Summary: Truth or Falsehood? How well do you know your money myths? There are an awful lot of people who have bought into money myths that can come back to bite them at retirement. They may feel safe in doing what the rest of the herd is doing but it's a false sense of security. Doug has pulled together a short list of true or false questions to help folks evaluate which myths are potentially leading them astray. You might be surprised at what you learn. True or false? Taxes will likely be going down or staying the same for you in the future. The truth is that a rude awakening awaits many people whose taxes are headed just one direction: up. The General Accountability Office or GAO has predicted that, because of the national debt and continued out of control government spending, taxes are not likely to go down. In fact, they may be headed up dramatically and not just for the high income earners. A lot of folks who think they'll be in a lower tax bracket at retirement are forgetting that many of their favorite deductions will be gone by the time they retire. The answer to our first question is going to be false for more than 90 percent of retiring Americans who will see their taxes increase just when they most need their money. This will be especially true of those who have been putting their retirement money into tax-deferred IRAs or 401(k)s. Here's another true/false question. Which is better, a regular IRA or 401(k) where you put in pre-tax dollars, or a Roth IRA where the seed money is taxed and your money then accumulates tax free? The surprising truth for most people is that both will produce almost the same result. It doesn’t matter whether you put in $300,000 pre-tax and it doubles to $600,000 over a period of time. When you take out $600,000 and then you pay a third of that in tax during your retirement, you’re only going to net $400,000. If you put after-tax money in a Roth IRA or 401(k), you’ll have paid roughly a third of that $300,000 on the front end. This means you only have $200,000 which, if it doubles, still nets you only $400,000 at retirement. Remember, this is only if you stay in the same tax bracket and your taxes don't go higher. Looking For a Better Way WIth so many Americans putting their money into IRAs and 401(k)s, too many are forgetting that they'll need to deduct the taxes they'll have to pay and also figure in the effects of inflation. What's the difference? The difference is that taxes aren't going down and your deductions are going away as your mortgage is paid off, your children move away and you stop contributing to your retirement savings. What this means is that even those who are receiving less income than they did while working can still end up paying more in taxes. It means that a lot of Americans will find themselves in the same or higher tax bracket when they retire. If that's the case, a Roth IRA will give them roughly 33% more net spendable income in retirement than a traditional IRA or 401(k) There are some benefits to having a Roth IRA but there are also strings attached. What if there was a way to save for retirement with all those benefits and no strings? One last question. True or false? IRAs and 401(k)s are typically the best way to save for retirement. In Doug's opinion, this statement is 100% false. They're not the best way to save even though it sometimes appears that everyone else has chosen to do it that way. People who choose to save in tax-deferred vehicles are helping our government fund its future by taxing away a third of everything they've built up in their retirement account. The best possible way to save for retirement is to accumulate your money and transfer it and access it tax-free. This method will give you fifty to one hundred percent more than any Roth can do with the same rate of return. Now you should be starting to recognize how some money myths can hurt you in the lon...
