What is a Before and After Comparison? (And Why You Might Need One)

The Before and After Comparison is an indispensable part of the financial planning process and you can get help with yours over at davidmcknight.com. The comparison is made up of three different projections within some sophisticated financial planning software of side-by-side-by-side life scenarios. The comparison reveals the impact of using the Power of Zero paradigm on your retirement funds. The first projection shows what happens if you continue doing what you are doing right now under the unlikely assumption that taxes don't rise in the future, and shows how long your money will last. This works as a baseline for the next two comparisons. David Walker has said that tax rates will have to double in the future to keep the US solvent, that's why the second comparison focuses on what happens to your retirement picture under those conditions. There are a few important things to keep in mind when tax rates double. The first is that it takes much more money to meet your lifestyle needs, but also when tax rates go up that means your Social Security also gets taxed at a higher rate. This leads to spending down your assets that much faster. The average person will run out of money 12 to 15 years faster when tax rates double. The third comparison shows what happens to your finances if you implement all the Power of Zero strategies and how multiple streams of tax-free income will affect your retirement. The point of the comparison is to put a price tag on inaction. You don't have to love Roth IRA's, or LIRP's, or Roth Conversions, you just have to like what they do for you and like them a little more than the IRS because, in the end, someone is going to get your money. The comparisons also measure tax rate risk and show you how long your money will last under multiple different scenarios. The Before and After Comparison can be very valuable by showing how much better off you could be when you implement the Power of Zero strategies, but not everything can be quantified. It's hard to quantify how important it is to you to protect yourself from a long term care event or sequence of return risk, but those do have to be factored in. The bottom line is the Before and After Comparison will show you the cost of inaction so you won't be haunted by the reality of letting the opportunity go by. There are huge opportunity costs when you don't implement these strategies. If you give a dollar to the IRS that you didn't really need to give them, not only do you lose that dollar, you lose what that dollar could have earned for you had you been able to keep it and invest it over the balance of your lifetime. If this is so important, why didn't my current advisor bring this up to me? There are two reasons why, and it's hard to know which one is worse. The Before and After Comparison also comes with a roadmap that shows you what you need to do each year to realize the advantage of the Power of Zero paradigm. Taking the roadmap to your current advisor may not be the best idea. Do you really want to be your advisor's guinea pig as they experiment and learn these strategies? There are a number of different thresholds that need to be navigated to maximize the Power of Zero paradigm so working with an experienced advisor is highly recommended. Advisors that want to be able to create and implement these strategies for their clients can learn more at powerofzero.com.