With the right strategy you may be able to reduce taxes today and retire in the 0-percent tax bracket tomorrow.
Are these the strategies that make the rich richer? One can only speculate, as the wealthy consistently implement every known strategy available to pay little to no taxes. What we do know is that only 1 chiropractor in 100 retires wealthy.
What about the other 99 percent? Four more will become financially independent and have the ability to live a life well designed. Is it possible to change this alarming statistic? What is the secret of the upper 5 percent?
I recently attended my 55-year high school reunion, and while I can’t accurately say which of my remaining classmates were wealthy and which ones were financially independent, I have no reason to dispute the statistics compiled by the Social Security Administration for the previous 85 years.
Reduce taxes: You can beat the odds
Nobody has a crystal ball; but with the right course of action and a big pile of inspiration, you can reach your goals. You might not know where to start, and you might allow other matters to take priority, always thinking that the “retirement thing” can be done a little later. Linear thinking of this type can become a major cause of long-term failure.
My experience has shown that clients I have worked with who follow a proven course of action will usually progress to a place of certainty within a few short weeks—when they follow a well-laid-out plan of action.
The good news is that the solution to becoming financially independent isn’t complicated. First, take a look at what anyone can do today to turn the odds in their favor.
The key framework
There are many approaches one can take; however, each approach must:
Reduce your taxes. You want to pay no more than the absolute legal minimum.
Work on wealth creation. Avoid focusing too much on debt reduction. This is done by choosing the right mix of financial products and developing a strategy that creates wealth and pays down debt at the same time. Trying to pay all your debt before beginning to accumulate wealth will only shorten the number of years available to reach your target. The compounding effect of money has its greatest influence in the later years.
Begin with the end in mind. Be clear on what you must start doing today, tomorrow, and this year to reach your goals. The end goal is being able to continue with the same quality of life you have today (or even one that’s better), without having to work. Set a goal or an age when you would like to see that goal materialize.
Estimate a conservative and predictable rate of return. This applies to both your saved and invested assets (and be sure to factor in inflation).
Incorporate a cash-flow system. This is what keeps you on track; a system that tracks the direction of your progress relative to your objectives and identifies where you may be deficient, if not realizing the progress you are seeking. There are numerous software systems that have excellent tracking systems. The secret is for you to use the system effectively and consistently.
There’s just one problem…
Finding the money. Chances are you may have more than you think if you analyze your spending behaviors. Once you realize how much is slipping away (and this is without adjusting your lifestyle expenses), you will likely be motivated and excited to see your plan unfold. Experience has shown that with effective tax planning most chiropractors will see a reduction in taxes between 20 and 60 percent of what they currently pay. For example, one doctor incorporated a management company that integrates with his S-Corporation and he saved over $33,510 this way (see chart).
A compound lesson
Reducing your taxes by $33,510 per year compounded for 20 years at just 5 percent will get you significantly further toward your retirement goals. When you realize those tax savings, you will have accumulated an additional $1,163,442.
How much is it costing you to look the other way and procrastinate on reducing your tax bill to the absolute legal minimum? If you are already in a high tax bracket or if you are a big earner with a lucrative practice, you’ll have even more exposure to taxes. This can negatively affect your desire to build your business.
If you have a successful practice and have not explored working with a certified tax specialist, you may be pleasantly surprised at the results. It isn’t necessary to fire your existing accountant, but effective tax planning is essential if you see practice growth in your future.
The hidden tax
Adding more fuel to the fire, the most insidious tax of all will likely hit hardest when most chiropractors are ready to retire: inflation. If your lifestyle expenses today are $100,000 and inflation stays at an average of just 3 percent, you’ll need $180,000 in 20 years to have the same purchasing power or lifestyle. The chart at left shows the historical marginal tax brackets beginning in 1913. The average marginal bracket is in excess of 58 percent.
Tax rates are about as low as they have been since the 1930s. In fact, the average marginal tax rate since the inception of the federal income tax in 1913 has been 58.3 percent. The highest marginal tax bracket was almost 95 percent in 1943—compared to about 40 percent today.
But consider the direction that taxes are likely to go. According to the Congressional Budget Office, if Social Security, Medicare, and Medicaid continue unchanged, the rate for the lowest tax bracket would increase from 10 percent to 25 percent, the current 25 percent bracket would rise to 63 percent, and the highest bracket would go from 41 percent to 88 percent.
This is more than a doubling of taxes. If this is indeed the direction we are heading, then what is more important: deferring taxes now or eliminating taxes altogether? You can do the math.
When it comes to investing your capital, consider a mix of financial products that are both correlated and uncorrelated to the market. The right financial strategy and integrated mix of financial products can significantly increase the amount you can save for retirement, protecting you from the danger of running out of money.
If you are hesitant about hiring a financial professional, the amount you save by using one will usually more than offset the expense. Solutions that involve restructuring your business model will often reveal additional tax savings.
These savings can be captured and moved into planning instruments that improve the efficiency of your overall plan and provide additional tax savings. One size does not fit all, however. Successfully moving into a low or 0-percent tax bracket requires passive income strategies that employ both real estate and insurance products. These financial products are only the tools, and developing the skill to integrate them to create maximum efficiencies is a vital key.
The ultimate goal
In the end, you want a guaranteed income you cannot outlive and have the flexibility to convert the bulk of your assets to income. An effective strategy and plan, combined with the right mix of financial products and services, could put you in the 0-percent tax bracket at a time in your life when it matters most. Begin with the end in mind.
Bruce Reimer founded Chirowealth Learning Systems in 1998 to empower chiropractors to create a relaxed, safe, and prosperous financial environment for their families and themselves. His personalized wealth coaching process is affordable to DCs looking for a new direction in the wealth-building process. To learn more, go to chirowealth.com/0taxes. Reimer can be reached at 866-392-8217 or through chirowealthblog.com.