Reading a Facebook post from a friend today, an old tax discussion came to mind. It seems that trying to reduce your taxes has become a thing of the past. Acquiescence to being taxed has become the norm. If you told someone today that some companies paid zero for taxes, you're liable to hear they should be sharing their profits. So this poses a question. If you are saving for what are you planning?
To paraphrase Judge Learned Hand, you are NOT obligated to pay any more taxes than what the government requires. The government allows you to reduce the obligation, just like it allows bankruptcy. So are you supposed to "just willfully" donate to the cause? It's your money, you need it now, AND in the future.
Simply put, the purpose of planning for the future is to save today, to reduce the taxes you pay, and increase your savings for the future. After you retire, you have fewer expenses, lower income, and therefore lower taxes. Of course, you knew that, right? That was true 30 years ago, but is this today's reality?
Today, partially due to the Gramm-Rudman-Hollings Act people still have the mortgage. Unless owning a business, the mortgage is one of the few tax deductions left beside the personal deduction. Gasoline prices were $.86 to $1.61 whereas today it cost $2.56. An average week of groceries for a family of four is $191, according to USA Today. The 40-year-old virgin is still living at home. Depending on one's drug needs, the cost of prescription drugs can be $100.00 or more.
In North Carolina, the average Social Security check today is reported to be $1,404.91. The reported average wages are $3437. That's a 59% reduction in individual income overnight upon retirement. If that is not something to think about, perhaps waiting until you turn 72 instead to get 130% of your social security check is.
Are you still with me? We simply established the income goes down but the bills don't. So how do you offset the difference? Government subsidies? They are not guaranteed. Part-time job? How long will the body sustain the workload? Savings? Of course! How much?
If you haven't been following my heeding, perhaps you should. In addition to "the bills" mentioned above, one must consider the bodily decline, cost of medication, hospitalization, cost of medicare, cost of coverage beyond medicare, cost of your chosen health care outside of a hospital, and much more.
Just like you don't wait until after the accident to consider car insurance, neither will you want to wait until the health declines to consider how you will pay for your medical needs. If you don't have the finances to self-insure, which most people don't, correct insurance plans cover those deficiencies. For example, you don't need $1M of collision and comprehensive insurance, nor do you need to have $100k of accidental death insurance if you never leave home.
If your agent cares about you, his fiduciary obligation to you is to do a needs assessment and you shouldn't be offended. It's important to be "on the same page" during this decision-making process. If you don't feel comfortable with this, find another agent!
Now that you know why it is important to save, and some of what you are saving for, don't you want to save more? Why would you want to pay more taxes than you are required?
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