hr: Money

When you’re planning for your retirement, have you taken into account the fact that the tax 20 years down the line might be much higher than what it is now?

Photo Credit: Christopher Dick

There’s good reason to fear that this might be so. Governments all over the world are increasing their Income tax rates, and the United States is one of the countires where this threat is very real.

Baby Boomers, who comprise a significant portion of America’s population will be nearing retirement, and they are going to be eligible for social security. The money for this has to come from somewhere. Add to this, the fact that rising Federal Debt has to be dealt with, and it’s obvious what the source has to be - your Income.

Even though you will retire at a lower rate of income than what you were earning, you might just fall into a higher tax bracket because of the new tax rules. This means that you will be paying more when you need the money the most!

It’s a scary thought, and one of the nice ways to deal with this, is the Roth 401(k). A plan like this, allows you to pay your taxes now, instead of when you withdraw it later on, creating a very effective hedge against a tax rise. Sure, if taxes fall, you might wish that you had opted for the regular 401(k), but it’s far too risky.

Do something about your investments now, so that you can offset future tax burdens.