Tax the Rich

When it comes down to taxing the rich, you have to ask yourself one question, who are the rich?  There are the lottery winners, or those whose fortunes come from novel ideas.  The great majority of rich people overlooked, are those that saved $100 dollars a week for a lifetime.  Its not uncommon for a married couple to amass a fortune of a million dollars.  If the intertest rate was 8% these retirees would be getting $80, 000 a year in interest—not a bad retirement income.  We know that is not the case, it is more like 0.5% interest and that is about $5,000 a year.

 Here is where it gets interesting.  Most of these funds are in IRA’s.  It’s a taxable event if you want to take your money out of it and run.  That is what has created stability in the financial markets.  The average retiree will withdraw funds in a manner that minimizes their taxes each year.

 Let’s take a retired couple with one million in a retirement fund.  Assume 6% inflation.  They will lose $60,000 to inflation the first year. And since they still have the million, they will lose the same 60K the next year if inflation is still at 6%.  So over 10 years, they would lose $600,000 to inflation.  I am assuming that they didn’t dip into the fund for the 10 years to simplify the math.  $1,000,000 minus $600,000 equals $400,000.  That is the buying power of the million-dollar portfolio over 10 years. Their savings have lost 60% of their buying power. So, if you retire at age 70, you will survive the next 10 years okay. Over the following 10 years, your million will turn into $100,000 in actual buying power. Drop a zero off of your wealth every 20 years to determine the forward buying power.

 In the above example it is assumed that you don’t need to withdraw funds from the retirement fund.  Life doesn’t quite work that way. With inflation, your funds will probably last 15 years or less. The US government is not going to raise the interest rate on Treasury’s to 8%, the interest on the national debt would bankrupt the country.  Interest on 30 trillion at 8% is 2.4 trillion.  That’s more than the government collects in taxes.

 The neat thing about taxing the rich, or should I say elderly retired, is that no one is listening to them.  Grandpa and Grandma just didn’t save enough for retirement.  The kids today at age 20 have always paid $7.00 for cigarettes—they were 25¢ when I was 20.  When I was young, I could never understand how my grandfather (who lived to be 98) got so angry over paying 35¢ for a loaf of bread, he would say it was only a nickel when he was a kid.  He saw the theft by government and was frustrated because he could do nothing about it.

 Precious metals appear to be the only lifeline for retirees.   A lot of the trading on the precious metals market, is done on paper and there are no demands for delivery. The real market, is the precious metals shop down the street, take physical possession. Buy gold, silver and platinum for the second 10 years of your retirement.  From my anecdotal sources, no one at the current time is selling metals, everyone is buying.  The weird thing is that a zero will drop off of your total saving in 20 years (buying power), but a zero will be added to the precious metals value.