Should you slap your financial advisor?

Kathleen van den Berg
I like to write about the pitfalls of traditional planning. Appreciate the fans.
Personal Finance

Jul 31,2017

When an advisor recommends RRPS or 401Ks because you “will be in a lower tax bracket in retirement” I want to slap them.  Their job is to make you wealthier, not poorer.  I want you to be in the highest tax bracket. I want you to pay a lot of taxes. Because I want you to be wealthy in retirement with a high income.  Not poor with a low income. I’m not saying I want you to pay taxes unnecessarily.    I just want you to be wealthy. 

I also believe that the premise that you will be in lower tax bracket in the future is fundamentally flawed.    You could earn $100,000 a year and have it go up by just the rate of inflation each and every year. Your income is really no greater because you are not able to buy any more if your income is just keeping pace with inflation. But eventually you will jump up a tax bracket or two. You’ll be paying more tax just based on this.   It’s called “bracket creep”.     So even if the purchasing power of your income stays the same, you’ll fall behind because of this phenomenon called “bracket creep”.

Another argument supporting higher taxes in the future is the sorry state of our government’s finances.  Do you really believe that our governments are going to have less debt in the future? That they will all of a sudden become fiscally responsible and have the ability to lower the taxes that we pay?   While I certainly wish this could be true, the reality is that this will likely not happen.  Our country’s finances, in all likelihood will be even more strained in the future, making higher tax rates a harsh reality.

So if the likelihood is we will be in a higher tax bracket in retirement though a combination of government fiscal policies as well as our goal to be wealthier we will end up taking money out of our retirement savings at a higher tax bracket than the tax bracket when we contributed to the plans.   In this case it was the wrong strategy. Retirement plans are only a good strategy when you will be in a lower tax bracket.   

Putting money into these types of plans are the equivalent to “money jail”.  You lose liquidity, use and control of your wealth.      I for one do not want to be at the mercy of future governments who control how and when I can access my money and how much of it I can keep.

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