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Missed Fortune – Take Action Today to Protect Your Money Tomorrow

Posted on | June 3, 2012

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Tax Cuts Expiring Means Taxes Go Up

This could be a very interesting election year with the Bush tax cuts set to expire at year’s end. If Congress fails to extend them and these cuts are allowed to expire, it will represent one of the single biggest tax increases in our nation’s history.

Paul Ryan is the chairman of the Congressional Budget Office and he says that the Bush tax cuts expiring, combined with other spending initiatives already passed, will have the average taxpayer paying 29.6% more in income tax than last year. To put that into perspective, for every $3,000 in tax you were paying last year, you’ll end up paying roughly $4,000 with the same identical income.

When the tax cuts go, your tax rate on the first $17,000 you earn this year will go from 10% to 15%. That’s a full 50% increase. For married couples earning over $70,700 and filing jointly the tax rate will go from 25% to 28%.

The Congressional Budget Office also estimates that the projected costs of the Obama Health Care law will be nearly 3 times the original estimate of $800 billion at a staggering $2.5 to $3 Trillion.

This is why it’s so important to not only see the potential tax hike coming, but to be prepared for it as well.

Higher taxes only represent part of the problem in that inflation is very likely to rise as well since the government has been printing money to finance its spending habits. The situation isn’t hopeless by any means, but you need to position yourself and your money for the future in such a way that higher taxes and inflation don’t leave you in a quandary.

You need to learn how to redirect otherwise taxable income into more productive causes that you support. By doing so, you’ll not only be taking ownership of your future, but you’ll also be less reliant upon government entitlements like Social Security and Medicare.

Protecting What You Have

There’s a lot to be said for being able to face the future with a sense of calm confidence. So many people are uncertain and confused about the uncertainty of our economy and their retirement savings. No one wants to outlive their retirement income, but that’s just what will happen to those who fail to plan.

The key to obtaining peace of mind is not so much what you have, in terms of the size of your nest egg, it’s about protecting what you have. It’s being able to know that you are free to go about the things you’ve always dreamed about doing during your retirement without wondering if your money will still be there.

Part of the confusion that people experience when it comes to protecting their future nest egg is that many financial advisors don’t know what they don’t know about the best way to go about saving for retirement. There’s a world of difference between a good way to get out of debt and save for the future and the best and smartest way to do so.

For instance, many advisors will tell you to take out a 15 year amortized mortgage. Or they’ll recommend sending extra mortgage payments to the mortgage company with the intention of paying off your house and then taking the money you would have paid to interest and socking it away for retirement.

Let’s pretend you took out a 15-year mortgage on a $375,000 home. You’d have a pretty steep monthly mortgage payment. If you took out a 30-year mortgage on that same home, your payment would be substantially lower, though you’d pay more in interest over the term of the loan.

If your mortgage rate is only 4% while you were earning 8% interest in a safe and predictable tax-favored vehicle, you’re making 100% more than you would be otherwise. With the differential between the 30-year payment and the 15-year mortgage payment, plus the tax savings, at the end of 15 years you could easily have enough money to pay off the 30-year mortgage.

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*Life insurance policies are not investments and, accordingly, should not be purchased as an investment

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