The Impact of Taxes
Updated: Oct 16, 2019
As a follow up to last month's post on "Uninterrupted Compounding", I would like to take a look at the impact of taxes on compounding. As many of you I'm sure have seen before, there is a little game that illustrates the power of compounding. It goes like this. "If someone gave you a penny and then doubled it every day for a month, how much money would you end up with?" The surprising answer of course is that you would end up with $5.3 million! Starting from a penny!! Here is a chart that shows you this. Note that the most power in compounding occurs in the last 3 days.
This shows the effect of uninterrupted and un-taxed compounding of money. Now if we were to look at the exact same scenario, but where the gains are taxed as ordinary income at a rate of 30%, this is what you would see.
Look at how devastating the effect of taxes is on compounding! $5.3 million becomes $48 thousand!!!
This is why it is critical to your future wealth to take into consideration the impact of taxes.
Where can you grow your money income tax free? There are a few alternatives that we can consider: IRA, 401(k) and Permanent Life Insurance.
The chart below highlights some of the differences between these alternatives.
If you would like to learn more about how Permanent Life Insurance can help you grow your wealth guaranteed and without risk, putting you in control of the outcome, contact me. I would love to help.