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Although U.S. lawmakers and the White House were able to reach a deadline-beating accord on the $1.1 trillion 2015 spending bill, thus avoiding a government shutdown, the agreement reached wasn't without discord. Members from both parties threatened to balk in the final days and hours over a number of issues, including tax provisions affecting rates and cuts for both corporations and individuals.While taxes remain a major issue for lawmakers, most middle-income Americans are less engaged in the topic and lack clear understanding of how taxes will affect their standard of living into the future, according to the 2014 Retirement Tax Considerations for Middle-Income Americans study issued by the Bankers Life Center for a Secure Retirement.
The study focused on middle-income Americans age 50 and older and found that many lack a clear understanding of taxes and how they will impact their retirement finances. When asked about taxes and retirement mainstays, just 39-percent understood how their Social Security benefits would be impacted, followed by traditional IRAs at 35-percent, Roth IRAs at 31-percent and 401(k)s at 29-percent. Comparatively, 94-percent of respondents had a clear understanding of how lottery winnings are taxed.
Not surprisingly, the overall lack of knowledge and a general aversion to dealing with taxes appear to go hand-in-hand. Among the respondents, 23-percent cited doing their taxes as an activity they most disliked - not far from the 29-percent who listed going through airport security as their least favorite activity. Many actually stated a preference for getting an annual flu shot over dealing with their taxes.
Overall, the study concluded that middle-income Americans will find themselves at risk if they aren't provided with help on the issues of tax rules and their retirement finances. Without resources and better education, they will run the risk of incorrectly estimating future income from their retirement accounts. Additionally, they could miss out on allowable deductions and be faced with unexpected penalties on withdrawals taken in retirement. "Many people focus on building their retirement savings without considering the role of taxes once they are retired," notes Scott Goldberg, president of Bankers Life.
While the need for help or a dramatic overhaul and simplification of the entire tax code seems clear, it's unlikely to come from U.S. lawmakers anytime into the foreseeable future, given the rancor displayed over taxes and reform during their just concluded spending bill negotiations. And with their historical record of increased spending and taxes over time, the problem is likely to become exacerbated moving forward.
Given such a premise, it's understandable that most people choose simply to avoid the issue altogether and focus solely on the saving side of preparing for retirement versus considering tax consequences down the road. Doing so is a mistake according to Roberto Llopis-Martell, president of Benefits Consulting Group in Miami, Florida.
"Investors can receive larger outlays from their retirement accounts by reducing taxes during the distribution phase versus solely focusing on making more money during accumulation. They should focus more on reducing or eliminating taxes over the long run, especially upon distribution, when it most matters – when they have to pay the bill," offers Llopis-Martell. "Considering the economic environment, low interest rates, market volatility, historically high stock prices and the political pressures to increase taxes, compounded with the rising longevity of our population, it's very important for people to work with an adviser who can address these issues realistically."
The broader issue facing the nearly 77 million Boomers in the U.S., the first of which entered retirement in 2011, goes beyond taxes to an overall lack of retirement preparedness. According to the National Institute on Retirement Security, some 92-percent of working households do not meet conservative retirement savings targets for their age and income. Moreover, they estimate that 45 million working-age household (ages 25 to 64) in the U.S. have no retirement account assets.
Aside from their lack of savings and knowledge regarding taxes, time is now a major factor working against the group. According to renowned billionaire investor Seth Klarman, founder of the Baupost Group, "The single greatest edge an investor can have is a long-term orientation." Unfortunately, for the estimated 10,000 Boomers entering retirement daily, time and maintaining a long-term orientation are luxuries they no longer have when it comes to addressing their retirement savings shortfalls.
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About Benefits Consulting Group:
BCG is a MIAMI, FL.-based retirement and group benefits advisory firm. We seek to empower and liberate groups and individuals by improving their benefit plans through comprehensive benefit/cost analysis, improved plan designs and optimal utilization of premiums, as well as, implementing tax efficient plans that have been specifically designed for the distribution phase of retirement.
Contact Info:
Name: Roberto Llopis-Martell, CRC
Email: Send Email
Organization: Benefits Consulting Group
Phone: 305-412-3465
Website: http://BenefitsConsultingGrp.com
Source URL: http://councilofeliteadvisors.com/liftmedia
Release ID: 70982
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