It’s true, the amount you earn over your lifetime can add up!  Look at this: A person earns $50,000 per year.  You may ask, “That is not a fortune, is it?”  Of course not.  But lets look at 30 years.  If $50,000 was earned every year for 30 years that’s $1,500,000. Wouldn’t it be nice to keep some of that fortune for yourself?

3 Myths

Myth 1“You get a deduction when you put money into your qualified plan.” – You get a salary reduction.  When money is added to a qualified plan, above the match, you make a deal with the government. Access to your money may become difficult because of your retirement plan language  and government penalties. You only defer the taxation date and the tax calculation.

Myth 2“I’ll be in a lower tax bracket when I retire.” – Let’s follow that logic.  There are only 2 ways to get into a permanently lower tax bracket when you retire.  Congress changes tax laws and lowers brackets [OR] you know you will be making way less money in retirement and it puts you in a lower bracket. Most of the mortgage interest deduction goes away after 10 years or so.  The children grow up and move out, so do the deductions.  If income stays the same or even goes down a little and deductions disappear a person’s effective tax bracket pre and post retirement may change little.

Myth 3“I’ll save 5% of my income and I was told that was plenty, because the stock market makes up the rest.” – I like to call this the myth of the 80’s and 90’s.  No generation before thought it was ok to save 1 year of income in 20 years. (5% of income for 20 years).  It may not be nearly enough. Many people might be giving money away unknowingly and unnecessarily year after year.  This includes taxes, interest, and lost opportunity costs!