“There’s one for you, 19 for me, cuz I’m the tax man” was from the first tax protest song as performed by the Beatles. You see, Britain imposed the 95% tax bracket on the Fab Four, leaving them with 1 pound for every 19 pounds paid in taxes. In the U.S., we once maxed out at the 94% tax rate (in 1944-45) and have had a nearly 40% rate on capital gains.
As I listen to political debates promising astronomical spending and taxation, I think about how many of us are preparing to shift from tax-deferral strategies to tax-elimination strategies. You see, the old notion that it’s better to put off paying taxes until we are retired and in a lower tax bracket has been upended by potentially huge tax increases and better-than-expected investment performance. In fact, many of my clients are enjoying higher taxable income in retirement than they experienced while working!