Tax-Deferred Accumulation /Impact of Earnings and Time

Since educating the senior is one of our major responsibilities,
it is important for the senior to know that the amount of money that they accumulate depends upon their return, the time they have to accumulate money, and how their earnings are taxed.

The Rule of 72 should be part of every initial interview that includes education. As you may be aware, the Rule of 72 calculates how many years it will take for money to double. You simply divide the interest rate into 72. If you were receiving 6%, then your money will double every 12 years (72 ÷ 6 = 12). Unfortunately, people often forget to take into account the income taxes that must be paid each year on the interest earned on their currently taxable money…(even if the interest is not withdrawn). For example, you may be initially receiving 6% interest on some of your investments but 33% of that interest may be lost to federal and state income taxes. Therefore, you’re not keeping 6% interest… you are keeping 4% after paying income taxes. Since you’re keeping 4% interest, your money doubles every 18 years (72 ÷ 4 = 18). However, look at what happens when we change how the 6% is taxed. Look at the difference when repositioning some of their money to a tax-deferred annuity where taxes are paid later instead of now. Your money can double every 12 years (72÷ 6 = 12). Would you rather have $60,000 accumulating interest or $40,000 accumulating interest?