Summary: Two Highly Helpful Acronyms Time is not on your side when it comes to the obstacles that stand between you and the brighter future you're working to achieve. Of course, in this case, TIME is an acronym for the combined threat of Taxes, Inflation, Market volatility and Economic uncertainty. Each obstacle carries its own type of negative impact. Thankfully, all of them can be identified and even countered by learning the principles that protect against them. Those principles include liquidity, safety, rate of return, and tax benefits. They can best be remembered by use of another acronym--LASER. LASER stands for Liquid Assets Safely Earning a predictable Rate of return. The tax benefits part of our solution cannot be overstated. Most people will find themselves in anything but a lower tax bracket when they reach retirement. This means that they could stand to lose up to 50% of their retirement nest egg in the form of unnecessary taxes. It's absolutely crucial to understand the difference between accumulating your nest egg in taxed-as-earned, tax-deferred, and tax-free dollars. This is where some fearless self-examination must take place. Doug's friend and success coach Dan Sullivan teaches his students that all progress starts with telling the truth. With this in mind, Doug developed an Abundant Living scorecard that helps evaluate as honestly as possible where we actually stand in regards to our retirement savings. Where Do You Stand? We begin by scoring ourselves on a scale of 1 to 12, with a 1 being poor and a 12 being the best. Your score may be somewhat good at 3,4, or 5, or it might be better at 7,8, or 9. If your money is in taxed-as-earned CDs, savings accounts, credit union accounts, mutual funds that are not IRAs or 401(k)s, then your after-tax dollars are still being taxed. That means that you’re being taxed again on interest, dividends or any other gains you realize. It's the worst possible way to save for retirement. Score yourself as a 1, 2 or 3 out of a possible 12 if this is how you’re saving. If your savings are taxed as earned, you’re in a poor situation for your future retirement from a tax standpoint. When you save in a traditional IRA or 401(k), your money accumulates tax-deferred. People who do this are doing this are putting pre-tax dollars into a tax-deferred account in the hopes they’ll be in a lower tax bracket at retirement. But being in a lower tax bracket at retirement hasn’t been a guaranteed thing for nearly 25 years. If you’re saving in this tax-deferred category, score yourself a 4, 5, or 6 on a scale of 1-12. You’re better off than the taxed-as-earned category but still barely halfway to where you could be. If you are saving for retirement in a Roth IRA, you’re moving in the right direction. Less than 10% of Americans utilize this method of saving. You’ll end up about 33% better off by saving in a tax-free Roth IRA than you would be in a tax-deferred account like a traditional IRA or 401(k). If this is how you’re saving the biggest portion of your nest egg, you can score yourself at an 8 or 9 which puts you solidly into the better category. The next type of savings is totally tax-free accumulation with tax-free access when you retire and a tax-free transfer at the end of your life. You can also enjoy deductions indirectly so that you’re using tax-advantaged dollars in all four phases of retirement planning. That would include the contribution phase, the accumulation phase, the distribution phase and the transfer phase. This is the best situation to be in and it can net you 50 to 100 percent more in your retirement nest egg than the other categories. Here, you’re solidly in best territory. This is where you can score a 12 out of 12. The vehicle of choice for this kind of retirement savings is maximum-funded, tax-advantaged life insurance contracts. If you can see the difference between bad, good, better and best.
