Taxes have a major effect on returns. If you began with $100,000 and earn an annual rate of return of 8%, while paying 33% in taxes on your gains each year, your profit would look like the following:
Profit on $100,000 after 33% tax:
If you were earned that same 8% annual return in a tax deferred account the results would look very different.
Profit on $100,00 with no tax:
So, after 30 years you have lost 60% of your potential net worth to taxes!
LESSON: YOU MUST GROW YOUR MONEY TAX DEFERRED OR TAX FREE!
If the $906k were tax deferred and you used 6% per year in retirement income, after taxes of 33%, you would receive $36,432 in income annually; On the other hand, if tax-free income, you would receive $54,376 of spendable income annually.