One For The Money Jonny West

WARNING - Why Taxes Are Going Higher for EveryoneThis episode is airing on April 15th, our tax filing deadline and a key aspect of my financial planning practice is to identify and implement tax-saving strategies for my clients. In this episode, I’ll share why it’s almost certain that everyone’s taxes will be going higher in the future because of our annual federal deficit and our cumulative national debt.
In this episode...
The Government Spends Worse than a Drunken Sailor [3:10]Tax Burdens by Income Level [07:12]Possible revenue streams for the US Government [11:02]Tax Saving Strategies [15:24]
The National Debt 
The federal government of the United States has an annual budget. It’s the set amount that the Federal government spends throughout the year. The amount they are currently spending is much more than the “income” they receive from individual and corporate taxes. In the Calendar Year of 2023, the federal government spent $6.3 trillion but only collected $4.5 trillion in taxes. Just what happens when you add up all of this overspending year after year? That’s called our national debt. Right now that total is over $34Trillion dollars. I shared more in episode 33 of this podcast entitled Time to Pay the Piper. Our debt is steadily climbing at over $34T as of this recording and is expected to be over $5oT by 2032. you can see more at the website usdebtclock.org. 
We must get our deficits lowered because the interest costs are set to become enormous. In 2028, Federal tax revenue is expected to be $6.1T, actual spending is expected to be $11.7T and just the interest payments on the debt will be nearly $2.7T a year. In order to reduce our debt and the interest we pay on it,  we will need to stop adding to it each and every year with the government's extra spending.   As John Mauldin says: “Yet people continue to say we could balance the budget and pay down the debt by“making the rich pay their fair share.” I wish it were that easy. I really do. But sadly, as I’ll show you, it’s not.”
Tax Load
Here’s how it looked in 2020 (the latest available data from the IRS courtesy of the Heritage Foundation).
The top 1% earners in America, those that earn over $548k/year earn 22% of the income and pay 42% of the income taxes received by the Federal government.
The top 5% earn more than $220K 38% and pay 62% of the taxes paid to the government. The top 10% earn more than $152K earn 49% of the income and pay 73% of the taxes paid to the government.
The bottom 90% (those that make less than $152K) earned 50% of the income and paid 26% of the taxes.
The US deficit will rise by an average of about $2 trillion/ year for the next decade.
As John points out, to account for the extra $2 trillion of spending we will need $2T more of tax revenue. If we raised taxes by about 50% on everybody, from the bottom 1% to the top 1%, it would only get us $850 billion which is a little less than half the way there. Clearly, we don’t have enough money just to match the current projected spending of the government. Instead, they have to reduce spending and raise taxes on individuals and corporations and likely also look for additional sources of tax revenue because income tax by itself won’t cut it. The most likely option in my opinion is a national sales tax or value-added tax.
Suffice it to say, we and really our children are in a heap of trouble given our debt obligations. We’ll eventually have to pay the piper for our overspending. What exactly happens is uncertain but I believe what is almost certain, is that our taxes will be going

Tax Advantaged Investment Accounts, Ep #59
It’s April and taxes are on the forefront of everyone’s mind. An essential part of building wealth is to not pay more taxes than you have to. In this episode, I will be getting back to the basics and provide and overview of tax-advantaged investment accounts.  
In this episode...Pre-tax account strategies  [4:03]After-tax account strategies  [6:11]How young adults can benefit from HSA accounts   [12:26]
Taxes can be incredibly confusing regarding how they work and the terminology does not help. Terms such as Gross Income, Adjusted Gross Income, Modified Adjusted Gross Income, above-the-line deductions, below-the-line deductions, tax credits, tax deductions, and Marginal tax rate vs effective tax rate are all important to understand how taxes work and how to implement tax saving strategies. If you want to learn more about these terms consider listening to Episode 8 and Episode 9 of this podcast. 
In this episode, I’ll provide a more basic understanding of tax-advantaged investment accounts and how these accounts can help you save on taxes. More specifically, how different investment accounts are taxed because knowing the differences can help a person decide when it is to their advantage to pay taxes.  This is an important topic because I often see individuals and families paying way more taxes than they need to because they don’t understand the differences between tax-advantaged investment accounts and how they allow tax optimization.
There are 3 different types of tax-advantaged accounts we will discuss each one below.
