We need to talk about something that keeps us up at night. After reviewing thousands of financial plans over the years, we’ve discovered a troubling pattern. Most Americans are defaulting into the government’s plan for their money, and it’s costing them dearly.
The Problem Warren Buffett Identified—And Why It’s Worse Than You Think
Back in 2011, Warren Buffett appeared on CNBC with what seemed like a simple solution to America’s deficit problem. “I can end the deficit in five minutes,” he declared. “You just pass a law that says that any time there’s a deficit of more than 3% of GDP, all sitting members of Congress are ineligible for re-election. Now you’ve got the incentives in the right place, right? So it’s capable of being done, and if you guys can’t get it done, we’ll get some other guys to get it done.”
We love the idea. However, there’s a significant problem with it that has massive implications for your retirement.
The Reality of Government Spending
The deficit isn’t the total debt we have. It’s the additional debt we add every single year when we spend more than we collect. Currently, that’s about $1.9 trillion annually.
Here’s where it gets concerning. We collect about $5.3 to $5.4 trillion in tax revenue each year. If you add up just the four largest line item expenses, the total comes to about $100 billion more than we collect in total taxes. Those four items are Social Security, Medicare and Medicaid, Defense and War Spending, and Interest on our Debt.
Therefore, even if we wanted to implement Buffett’s idea, we’d face an impossible situation. These four line items are essentially non-negotiable. We’re not going to cut Social Security in half. Defense spending isn’t going anywhere. Interest on our debt must be paid. The current Medicare and Medicaid spending is what it is right now.
The Two Levers—And Which One Affects Your Retirement Most
The government has only two levers at its disposal to solve the deficit issue. Lever number one is spend less. As we just explained, that’s nearly impossible given our fixed obligations.
Lever number two is raise taxes.
As retirement planning specialists, we can tell you that one of those levers is far more poisonous than the other for retirees. The “tax more” lever has enormous implications for everyone listening. It’s a scary place to be. Additionally, spending less simply isn’t a realistic option given our current obligations.
If You Don’t Have a Plan for Your Dollars, You Default to the Government’s Plan
This statement deserves to be repeated and emphasized. If you don’t have a tax plan for your money, you are going to default into the government’s plan for your money.
Let’s break this down. If you don’t know how much of your dollars in your portfolio—let’s say a $1 million portfolio—you will pay in taxes for the next 30 years while you’re retired, you do not have a tax plan.
Now, there are limitations to this calculation because you have to pick a tax rate. But if we just use today’s tax rate and assume taxes don’t change for the remainder of your entire retirement, you can know. In fact, if you have an income plan, you do know exactly how much money you will pay in taxes every year—this year, next year, the following year, 15 years from now.
Moreover, you can control and change that number now, especially if you’re under the age of 73 before your required minimum distribution starts.
The Government’s Plan Is to Take as Much as They Can
If you don’t have a tax plan, you’re going to default into the government’s plan for your money. The government’s plan for your money is to take as much of it as they can.
Most Americans hold most of their wealth in the 401k or IRA category. This means it’s tax deferred and has not been taxed yet. If that money stays there for the rest of your life, you’ve fallen into the government’s plan for your money to a certain extent.
The Power of Roth IRA Conversions
You should be considering at least a Roth IRA conversion strategy. This means taking some money out of your 401k or IRA category, paying some tax on it now while taxes are on sale, and getting money over the fence so it can grow tax-free in your Roth later.
However, critical questions remain. How much should you do each year? Should you start now or wait until next year? Should you do it while you’re working or wait until you’re retired? All of these are excellent questions that can’t be answered without a comprehensive plan because the answer is different for everyone.
Furthermore, this is something that must be managed every single year. Just like your portfolio should be managed on an ongoing basis, becoming more and more tailored for you, your tax plan or income plan requires the exact same attention.
The Order of Operations: Your Distribution Strategy Matters
Getting this part right is crucial. Let’s say you want $15,000 per month after taxes for the rest of your life. If that’s you, you should know exactly how much of that $15,000 comes from IRA or 401k, how much comes from Roth IRA, how much comes from your brokerage account, and how much comes from Social Security or annuities.
You should know the exact amount each month that comes from those categories. Additionally, you should marry that reality to a Roth IRA conversion strategy if applicable.
The Half-Million-Dollar Difference
What’s the delta between getting it right versus getting it wrong? Literally hundreds of thousands of dollars, maybe more.
The real answer depends on how large your portfolio is. However, for most of our clients, based on the thousand plans per year we’ve reviewed for the past several years, it’s more than a half-million-dollar difference. We’re being conservative to be safe. It’s easily more than a half a million dollar difference worth of taxes paid to the government.
This isn’t based on a national study. This is what we see walk through our office every day. If you get the order of which you spend your money right and marry that to an optimal Roth IRA conversion strategy, getting that part right means upwards of $500,000 or more of a difference in taxes paid or income received over the course of your average 30-year retirement.
The Wet Blanket: Why Most People Won’t Act
We need to be honest with you about something. The weakest part of our argument—the reason most people aren’t going to work with us—is that this can’t be done overnight.
You’re not going to come into our office and we’ll push a few buttons and you’ll have a half million dollars. Instead, you’re going to have to sit down with us probably two to four times a year for five to seven years to make sure we stay on course, that we do this right, that we measure twice and cut once, and that we take into account any future changes in the tax code.
