Tax revenues are what our government depends on to fund its expenses and obligations. These obligations include entitlement programs like Social Security, Medicare and Medicaid. Expenses include paying interest on the national debt, defense spending and funding over 400 federal agencies. In 1900 the federal government was less than three percent of the U.S. economy. Today, it’s estimated to be over thirty percent of the economy. If you add state and local government, it’s over forty percent of the economy. Add to this, over seventy-seven million baby boomers receiving, or soon to receive Social Security, Medicare or Medicaid and no longer paying into those same programs after retirement.

According to The Heritage Foundation, given the current tax rates and expenditure levels, tax revenues will be fully consumed by year 2030. David Walker, the former Comptroller General of the Federal Government for ten years under Bush and Clinton predicts the government will soon be forced to double tax rates for individuals, reduce spending by half, or some combination of the two. According to the Office of Management and Budget the U.S. Treasury borrowed money to make up the gap in 45 of the last 50 years. As of this writing, USDebtClock.org shows the national debt approaching twenty-two trillion dollars.

No one can reliably predict the future of tax rates, but the circumstances will force Congress to address the shortfall sooner than later. Their choices are simple; cut spending; increase tax rates; borrow more money; or print money.

After the financial crisis in 2008 the Federal Reserve was forced to lower interest rates to historically low levels. For the last ten years, many retirees were affected by the Fed’s actions which resulted in lower rates for traditional fixed income investments such as CDs, bonds and fixed annuities. What actions could be next for retirees? If Congress chooses to increase taxes, it will have a negative effect on many retirees who have no source of income other than their retirement savings in taxable and/or tax-deferred accounts like 401(k)s and IRAs. For those investors who have Roth IRAs the distributions are tax free.

Many Americans in retirement or facing retirement have the following questions:
• How much money will I need over my Social Security and/or pension payments?
• How will the stock market and interest rates impact my retirement savings?
• How much will I pay in taxes for monies distributed from tax-deferred accounts such as IRAs and 401(k)s?
• Should I consider making Roth IRA* or Roth 401(k)** contributions and/or IRA to Roth conversions?
• How much will I need for medical needs and long-term care?
*subject to income limits
**if available for your company

At Worth Asset Management, we help our clients navigate through retirement challenges with sound advice. Although we don’t offer tax advice, we work with tax professionals who can help with tax questions.

Keep in mind that past performance is not indicative of future results. In addition, there may be other Exchange Traded Products that offer exposure to the sectors mentioned and each has their unique perspectives and characteristics. It is important to determine if they are appropriate for your personal portfolio.
Disclosure: Worth Asset Management is a Registered Investment Adviser with the state of Texas. Jim Clark and/or his clients may hold positions in the ETFs, mutual funds, and/or any investment asset mentioned above. The commentary does not constitute individualized investment advice. The comments and opinions offered herein are not personalized recommendations to buy, sell or hold securities.

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