Pre-tax Accounts - Also known as traditional retirement accounts. Most know these as their 401(k) or IRA. In these accounts, you contribute a portion of your salary before you pay taxes. You will still have to pay taxes on this money but you will pay it later, when you take the money out of the account. These types of accounts make the most sense when you are in your highest earning income years. Deciding to pay taxes on the money put into these accounts during retirement when your income is lower can save you a significant amount of money in taxes. 
After-tax Accounts -After-tax accounts are when you pay taxes on the money before you make contributions to the account. These are commonly recognized as Roth 401k or Roth IRA retirement accounts. 529 accounts are also after-tax accounts. The advantage to these accounts is you never have to pay taxes again on the money contributed if you follow the distribution rules. This type of tax-advantaged account makes a lot of sense in your lowest and lower earning income years. By deciding to pay taxes when your income is lower you can save a significant amount in taxes. 
HSA Accounts -HSA accounts are the only accounts that are considered triple tax-free. With these types of accounts, you don’t pay taxes on the contributions or distributions or anytime in between. The contributions are tax-deductible, and both the growth, and distributions (if used for a qualifying medical expense) are tax-free.  As long as you follow the rules with HSAs you will pay ZERO taxes on them. Only people with a qualifying high-deductible medical plan are eligible to invest in HSAs. Contributions to HSAs are limited to an annual amount. For 2024 the limits are as follows: Individual $4,150, and Family $8,300. For those 55 and older you can contribute an additional $1,000. 
You may use funds in an HSA at any time for medical expenses. If you do not use all of...

Retiring Out of the States - What to Consider, Ep #58
Last episode we discussed the implications of where you choose to retire in the United States. In this episode, we will dive into what to consider when retiring internationally. Retiring outside of the United States is not a simple decision but one we hope to offer guidance on today.
In this episode...Top countries for Americans to retire to [03:12]Factors to Consider when retiring out of the states  [8:47]How to “test drive” international retirement   [10:45]
For those that want to retire internationally, you are not alone.  Global Citizens Solutions is a firm that helps Americans retire abroad. They have listed the top 10 countries to retire by considering criteria such as housing, benefits and low-cost perks, Visas and residency ease, cost of living, cultural assimilation, quality and accessibility of healthcare, development, climate, government stability, and the opportunity to semi-retire.
The number one country to retire to as ranked by the Global Citizens Solutions is Portugal followed by Mexico and Panama. You may be considering retiring out of the States to pursue a happier life and an adventure, you will also be able to take advantage of stretching your funds through a lower cost of living and meeting financial goals that wouldn’t be possible to achieve by staying in the United States.
My practice helps take clients to and through early retirement and retiring in a country with a lower cost of living makes early retirement much more feasible. Take Portugal for example, the number one country for Americans to retire to offering beautiful beaches, a warm climate, and a rich culture. Portugal offers programs to help Americans retire to Portugal.
Most obvious factors to consider when moving to another country in retirement:
Cost of Living - This is a significant factor to consider when choosing to retire abroad. Retiring to a country with a significantly lower cost of living can change lifestyle during retirement.
Climate —It is important to consider what climate you want to retire to. Why make such a massive move to only have to endure winter? 
Healthcare Access and Expenses— This is one of the top considerations with international retirees. The average married couple in America spends over $250k during retirement on healthcare alone. There are countries where your health care dollars can go further and you will be surprised how good the healthcare you receive will be.
Housing— will be a significant factor to consider, for example, some of the houses in Costa Rica are gorgeous but they come at a steep price. You may want to consider the cost of buying a home outside of the States.
Culture— There may be significant cultural differences as well as language barriers to consider.
In short, if you are looking to retire outside of the States some of the factors you will want to consider are Cost of living, Climate, Healthcare Access, Housing, and Culture. There are a host of other factors as well such as tax and legal factors and proximity to family. 
My practice helps take clients to and through early retirement, one strategy to consider is to spend the first few years of retirement in an international location with a lower cost of living.
The idea of living internationally might sound exciting but, you might still have some hesitation. A great way to temporarily test drive a retirement out of the country is doing a home swap. There are websites that provide a platform where you can exchange homes with other international travelers. 
Securities and Advisory services offered through LPL Financial. A registered investment advisor. Member FINRA & SIPC.
Resources & People...