We don’t know what the tax code will be in seven years, but we know what it is today. The reason many of you aren’t going to call, or will call and then not follow through, is that it takes time. It’s not a quick, easy fix that you can just do and forget about. You have to actually engage with it.
Human Nature Gets in the Way
Look, you’re not alone. This is all of us looking for the path of least resistance. It’s the gym mentality. It’s the weight loss approach. It’s the get-in-shape challenge. That’s where having an ally helps.
This is why most people don’t DIY throughout their entire retirement. Many people DIY during the accumulation or growth stage of their portfolio. They really enjoyed it. They liked doing research. They liked being their own broker. Great.
But then you have to shift gears. At some point, you move from a growth portfolio to income distribution. That is a major jump. Most folks don’t DIY all of that themselves for the reasons we just mentioned. There’s an upwards of $500,000 or more delta on taxes paid by getting that right.
The Other Half: Investment Returns
Here’s the wild part. We haven’t even talked about investment returns yet. All of the savings we’ve discussed—the half-million-dollar difference—that’s only on the distribution side of the equation.
What’s the primary job of your money manager? You’re probably thinking, “I’m hiring you to get me good returns, right?” We’ve got news for you. None of you listening can out-return the tax brackets.
It’s a phenomenon. You can’t out-return a bad tax strategy. You literally cannot do it. The IRS is really good at at least parts of their job, and that is being one step ahead.
Most Americans have most of their wealth in the tax-deferred category—401k, IRA, SEP IRA, Simple IRA, 403B, TSP if you’re a federal employee. All of that is tax deferred and hasn’t been taxed yet. You hire a broker or investment advisor because of the returns. They get you double-digit returns, and it’s appropriate for your risk tolerance.
But all you’re doing is growing your tax problem. You’ve got more money, sure, but you’re going to be paying a larger percentage of taxes on a larger pot of money because they grew it so well.
Why Our Approach Is Different
This is where our process and our services differ from most firms. This is what most people who come to our office say: “I’m 62 years old. I’ve saved a significant amount. I’ve had financial advisors. I’ve talked to my HR department. I’ve done my own online research. I’ve never heard this or seen it broken down in this regard.”
That’s what makes us different. This is exactly what we talk about in our educational seminars across Metro Atlanta. We try to make these events as educational as possible. We really enjoy downloading the information we’ve gathered over the years.
Our office reviews approximately a thousand financial plans every single year, going all the way back to 2017. There’s literally no situation where we’re like, “Well, this is the first time we’ve ever seen that.” That stopped happening years ago.
We really enjoy telling stories, sharing insights, and making the retirement planning topic—which can often be boring or intimidating—fun and digestible. We try to distill it down to the three biggest mistakes we see people make on a day-in, day-out basis.
You’re the Decision Maker
You have to understand that no one can do this but you. You’re the only one who can ultimately make these decisions. Now, you’re hopefully going to hire someone to guide you through it. You’re going to hire someone to point you in the right direction and make recommendations.
But ultimately, you’re the one who’s going to have to do it. You’re the decision maker. It’s going to be you pulling the trigger on doing a Roth conversion. It’s going to be you pulling the trigger on taking money from your IRA this year, knowing that you’re going to pay more taxes this year because next year you’re going to take it from your Roth IRA.
We can’t do it for you. We can tell you what to do. We can execute it for you. But you have to decide.
We Walk Alongside You
At the same time, adults do need guidance. We do need that trusted voice to lean on, and that’s where we come into play. We walk alongside you.
If you were our parents, this is the advice we would give you. This is what we think you should do. Ultimately, you’re going to be responsible for either following that advice or not following that advice.
But you need to get comfortable with the idea that this isn’t something you can just push a button on and it happens. It’s not a one-time decision where all future decisions are already made. You can’t take your hands off the wheel after one meeting. This isn’t an Ozempic plan. It’s a diet and exercise plan.
There May Be Difficult Conversations
There are going to be some heavy conversations. There may be some conversations that you don’t like. You may walk out some days frustrated. But at the end of the day, it’s all about your best interest. Your goals, your desires, your hopes, your dreams, your income—making that income last as long as you do in retirement while mitigating taxes.
This is something we talk about every single week. We’re always thinking about your income. Always thinking about risk in your portfolio. Always thinking about your tax strategies. Just not only in April—all year long.
Recognized Excellence in Retirement Planning
Best Financial Planner in Woodstock, GA for 2023, 2024, and 2025
This recognition reflects our commitment to providing comprehensive, client-focused retirement planning that goes beyond traditional investment management. We’re dedicated to helping our clients navigate the complex landscape of taxes, income distribution, and investment strategy to ensure their retirement goals become reality.
Take the Next Step with Our No-Cost Process
We invite you to experience our comprehensive three-meeting retirement planning process at no cost. This process is designed to give you complete clarity on your retirement picture, including your tax strategy, income distribution plan, and investment approach. There’s no obligation—just valuable insights into your financial future.
To get started, visit our website at https://www.vincentplanning.com or call us at 770-485-1876. If you’d like to start with a shorter conversation to see if we’re the right fit for you, we invite you to book a “Can We Help” call. This informal conversation will help us both determine if we’re a good match. Book a ‘Can We Help’ Call today.
For personalized financial guidance, reach out to Vincent Financial Group today to schedule a consultation.