When it comes time to retire, your assets are very important. Understanding what elements could affect them is even more important so you can properly prepare yourself and your portfolio.
What High Tax Rates and Inflation Can do to Your Retirement
High Tax Rates
Taxes, especially as they relate to your retirement assets, can be a source of constant concern as you plan for retirement. Due to the variety of accounts and income sources many of us have as we enter retirement, each with a potentially different tax situation, it can feel challenging to stay on top of things to ensure that you are not paying too much or too little. This is why so many of us enlist the services of a tax professional.
Discussing specific tax situations is beyond the scope of this article, simply because the vast range of income sources and accounts, as well as the changing nature of tax code and the unique financial situation of every individual, means the list would be almost endless. Rather, we want to introduce a perspective toward taxes and the tax code: taxes are just another aspect of one’s retirement plan that every single retiree has to factor in. Moreover, there is always a tax situation that works for you. With this in mind, there are many options that can be utilized, often with the help of a tax professional, to make your portfolio tax-efficient.
It is very easy to paint inflation in a negative light. There a lot of people who feel abused and hurt by inflation, and a whole lot of misunderstanding. I want to address and dispel any irrationally overinflated sense of wrong individuals may feel.
Inflation is a constant. It’s the product of an economy that operates on supply and demand. There are two ways that inflation happens: the first, Demand-Pull Inflation, is when demand rises too quickly for a country’s production to keep up. The other is called Cost-Push Inflation, which is when things like rising wages or increased cost of materials prevent companies from producing at the same rate and price. This makes for a reduced supply and therefore an increase in overall price. Inflation is measured by economy-wide indications such as that of the Consumer Price Index (CPI), not by the rise in price of a single product or sector.
Most people look at inflation from the point of view of the cost of living. If you are simply a consumer, if you only live on the “buying” side of the cash register, then yes, it is easy to feel abused. If you regularly buy a can of soda for 75 cents, when the price of the product eventually rises and you now have to pay 80 cents, you’re at a loss of five cents. But consider the consumer who also has stock in the soda company. When the price goes up, he is sharing in the profits generated by the increase. When you invest in a broad variety of sectors and companies, there is a high likelihood that over time, such returns will significantly outpace inflation.
It is a grand yet very simple equation, of much the same kind you did in grade school: when balancing equations, anything you do on one side of the equal sign needs to be done to the other. So, if your money is only on the consumer-side of the equation, you are off-balance. You need to make sure you are also on the other side of the cash register. Any investing you do offsets your consumer activity with “producer” activity, and in this way, inflation becomes a non-issue for you. So as you prepare for your new beginning with retirement, you have to ask yourself: what kind of lifestyle do you want to cultivate? That of the passive consumer? Or will you take steps now to take control of your finances and balance your equation?
Do what you can to get yourself on both sides of the cash register.
FOR MORE INFORMATION REGARDING HIGH TAX RATES AND INFLATION CONTACT MIRAMONTES CAPITAL.
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Miramontes Capital is a Registered Investment Adviser. Advisory services are only offered to clients or prospective clients where Miramontes Capital and its representatives are properly licensed or exempt from licensure. This blog is solely for informational purposes. Past performance is no guarantee of future returns. Investing involves risk and possible loss of principal capital. No advice may be rendered by Miramontes Capital unless a client service agreement is in place.