Taxes have a major effect on returns. If you began with $100,000 and earned 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:

Year 1 $5,360
Year 10 $68,561
Year 20 $184,128
Year 30 $378,930

If you were earning that same 8% annual return in a tax deferred account, the results would look very different.

Profit on $100,000 with no tax:

Year 1 $8,000
Year 10 $115,893
Year 20 $366,096
Year 30 $906,266

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, after taxes of 33%, you would receive $36,432 of income annually;On the other hand, if tax-free income, you would receive $54,376 of spendable income annually.