A million bucks just ain't what it used to be. There was a time when prevailing wisdom in this country said that if you amassed enough wealth to be called a millionaire, you and your descendants were set for life and never had to worry about working again. Then the paradigm shifted and a million dollars became the goal for a sufficient retirement nest egg. Now it seems that an increasing number of people who have retired as millionaires find that amount doesn't allow them to maintain the lifestyles they expect and want. At least that's what Jim Trippon, a Houston-based CPA and investment advisor, has discovered.
After beginning his career as a Price Waterhouse CPA, Trippon began his own practice and currently operates both a CPA firm and a Raymond James branch where he caters to retirees and the soon-to-be retired. He refers to the niche he serves as the "mass affluent," which he defines as those with investment assets in the $1 million to $10 million range, noting that they make up 85% of all American millionaires.
"In my dealings with high-net-worth individuals, I noticed that a high percentage of people who retired as millionaires had been forced to go back to work," Trippon says. "Twenty-one percent of people who had retired with a net of $1 million had to go back to work within five years. That really intrigued me, so I did a three-year research project to determine the primary causes for someone going back to work after retiring."
That research became the basis for a recently published book, How Millionaires Stay Rich Forever (2004, Bretton Woods Press), and a Web site, www.stayrichforever.com, in which Trippon attempts to pass on some of his empirical knowledge of how those who have become millionaires can stay that way. He also includes strategies for those who aspire to millionaire status.
In order to help his readers generate a lifetime of wealth and be able to pass that wealth on to subsequent generations, Trippon identifies what he calls "The Four Pillars." These pillars represent the abilities to:
o Create and grow wealth
o Protect and preserve wealth
o Receive income in tax-efficient ways
o Protect wealth in times of disability and after death.
"One of the things I discovered in my research was the importance of working with an investment advisor," he notes. "The statistics proved that people who did work with an advisor had a substantially higher likelihood of not going back to work. I knew that intuitively, but it was a good point to validate."
Trippon recently took some time to discuss the implications of his strategic third pillar–receiving tax-efficient income–for investment advisors and their clients.
Your book is titled How Millionaires Stay Rich Forever. Can you talk about the relationship between taxes and wealth retention? Minimizing tax liability is, of course, one of the key factors for maintaining a successful retirement and in building wealth. I probably have a little bit different perspective on taxes than a number of your readers, being a CPA as well as an investment advisor.
The way I look at it, there are really two systems of taxation in this country. There's one tax system for people who are on a payroll and who work for a living, and there's another tax system for people who live off of investment assets.
For people in the first group, typically the tax rate is somewhere between 30% and 35%, whereas people who live off invested capital will typically have a tax burden of anywhere from zero to 15%.
You might ask why someone who works behind the counter in a coffee shop would be in a higher tax bracket than a millionaire. Typically they are, which shouldn't be surprising if you consider the background and wealth of who typically goes into politics and who writes the tax code and where their interests lie.
In this past year we've had the biggest tax cut for millionaires in years, when we cut the dividend tax rate 60%. The typical working person behind the counter in a coffee shop, or in an executive position with a corporation, didn't get a 60% tax cut last year.
