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Tuesday, March 13, 2012

Hidden Federal Reserve Tax on Savers Changes Safe Withdrawal Rates

How the hidden Federal Reserve Tax on Savers Changes the Safe Withdrawal Rate for savers who have retired.
Bob Brinker often talks about retiring and moving your investments to a "balanced portfolio" where you could take about 4% a year out as income to live on. I assume he did this math for someone aged 65 who will only live 20 years to the average of 85. You COULD run out of money before then at that rate.
I did the math some times ago where I looked at Monte Carlo analysis for someone who retired early (I semi retired at age 41...) and found if you want to be safe and have the money last 50 years, you should only take 3% a year out. That works out to $30,000 a year per million dollars saved. That was in the days of "normalized interest rates."
Consider saving $1M in cash and $1M in stocks today:
Before the Fed Tax of below market rate interest rates, you could retire early and grow orchids and windsurf while collecting 4% interest on CDs, using the Stock portion to grow and rebalance while paying you another $20K a year in dividend income.
You should get be getting about $40K + $20K a year or $60K a year to pay expenses like a mortgage and property tax.
Well, now the Fed taxes us to give the money to the Government with low rates so prudent SAVERS with a $2M portfolio make less than $10,000 a year on their CD savings and $20,000 on income from their index fund... Half what they need to live and probably only enough to pay mortgage and property taxes!
What is amazing is this "rich person" has to keep working because the Fed and the US Treasury taxed her to death with the hidden tax!
The sorry suckers are those scared out of equities who only get CD income and no gains in equities...

At least I Bonds can keep up with inflation and my older I Bonds pay much more.
These keep up with inflation (....IF you believe the reported numbers) AND defer taxes. Unfortunately, you can ONLY buy $10,000 per year per Social Security number. But if you started a long time ago, like I did... you can get a decent portfolio for your "safe" fixed income in your asset allocation. I also bought TIPS with my tax deferred money (in my newsletter explore portfolio) when base rates were much higher and those have done really well.

Explore Portfolio TIPS Valuation & Return
 Long Term Results that Speak for Themselves
Since 9/30/98 inception, "Kirk's Newsletter Explore Portfolio" is UP 390%
vs. the S&P500 UP only 51% vs. NASDAQ UP only 57% (All through 12/31/11
(More Info, Testimonials & Portfolio Returns)
Latest 2012 Update:  Up 10.2% YTD  as of 3/13/12

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