Why Your Taxes Might Go Up In Retirement
Conventional wisdom holds that when you retire, your effective tax rate will go down. For many retirees, and especially early retirees, that unfortunately won’t be the case. To help understand why your marginal tax rate might go up after you retire, let’s examine a few common tax-deductions workers often take that most early retirees won’t.
Common Tax Deductions You Won’t Get
- Mortgage Tax Deduction – The mortgage interest tax deduction is an American institution. As a nation, we love this deduction but it’s not quite as valuable as many people assume. For starters, you only save on the portion of your mortgage interest that’s greater than the standard deduction, which in 2009 is $5,700 for single filers and $11,400 for joint filters. What’s more, many retirees (and most early retirees, if they know what’s good for them) will have their homes paid off by the time they retire.
- No More 401k - One of the primary benefits of contributing to a 401k is that it reduces your taxable income in the current tax year. But you guessed it, no job means no more 401k contributions which in turn means no more tax deduction. Of course, retirees who use their new-found free time to start their own part-time business are eligible to contribute to a solo 401k plan.
Taxes Will Probably Go Up
It’s no secret the federal government has been running a massive budget deficit for years now and has accumulated an absolutely staggering national debt. The most important reason your taxes will probably go up in retirement is simply that the federal government will probably have to raise taxes at some point to stay afloat. And that’s not even taking into account the budget shortfalls faced by most states. One way or another, you’re going to have to pay for Uncle Sam’s folly, and that means higher taxes.
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We should penalize companies that send jobs off shore, restrict immigration (legal and illegal) to workers, not pen pushers or welfare recipients, we should penalize the bankers who engineered the current crises with the able help of our politicians through deregulation of the financial industry (how many of our politicians took ‘gifts’ or jobs or whose families took jobs in banking), introduce a system of welfare reform, unemployment benefit reform and healthcare to protect American workers who have fallen on bad luck. I do not believe in isolationism, but we need to start looking after ourselves. Dont think that India or China will help us, or that the pen pushers they send to our shores will do anything to help. All immigrants of an age to join the services should be signed up, that will sort out the ones coming to become one of us from those who are coming to get what we have.
But why should we do these things? What would it accomplish? Would it really improve things or would it just make you feel better to get revenge on people you seem to think have harmed you in some way? I suspect it’s the latter.