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The average worker looking to their retirement generally seeks help from investment professionals; a Financial Planner, Accountant or Insurance Agent – who despite the best intentions provide inadequate advice.
The focus of most advisers starts with determining what a worker may be able to save out of their wages as a contribution to a Retirement Fund, Selection of Investments, Projection to Retirement Date, and a Plan for managing the Nest Egg for the remainder of their life *(and providing for their family).
Insufficient attention is given to how a Worker’s Wage and Benefits may be structured to increase the amount of investment capital working for them to build their Retirement Nest Egg.
Which should encompass not just specific Retirement Funds but additionally further investing outside that area – including equity in their home, strategies to best take advantage of tax exemption on gains on sale of their residence *($500,000 for Couples – $250,000), and Business Investing.
The last item – Business Investing – can produce much greater returns than Real Estate or Share Markets. The majority of profitable businesses are sold for a multiple of earnings; small businesses for around 3 times earnings. Which equates to an ROI of 33% on the Capital Sum invested for the acquisition.
There is plenty of scope to start a New Business from scratch or to acquire one for very little out of pocket money. Profitable businesses can be bought using little or none of your own money and developed *( later able to be sold for a large capital gain).
For a business held for 12 months a tax rate of 15% normally applies on the capital gains. Prudent planning and strategic exit can reduce tax significantly or eliminate it completely.
What escapes most Investors is the significant tax advantages of Business Investment – where expenditures used to grow sales and produce profits are tax deductible. This greatly improves ROI, for example a 33% annual return based on a 100 becomes based on your effectve after tax cost; if your income tax rate is 20% the 33% ROI would be enhanced to an ROI of 41.25%. For high income earners the effect is much large owing to the Progressive nature of our Income Tax System.
Structuring to use leverage can magnify investment returns such that ROI might become 4 or 5 times that 41.25%, even more.
The timidity of even professional advisers towards borrowing to invest – demonstrated by their recommendations Not to access the loan facility built in to 401K Plans.
Which seems ridiculous as their training should have included gearing as an effective way to increase capital for investment, with a major boost to ROI of your limited own amount of capital.
When correctly structured leveraged Business Investment can be risk free as the Business itself can be the borrower, not the shareholder. Thus there need be no personal debt and liability can be avoided by shareholders in a C Corp.
Tax Management is an Integral Element in Retirement Funding. Yet few Financial Planners adequately take advantage of the very generous concessions Congress granted and IRS accede to. It is common knowledge that a Workers Contribution to their 401k Plan produces a tax rebate to them while ensuring that the full amount of their investment contribution going in to the 401k Fund is untaxed and earnings remain untaxed until withdrawal. Yet the size of workers personal 401k contributions are small – in the order of 5-8%.
Clearly that is inadequate, when in 2020 the upper limits of contributions for a worker are $19,500 (age under 50) and $26,000. Few Financial Planners ensure their clients maximize 401k contributions as their thinking is constrained by believing that the amount a worker can investment is determined by their ability to save a portion of their wage.
The faulty logic of that line of thought will impoverish workers in to retirement. Financial Planners should study Economics and make a mind shift. There is little reason to limit contributions to what a worker can save – the average worker saves very little, most often owing money on their credit card.
Also additional thought needs to be given to the role of employers – who may match Employees 401k contributions. However in most instances neither Business Owners nor Financial Advisers can break out of a stultified mindset that the Employer needs to have sufficient surplus funds in order match Employee 401k Contributions – especially to max-out total fund contributions.
In respect of mid to high level salaried workers the 401Klever Retirement Plan refutes such faulty logic entirely. Savings capacity of Workers and Employers are not essential as it is merely a matter of Cash Flow Management, knowledge of the Legislation on 401k, Income Tax Rules and FICA, plus experience and skill in Financial Planning and Economic Analysis.
As Business Investment is an area usually outside the experience, knowledge & skills of most professional advisers it is overlooked in Financial Plans – a serious detriment to workers who have only one last shot at building a financially secure Retirement.
Similarly most Financial Advisers do not possess much creativity, most of their recommendations regarding 401k Plans are devoid of deep analytical thought and Applied Economics. Consequently Retirement Investment Funding by workers is meagre – and the Retirement Prospects for most workers are also destined to produce meagre Nest Eggs
Professional Advisers genuinely wanting to help workers and their employers more effectively deal with Retirement Planning and the exigencies of running a profitable business – especially in today’s COVID19 economic climate, can align with an Economist, expert in designing razor sharp investment programs – developed within the parameters set by IRS in respect of tax, retirement funding and business concessions – able to deliver results which will eclipse your slow pony competitors.
Not only being able to produce better plans for clients, but also enabling you to enjoy much higher earnings for yourself.