Retiring Out of State - What to Consider, Ep #57
When it comes to retirement for citizens in the U-S-of-A, you have 50 different states to choose where you would like to spend your retirement. It’s not a decision to take lightly as there are advantages and disadvantages that every state offers. There are a host of factors to consider when retiring to another state and I’ll go over a few of them here.
In this episode...United States Retirement Migration trends [03:35]Factors to Consider when retiring out of State  [05:47]How to save on taxes for those with residences in two states   [12:57]
More than a few Americans decide to relocate to another state. Smart Asset examined U.S. Census Bureau migration data to uncover where retirees are moving. They noted, unsurprisingly, that a lot of seniors are moving out of expensive northeastern cities and into other parts of the country. Here are some of the key findings of their analysis of the census data:
The most popular city for retirees to move to was Mesa, Arizona which topped the list for the nation’s highest net gain of seniors for the third consecutive year. In fact, the influx of retirees more than doubled that of the second place city.
The most popular state is Florida which sees a massive influx of seniors. Florida netted more than 78,000 senior residents from other states in 2021 – three times as many as the second-ranked state. Miami, Jacksonville, St. Petersburg, and Tampa all placed among the top 20 cities gaining the most seniors.
Smart Asset noted that Taxes and climate appear to influence retirees.
The most obvious factors to consider when moving to another state in retirement. 
Proximity to Family - As you get older, you want to cherish your time with family. Obviously, you’ll get more of that when you live closer to one another. Additionally, you may need some assistance as you get older so you will want to have family close to help you. Clearly, being geographically close to family is a compelling reason to retire to another state but maybe not too close to your family, as the comedian George Burns put it “Happiness is having a large, loving, caring, close-knit family in another city”. But it should be noted that he didn’t say in another state.
Cost of Living —The next most important factor when considering retiring in another state is the cost of living. This has more to do with just taxes as things can be significantly more or less expensive. 
Climate — There’s a reason why more retirees are moving to sunnier climes such as Florida, Arizona, Texas and the like. 
Taxes — Are a huge consideration when deciding to retire in another state. Some states tax income at higher rates, some don’t tax income at all. Some tax social security benefits and some don’t at all. Others have no to low income rates but have higher property tax rates to make up for it. Some have high sales tax and a few have none.
In short, if you are looking to retire to another state some of the factors you will want to consider is proximity to family, the climate, the cost of living and of course taxes. Because if you live close to family near the border of two different states, it might make a big difference in which of the fifty nifty United states you decide to retire to. 
There is a tax saving strategy for those who have residences in two different states. We’ll call it the 183 rule. Why that number, because there are 365 days in a year and 183 days is just over half. If a person has residences in two different states, say California and Nevada, they would want to become a resident in Nevada and spend 183 days or more in their Nevada residence. This would ensure that their income would be taxed at Nevada rates and not Californias, because...

How to Become a Member of the Two Comma Club, Ep #56
This episode focuses on the behaviors needed to become a member of the two-comma club. What exactly is the two-comma club? Well, it’s just a different way of saying how to become a millionaire, since one million dollars is represented by 7 numbers, the number 1 followed by 6 zeros, consequently there are two commas required to break those numbers up.
In this episode...Who Wants to be a Millionaire [01:26]USA has a lot of millionaires [03:23]The Abundance Mentality [05:49]Prerequisites to becoming a Millionaire: The Success Sequence [07:28]What you should do [09:20]What happens to those that didn’t model the behaviors [14:13]
Years ago there was a hugely popular game show entitled Who Wants to Be a Millionaire. It captivated the American public. The television network ABC first launched the American version of the game show in 1999 and it became the highest-rated television show later that year, and has since had 21 seasons with several different celebrities serving as the game show host.
In 2023 here in the US of A, we have never had more millionaires than we do right now. 
Based on the latest estimates from the Federal Reserve there are around 16 million American households with a net worth of $1 million or more. That’s up from fewer than 10 million millionaire families in 2019.
While saving and investing are important behaviors to cultivate on the path to becoming financially independent (or a millionaire) there are prerequisites behaviors that must be mentioned. In an opinion piece in the WSJ by the wonderful Jason Riley, he emphasized the success sequence. That sequence is often credited to research done by Brookings Institution scholars Isabel Sawhill and Ron Haskins, though others have made similar observations. The success sequence is simply this:
If you finish high school, get a job, and get married before having children, you have a 98% chance of not being in poverty.
