It’s incredibly easy to save money, invest and get rich. The problem is, it requires time and patience. Under freer conditions you could easily retire after 10-15 years of normal work. Instead, you find yourself toiling much longer than that without ever really achieving true financial independence. You can work and save a whole lifetime without ever feeling rich.
It’s hard to see how you can avoid being stuck working until age 65. Especially if you live in a country [insert your Western nation of choice] that does what ever it take to bring you to your knees financially. Retiring rich at a young age remains an elusive pipe-dream.
This article will with some very simple calculations show you how this is part of a deliberate plan to prevent you from becoming financially independent. [article continues under the video]
Some points to consider before we start: Complicating factors such as tax deductions and write-offs are left out. I use an unrealistically low capital gains tax rate to somewhat compensate for this.
I’ll also use an unlikely high return on investment (ROI) as far as bank deposits are concerned, simply to illustrate my point. If you live in USA or Western Europe things are much worse than this article suggests. In fact, the further north on that latter continent you reside, the more your goal of an early retirement is doomed.
A simple investment over 10 years
Let’s take a $100 000 bank deposit with a fixed 6% average annual return as our starting point. Compounded over a decade your ROI is an awesome 79%. Meaning in 2025 you will have $179 000.
You’re close to doubling your money without even adding to the principal in just ten short years. I wish I could end this article here. That however would be tantamount to ending a book on the history of the Soviet Union in 1945. What about 1945-91?
CAPITAL GAINS TAX
Let’s factor in capital gains tax of 20% (in some countries it’s almost thirty). Seeing as you have to pay 20% of your annual ROI in capital gains, your yield is actually 4.8%. When re-calculating using this new figure, we see that you will instead have $159 813 after ten years.
Your actual returns are almost $20 000 less. That’s still a hefty 59% return over ten years you say? Well, unfortunately it doesn’t end here either. There’s another tax savers must contend with; the inflation tax.
THE INFLATION TAX
Let’s say inflation runs at 2% annually over our ten year period. That means your $159 813 ten years from now will be worth much less. How much? Roughly 18% That’s how much fewer goods and services your money will buy ten years from now.
Since 18% of $159 813 is $28 766, our real ROI after accounting for inflation is $159 813 minus $28 766, which comes out to $131 047. That’s our real inflation adjusted return at purchasing power parity.
You see, after an unrealistically low annual capital gains tax of 20% and inflation of just 2%, your profit went from 79% down to 31%.
So after ten years of investing, instead of having $179k you actually have $131k
Your real yield is almost 50 percentage points lower than it should’ve been. If we calculate over longer time periods it gets progressively worse. The theft goes from borderline tyrannical to ‘please delete the word borderline’.
Our Investment Over 20 Years
The same $100 000 invested at a yield of 6% over a 20 year period becomes $320 000. Factoring in annual capital gains tax of 20% we’ll have $255 402 after 20 years.
That’s $65 000 less than what should’ve been yours. Accounting for inflation at 2% annually over a 20 year period means a loss in purchasing power of 32.7%. That means your $255 402 will be worth 32.7% less come 2035. We then calculate that 32.7% of $255 402 is $83 516. Then we subtract $83 516 from $255 402 and we end up with $171 886. That is your real inflation adjusted returns. Few people understand this as they tend to take the nominal figure at face value.
It’s very simple:
$ 255 402 – $ 83 516 = $171 886
So for 20 years of investing your new real ROI is a paltry 71% versus the 220% it should’ve been in a free society. What could’ve been $320k retirement cushion is instead $171k
I wish the story ended here but once again, I regret to inform you that it doesn’t.
Other wealth destroying factors
In the above example we didn’t add any of our savings over the subsequent decade(s) after the initial investment. Had we done so we would obviously have ended up with more. The theft would also writ correspondingly much larger. But that’s besides the point. What I’ve tried to explain is how easy it is to save, invest and prosper in a zero inflation, zero capital gains tax world.
It should be even easier. Imagine how fantastic our returns would’ve been had we added to the principal over said 10 or 20 year period? Think about the size of those sums if 20-50% of your annual income didn’t evaporate into the thin air we know as Congress or Parliament?
Think about the mountains of money you’d be able to stash away if VAT/GST/MVA on almost everything you buy had not made that product or service so much dearer?
Think about how much you’d save on gasoline if 60-90% (normal European tax rate at the pump) of the price of a litre didn’t go to the usurpers, for the record I’m talking about government, who now collect the majority of your gas money? Think about how much cheaper all goods and services would be if the people who sell you said goods and services also didn’t have to pay capital gains and taxes on their incomes, investments and profits? I could go on and on here but the point has been made.
It’s safe to say most hard working individuals could easily retire under freer conditions after 10 to 15 years.
Instead, you’re being intentionally kept down and there are few ways out. Now that I’ve hopefully alerted some of you to the fact that the system is rigged against you, I can move on to write about more constructive matters. Like how to work around these problems.
Retiring early involves escaping the financial repression you currently endure. This requires research, ingenuity and compromises. I’ll cover how I did so in future articles.
Until then, happy indentured servitude 😉