Posted on | April 22, 2012
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The Power of Redirection
People are often surprised when it’s pointed out to them that, due to taxes, they spend nearly a third of the year working for the government. This includes federal and state taxes, property taxes and all the other kinds of taxes that add up throughout the year.
While many people just accept the paying of those taxes as a necessary part of their lives, few realize that there are strategies that can enable them to redirect otherwise payable taxes to causes they support. These are thanks to sections that are grandfathered into the IRS Code that allow a person to avoid unnecessary taxes while simultaneously building their retirement nest egg.
This is why you get certain tax deductions when you borrow to buy a home or contribute to an IRA or 401(k). But with the right tax-free vehicles, you can save 50-100% more money at retirement.
Done correctly, your nest egg should be able to accumulate tax-free once the applicable taxes have been paid. And not only does the money grow tax-free, but also it remains tax-free when you access it and when you transfer to your heirs. This can mean the difference between a retirement fund that is depleted within a few short years, and a nest egg that continues to provide $70,000-$80,000 per year in predictable, tax-free income for the rest of your life through compound interest.
One way to illustrate this is to imagine that you were to go out golfing and say you bet your friend a quarter on the first hole and then proposed to double the amount of the bet on each subsequent hole. So, on the first hole you made .25 cents, on the second hole .50 cents, and so forth. By the time you reached the 18th hole, that bet would be $32,768. This illustrates the power of compounding over time.
Whether you’re getting a tax refund or you simply don’t recognize otherwise payable taxes that could be redirected to more productive use, most people, on average let roughly $4,000-$4500 a year slip through their fingers.
By wisely directing that money to more productive use, they can effectively take charge of their financial future.
The Right Moves Now Pay Off Big Down the Road
Doug Andrews tells the story meeting with a businessman who recently sold his business for nearly $9 million. With Doug’s advice, this man is taking $4 million of that money and using it to generate $500,000 per year of tax-free income starting in about 5 years when this man is 55 years old.
Another business owner, who is 62, is selling his business for $55 million and will be allocating $40 million of that money to generate about $3.2 million in tax-free annual cash flow.
If you’re asking yourself, “How can they do that?” The answer is in knowing and implementing the Missed Fortune strategies that allow you to put your money to work earning a safe, liquid and predictable rate of return. You don’t have to be a business owner, these strategies work for the average person and the super wealthy alike.
By harnessing the earning power of that extra $4,000 a year in otherwise payable taxes, you can set yourself up for an extra $40,000-$60,000 a year in tax-free income that just isn’t possible when your money is in a tax-deferred vehicle like an IRA or 401(k). This is what is meant when we speak of optimizing assets and creating greater safety, liquidity and rate of return, while minimizing taxes.