Recently Dr. Melissa Kearny, MIT-trained economist wrote a book entitled The Two-Parent Privilege.  In it she shared the story of how declining marriage rates are driving many of the country’s biggest economic problems and how the greatest impacts of marriage are, in fact, economic: when two adults marry, their economic and household lives improve, offering a host of benefits not only for the married adults but for their children. A summary of the book notes that For many, the two-parent home may be an old-fashioned symbol of the idyllic American dream. But The Two-Parent Privilege makes it clear that marriage, for all its challenges and faults, maybe our best path to a more equitable future.
Here are a few additional behaviors I would add:
Not borrowing money when you don’t have to. Just because you are approved for a loan doesn’t mean you can afford the thing you are trying to purchase. Don’t confuse approval with proof that you can afford the car or whatever it is you are trying to buy with borrowed money. If a person has a new luxury car they are wasting money and most who have them don’t have the money to waste. You should only borrow money to buy an house and pay for some college. And even with college there are many reasons not to borrow money to pay for college. See episodes 15 and 16 of this podcast for more information.
Another thing to note, just because a person has a high FICO score it doesn’t necessarily mean they have made smart money choices but simply the fact that they have shown the ability to borrow money and pay it back consistently. One’s personally accrued net worth and the savings rate is a far better determiners of smart money choices.
In the end, it all comes down to discipline. Everything changes...

All That Glitters Isn’t Gold, Ep #55
On my drive to work, I mostly like to listen to podcasts but on occasion, I will listen to the radio. And frequently, I hear advertisements that claim that the economic sky may be falling and that one needs to invest in gold to protect themselves from the oncoming economic apocalypse. Well, the truth regarding investing in gold is a very different story and those that invest in gold may not have fools gold but I’ll share why it could be very foolish to do so.
In this episode...Using Fear to Sell [2:54]The lies salesmen tell you about Gold [4:10]Gold has grossly underperformed for over 40 years [6:26]Three Additional Reasons to NOT invest in Gold [10:25]Beware When Salesmen Use Fear to Sell [13:13]
This communication regarding a precious metal is limited to a general and educational discussion as an asset class such as an economic or market commentary. This is not a promotion or solicitation for the direct purchase of a hard asset. 
Gold has enamored the mind of mankind for millennia. There are tales of Eldorado, the lost city of gold, or King Midas who had the golden touch, or even a leprechaun that hides a pot of gold at the end of a rainbow. In fact, the very state I reside in, California, owes much of its initial rise to the tens of thousands of people that came out west in hopes of also striking it rich in the gold deposits after gold was first discovered in 1848 at Sutter’s mill. 
Gold holds a certain allure to people and the commercials advertising investing in gold use this perception to peddle an investment theory regarding how gold supposedly has these incredible wealth-preserving capabilities. Now the advertisements I have heard always focus on fear and emotions with references to a teetering economy or references to the stability of the dollar owing to our massive national debt. That they use fear is no surprise as few things motivate people like fear. Greed is a close second, but fear is certainly the most powerful.
Since 1980, Which Investment Has Generated the Best Returns? Stocks bonds or gold?
From January 1980 through January 2023, the S&P 500, with dividends reinvested, returned an annualized 11.4% before inflation. Adjusted for inflation, it was 8.0%. 
As for bonds, the benchmark 10-year Treasury note delivered an annualized total return of 5.6% over the same period. Adjusted for inflation, it was 2.4%.
What were Gold's returns since 1980? Gold had an annualized return of just 3.1% before inflation. After adjusting for inflation, the average annualized return was negative. 0.01%. Meaning you had less money than you started with 44 years later.
Let me repeat that, since 1980, over 44 years, gold has had a negative return when adjusted for inflation. Again, how these people can get away with these lies on the radio and TV is beyond me. 
Now if that’s not enough reason to convince you why you shouldn’t invest in gold let me share 3 additional reasons why all that glitters isn’t gold.
First - Gold pays ZERO income
Gold doesn’t produce income. It’s only worth what someone will buy it from you in the future, whereas stocks pay income via dividends and bonds pay income via interest payments. 
I like Apple products. I own a Macbook Air, a watch, an iPhone, iPad and Airpods, and Apple TV. These are all products Apple makes. They sell these products to consumers for a profit. Some of those profits are shared with stockholders/part owners in the form of...