TaxesI read a couple of statistics last week that blew me away.

According to a study by the Federal Reserve, 20% of Americans near retirement age and 31% of all Americans have no retirement savings.

With 10,000 people turning 65 every day, that’s a hell of a lot of people who have very little time left to accumulate savings.

These statistics tell me two things:

  1. Taxes are going to go up.
  2. You better save even more for retirement than you thought.

Let’s look at the first point – taxes are going to go up.

[ad#Google Adsense 336×280-IA]I don’t care what any politician promises you heading into this year’s midterm election or in 2016′s presidential election… taxes will go higher.

Remember when George Bush emphatically said, “Read my lips: No new taxes”?

He raised taxes.

Taxes will go up because the government is going to demand that you and I pay to help these folks who will otherwise be destitute.

It will come in the form of higher income tax rates, a higher required Social Security contribution, fewer tax breaks or some combination of those.

We can argue until we’re breathless, but it won’t matter. If someone has no income other than a meager Social Security check, the money is going to have to come from somewhere to house, feed and clothe them, not to mention pay their doctor and prescription bills. So yell and scream all you want – I’m right there with you – but face reality.

Taxes are going to go up. Which brings me to the second point.

You probably will have to save more and make your saved dollars work harder, because your investment returns will likely be impacted by higher taxes.

It won’t matter if you’re retired, you’ll still pay higher taxes in some form. That means you need to have more dollars at your disposal. And those dollars that are saved better generate more income.

A Solution
According to AllianceBernstein, investing in the S&P 500 results in average dividend income growth of 39% over 10 years. However, investing in the top one-third highest-yielding stocks in the S&P 500 generates 59% more income in 10 years. Furthermore, an investor would have failed to get his full principal back after 10 years only once over the course of the 38 years in the study.

Now, keep in mind, the study used stocks only in the top third of the S&P 500. I prefer stocks that I call Perpetual Dividend Raisers. These are stocks that have a track record of raising their dividends every year.

And if someone invested $100 in those top-third-yielding S&P 500 companies, they could cash out $330 after 10 years, on average.

If you look at only the stocks in the S&P 500 that have raised their dividends every year for 25 years or more, you’ll notice they never had a down 10-year period during the 38 years of the study.

Additionally, investing in a long-term portfolio of Perpetual Dividend Raisers is an extremely cost-effective method of investing. If you bought 10 stocks, paying your online broker $9.99 a trade, your total cost would be $100.

Compare that to a mutual fund or financial planner who will generally charge you about 1% per year in management fees. On a $100,000 portfolio, that comes out to at least $10,000 over 10 years, and that’s if the portfolio never went higher. If the value of your account rose, you’d pay even more fees.

Now, call me crazy, but I’d rather keep the $9,900 and have it working for me to generate more income in my retirement rather than letting it become income for someone else today.

There might not be much you can do about rising taxes, but you can take steps to ensure you have more money even after the taxman takes his (and someone else’s) cut.

— Marc Lichtenfeld

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Source: Wealthy Retirement