If you have a New Year's resolution to save more for retirement, make sure you do it wisely so that some of it will be tax-free when you need it most, says wealth planner Jay Hochheiser, president and CEO of Hochheiser, Deutsch & Co. in Woodbury.
Paying taxes hurts more when you're not working. "We've been brainwashed as a society to worship the miracle of compound interest, right? Yet, no one talks about the nightmare of compound taxes, and you don't get one without the other," he says. Believing income taxes will continue to rise, Hochheiser makes sure people have proper mechanisms in place to safeguard their wealth and their future.
Hochheiser, 53, started in the financial service industry in 1983 with Equitable Life Assurance, became a certified financial planner in 1996 and incorporated his own firm in 1999, growing it by referrals.
Are there changes we should know?
One of the changes that started last year was the Obamacare tax of 3.8 percent, an additional tax on most investment income. The top federal income tax bracket went up from 35 percent to 39.6 percent, the capital gains rate for people in the highest bracket went up from 15 to 20 percent, and some of the phase-outs for itemized deductions came back into play. So there's been a general rise in all kinds of income taxes.
How do you help people account for rising taxes in the future?
There are different levels of tax efficiency: trying to increase deductible contributions toward retirement plans, making sure your other investing is extremely tax-efficient, and making other investments that grow tax-deferred. But the biggest thing is probably making sure you're set up so that come retirement time, you could have some tax-free income sources.
What are some sources of tax-free retirement income?
Roth IRAs, distributions from cash value of life insurance, or getting deductions in retirement through different charitable vehicles that might be able to offset some income taxes on retirement plan distributions. Another source is a reverse mortgage: The banks are paying you. And that is tax-free because they're actually putting [something] like a lien on the house: You don't have to repay it, but when you're gone, there's not much of an inheritance left if that's the case.
You recently wrote a book titled, "The Physician's Guide to Achieving Financial Freedom." What's different for physicians in retirement planning?
We recommend saving 15 to 20 percent of your gross income as a general norm. I think in health care it should be 20 to 25 percent because the future's uncertain.
Inflation is relatively low right now. What should Long Islanders keep in mind?
If someone is 50, making a good living, living well, their rate of inflation is going to be much higher than someone retired in Tennessee. Everything keeps going up, generally. You can't sit with money in the bank and earn a quarter of a percent because you're losing ground, and yet if you're conservative and need safety, you can't invest in a volatile market. So you have to exercise more caution, but you still have to make interest.
NAME: Jay Hochheiser, president and CEO, Hochheiser, Deutsch & Co. in Woodbury
WHAT IT DOES: Wealth management
EMPLOYEES: 5 full time, 2 part time
REVENUE: $1.4 million