50 • MARTIN H. RUBY
Why do I feel so strongly about this? Two powerful reasons.
No. 1: Myth of the Lower Tax Rate in Retirement First, because the myth of deferring taxes is just that: a myth. Here’s how the myth goes: You should defer taxes now and pay them later. While you’re working, you’re in a high tax bracket. When you retire, you’ll be in a lower tax bracket, so it’s better to pay those taxes later. I’m about the take a blow torch to this myth, which has plagued so many savers. First, the vast majority of my clients are not likely to be in a lower tax bracket in retirement. And there’s a simple reason. Think about the things you enjoy doing with your income. Going out to dinner. Living in a comfortable home. Traveling. Buying a new car every few years. Are you willing to give up those things in retirement? Most of us aren’t. And that’s where the myth of the lower tax bracket in retirement starts to get exposed. Many of us want the same luxuries in retirement we have pre-retirement. That means we’re going to need approximately the same amount of income. I came to discover the lower-tax-rate-in-retirement myth in a very personal way. When I started deferring taxes on my 401(k), I was making $50,000 a year as an actuary at an insurance company called Cap- ital Holding. Today, as a successful actuary and business owner, I make quite a bit more. My tax bracket in 1980 was several levels lower than what it is today. But I still deferred those taxes at a lower rate. Now I have to pay a much higher rate when I spend my money. This is a very common challenge for successful profes- sionals. Today, I can see retirement on the horizon ahead. And I’ve done the math. I’ve worked out the income my wife and I will need to live the life we envision when I retire. And guess what? It’s only
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