Ordinarily, I wouldn’t make a blog entry like this since it’s promotional in nature, however, and realistically, its importance gives me no choice. I am now on a crusade.
I’m 58 years old and am in excellent health, thank God. I’m retired and living off my very small pension, 100% of which is used to pay my rent. Throughout my 23 year career of government service as an N.C.I.S. Special Agent, I contributed to what is called the Thrift Savings Plan (TSP) which for all intents and purposes, is the equivalent of the private sector’s 401(k). This is also known as a “Qualified Plan” and is one of several that are available and readily offered by the private sector as well as municipalities and state governments and institutions. Essentially, what this means is the employee contributes a percentage of his salary and his yearly contribution is tax-deferred, meaning that amount is subtracted from the employees Adjusted Gross Income for income tax filing purposes. The result of course is the employee pays less taxes for each year he participates in the plan. The idea behind all this is so that by the time the employee retires and is ready to take his distribution, he will now be in a lower tax bracket and will pay less in taxes later. This is an outright lie that is based on huge assumptions. These assumptions are that the employee only takes out a portion of the money each year and elects not to take the whole amount in a lump sum to do with what he wants; and the biggest assumption is that the tax rate will be as low or lower than it is right now in 2013.
However, nobody until now, has ever informed the populace that this is a VERY BAD IDEA.There have been several media documentaries, books and magazine articles published, etc. that all document the pitfalls and I’ll just call it thievery of Wall Street that’s related to the 17,000,000,000 (yes TRILLION) that is currently committed to these government qualified plans. Keep this number in mind because it’s going to pop up again in a minute.
Historical tax rates for the U.S. disclose that right now, the tax rate is near its all-time low, yet the 17,000,000,000 of national debt, as immoral as it by itself is, may actually be as high as 70,000,000,000 due to the fact that the government does not include unfunded liabilities in its calculations. In either case, the numbers are mind-numbing and it is nearly impossible to think there would be any way to ever put a dent into this massive spending travesty committed against the American taxpayer without raising taxes in the future. So is it realistic to believe taxes will remain as low as they are right now, or is it more realistic to believe they will be higher in the future?
Since most of us are smarter than those running the government, does it make more sense to pay a lower tax rate now on the seed, or pay a higher tax rate later on the harvest? Silly question, isn’t it? Yet, for years and years we have been duped into contributing to these government qualified plans that are all tied to market risk, that all literally raid our accounts with hidden fees that can claim up to half your account’s value, and then taxes you at the time you withdraw what’s left.
There is ABSOLUTELY A NO-BRAINER better way to save for retirement and never have to worry about out-living your money when you need it most. In fact, anyone, and I do mean ANYONE, who continues contributing to 401(k) and similar plans instead of this TAX-FREE / RISK-FREE method, is just plain …… (fill in the blank). Continue on to Part II.