nothing shared should be construed as a recommendation by me for you to buy, sell, or hold any security, product, or strategy, or to execute any tax transaction, including Roth conversion. Individual results will vary. I am a certified financial planning professional and the founder of One Oak Financial, headquartered in Norfolk, Virginia. Any references to specific companies, securities, indexes, Economic data, tax concepts, or policy scenarios are made for educational context and are not solicitations or predictions. Tax laws change. Consult your own qualified financial, tax, and legal professional before making any decision. And remember, past performance is not indicative of future results. To connect with One Oak Financial, go to www.oneoakfinancial.com. That's the number 1, Oak Financial dot com. Follow along with me at Mike Milligan dot com to hear the podcast I have guested on, the podcast I am hosting on, and if you want to listen to our weekend radio show, you can go to www.oneoakradio. That's the number one oakradio dot com where you can ask me a question, schedule an appointment with me. Or listen to past episodes.

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