Benjamin Franklin tried to warn ‘em. “Nothing can be said to be certain except death and taxes,” he famously wrote.
It rings all too true for many—especially those who never considered how taxes would affect their retirement.
A new survey from the Nationwide Retirement Institute discovered almost 40 percent of current retirees admit they never factored taxes into their post-work income strategy.
As a result, many are experiencing big regrets. Almost half of those who recently retired say they wish they’d better prepared for paying taxes in retirement. And another quarter say they’ve ended up paying several thousand dollars more than they expected.
“Today, the majority of older consumers are focusing on saving for retirement, which is a critical component of your retirement plan, but not the only factor,” Eric Henderson, president of Nationwide’s life insurance business, said in a statement. “It is also important to determine how to spend your retirement income. Building tax flexibility into a retirement income plan is crucial. Doing so allows you to use different types of investments and retirement accounts (taxable, tax-deferred and tax-free) to potentially avoid higher tax brackets.”
Yet, 60 percent of future retirees, 70 percent of recent retirees and 75 percent of those retired for over 10 years will tell you they don’t know much about tax planning.
Around half Americans who are still working want to know more. They admit they only somewhat understand how tax brackets work. Four in 10 say they had no idea that, depending on their tax bracket, they could potentially pay two to three times more in taxes than those in a lower bracket.
Many assume financial professionals will automatically fill them in about these sorts of things. Among those working with an advisor, the vast majority of future and recent retirees (85 and 82 percent, respectively) and well over half (68 percent) of Americans who have been retired 10 or more years say they expect their financial advisor to help them plan for taxes in retirement.
“It is important to develop a plan for how taxes will impact retirement income based on a person’s situation and goals. Financial advisors can help people plan for and live in retirement by providing a fact-based estimate of taxes in retirement and a unique plan to address those costs,” Henderson said.
“Smart strategies for sequencing withdrawals can extend a client’s income in retirement up to an additional six years.”
Jessa Claeys is a writer, editor and graphic designer.
