Thursday, November 15, 2007

IRA's and 401k's and Lions and Tigers and Bears Oh My!

Almost every book and every article I've ever read extol the virtues and wisdom of investing your money in an IRA or 401k. The party line goes, you get a tax break now for your investment and your money grows tax deferred until you begin drawing it out, sometime in the future at which point you may be taxed at a lower rate. Don't get me wrong, I don't think either type of account is necessarily bad, I just think that most people miss the part about "you MAY be taxed at a lower rate." I can't help but think, you also MAY NOT BE taxed at a lower rate. During my working years I can't really recall too many times when taxes have gone down. They mostly go up. So why should everyone assume that they're going to be taxed at a lower rate when they retire? Do they expect to be making less money? I'm planning on making more by then. Even if you expect your income to be less, it doesn't necessarily follow that you will definately be taxed at a lower rate than if you had paid the taxes as you went along.

I was born near the end of the baby boomer generation. The boomers have already begun to retire. And for the next several years, there will be millions more retiring. For them, I think their investments in their IRA's and 401k's are probably a good thing. But I think by the time I turn 59 1/2 and the government is looking for a lot more money to pay off debt and prop up social security, how can they help but start looking at all those plump retirement accounts as a source of revenue? There was a time when the government promised to never tax social security benefits. In fact there was a time when income taxes were first passed in this country that only the rich paid taxes. That was the only way the government could get the people to vote in an income tax. We've all witnessed what has happened since then. Taxes have sky rocketed, government spending is more out of control than ever and they just keep spending like a bunch of drunken sailors. So considering that the generations following the baby boomers do not number enough to cover all the governments expenses, where would you think the money will come from. I'm sure there will be some cut backs, but probably just token ones at best. It's my theory that within the next 15 years all the people who are drawing money from those tax deferred accounts are going to be paying through the nose. I could be wrong, but what if I'm not?

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