The Cash Flow Clock: For Retirees - Book - Page 30
The Cash Flow Clock
Taxes
There are two extremes when it comes to investors. Some want their last
check to bounce on their death bed. They want to spend all of their assets
during their lifetime. We don’t blame them. It is their money, and they
should use it. The only difficult part of this plan is figuring out when they
are going to be on their death bed.
Others are so concerned about leaving an estate for their family that they
never spend money on themselves. They don’t go on vacations. They don’t
buy new cars. They don’t even go out to eat. When they pass, their
beneficiaries immediately go on vacation, buy new cars, and spend
everything that their parents (or grandparents) saved.
Most investors are somewhere in the middle. They want to provide for
themselves during their lifetime with enough of a cushion that there should
be some left over for the next generations.
No matter where we sit along this spectrum, there is one thing that we all
can, or at least should, agree on - We want to pay as little in taxes as
possible. Not just for last year, not just for this year, but throughout our
lifetime as well as the duration of our estate.
Unfortunately, most families don’t know how to do this. Many use online
tax software to prepare taxes themselves. For those that have a tax advisor
(CPA. Enrolled Agent, etc.), they are probably only meeting after the year is
over to prepare the taxes. There is rarely any planning done before the year
is over. By that time, it is too late to implement any strategies or make any
adjustments.
Tax preparers (as well as tax software) are incentivized to do one thing –
reduce our tax liability for the prior year. In order to reduce our overall tax
liability, we need something more.
A Tax Forecast is the most critical tool for improving tax efficiency in our
financial plan. As the name suggests, it projects our future income and
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