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Saving the Most By Getting to Zero

Saving the Most By Getting to Zero

February 15, 2017

How much money will you actually have to retire on?

Most people rely on the assumption and expectation that the plans for retirement put in place for them will be enough to live in luxury in their golden years. They contribute the default amount into their 401(k) and they hope that Social Security will cover the rest. Unfortunately, these assumptions are based on a lot of optimism and not a lot of realistic fact.

The Crisis Awaiting Us

The reality is that our country has been heading toward a financial crisis for a long time. While we currently have record low tax rates, this will not likely remain the case. Currently, 76% of our tax dollars are going to Social Security, Medicare, Medicaid, and interest on the National Debt. In 2020, that percentage is projected to go up to as much as 92%! (1) As our national debt continues to deepen, Uncle Sam will be looking for ways to get out of this massive hole.

A very likely scenario is that the government may try to use your hard earned money to avoid bankruptcy. The money being tucked away for a nest egg may be cut into much more than you’re anticipating. If we stay on the path, U.S. citizens could be facing taxes that are double what we have now. Which means when you’re ready to retire, all of that tax-deferred money that you’ve been saving will be affected. This could mean that you won’t be able to retire when you thought, or that you won’t be able to stay retired.    

Getting to Zero

How do we protect ourselves from this train wreck? We may not have the power to change the national debt crisis, but we can be proactive about protecting your financial future and finding effective ways to leave a legacy for your loved ones. At Gateway, we are passionate about helping people accumulate wealth in most tax efficient ways and plan for their retirement in the midst of a changing financial world.

As it turns out, the solution to avoiding these outrageous taxes is simple math. Anything multiplied by zero is, of course, zero. So why not find a way to get a majority of your assets into the 0% tax bracket?

All of the money you have in your bank account, stocks, bonds, and mutual funds are considered taxable investments. You have to pay taxes on the account’s growth each year. While the money that goes into retirement accounts such as 401(k)s or IRAs is tax deductible now, you are simply deferring the taxes you’re required to pay on them until later when you access that money. It’s a gamble, not knowing what the taxes will be down the road.

The only way to avoid this ongoing tax or upcoming tax requirement is to invest your money in a different way. Tax-free investments are sheltered from all federal, state, and capital gain taxes and allow you to access all the income you put towards it when you retire. (2) There are two specific types of tax-free investments that work best.

  • Roth IRA: This Individual Retirement Account functions similarly to 401(k) except for one major difference. The contributions are made with after-tax dollars. This means that you pay taxes now, and come retirement, all of your money and the interest made on investments is 100% yours. While the IRS puts limits on the amount you can contribute to these accounts, they are a great investment vehicle.
  • Life Insurance Retirement Plan (LIRP): This life insurance plan is an effective way to approach the 0% tax bracket. By purchasing as little insurance as is required and maximizing the amount of money you contribute, you can protect your assets from taxes. Unlike Roth IRAs, LIRPs don’t have a contribution limit. They do have higher fees in the early years,  but the fees lower over time to be as low as 1.5%. Typically, you’ll pay for the cost of term life insurance out of your accumulation, but overall, many people are finding this to be a worthwhile way to invest and protect their hard earned money.

A Balanced Plan

You may be thinking of putting all of your money into these lucrative tax-free plans. While these are products to consider as part of your financial plan, balance is key. Each individual has different needs, and you’ll want to spread your assets into a variety of places for stability. In general, think of distributing your money into these three categories:

  • Taxable: Money that is in taxable accounts is the most vulnerable, but you need some level of liquidity. You should have approximately six months of income saved up for an “emergency fund” in your bank account or within other financial products that you can access without penalties or fees.
  • Tax-Deferred: If your company is matching your contributions in a 401(k) program, you should maximize the amount they are willing to give you. This is essentially free money, and you don’t want to pass this up! Just know that you’ll need to pay taxes on this income when you access it.
  • Tax-Free: After you’ve maximized the benefits from the other two categories, you should consider investing the rest of your income into tax-free vehicles, such as a Roth IRA or a LIRP.

Navigating these options can be challenging. As you head into a new year, you may want to take some time to analyze your current savings plan and consider how you can best protect your money! I’d love to help you create a plan that works well for you and your specific financial needs. Make an appointment now by calling me today at (505) 369-1224 or emailing me at

About Kevin Brown

Kevin Brown is an independent financial advisor serving individuals and families in New Mexico. It is his goal to give unbiased recommendations and impartial guidance based on every client’s individual and unique needs and goals. Kevin enjoys helping people to feel confident in their financial future by developing a plan to help insure against what can go wrong so they can enjoy the luxury of investing for what can go right! Call his office today at (505) 369-1224 or email


(1) “Policy Basics: Where Do Our Federal Tax Dollars Go?” Center on Budget and Policy Priorities, last modified April 12, 2013,

(2) McKnight, D. CPA, (2013) The Power of Zero: How To Get To the Zero Percent Tax Bracket and Transform Your Retirement