Seven in 10 Americans (72%) worry that higher taxes in the future will impact their retirement income from tax-deferred accounts such as a 401(k) or IRA.
That’s a key finding from the 2023 Q3 Quarterly Market Perceptions Study from Allianz Life, released today, which also found an identical 72% say they can’t count on Social Security benefits when planning retirement income.
“A change in taxes can have a significant effect on your portfolio if you have not incorporated tax strategies into your financial plan and diversified across tax categories.”
Allianz Life’s Kelly LaVigne
“While paying taxes is inevitable, how much we pay in taxes will change,” said Kelly LaVigne, VP of consumer insights, Allianz Life. “And, a change in taxes can have a significant effect on your portfolio if you have not incorporated tax strategies into your financial plan and diversified across tax categories. For a goal like retirement, you want to diversify your assets across a spectrum of long-term capital gains, regular income and non-taxable income. This strategy, along with incorporating strategic tax deferral will help achieve some control over the amount or timing of taxes you will pay.”
Americans want help to reduce tax risk with 73% saying they would stop using their current financial advisor if they didn’t help effectively manage taxes on retirement income. More Gen Xers (84%) than Boomers (67%) or Millennials (77%) said they would stop using an advisor if they didn’t help effectively manage taxes on retirement income.
At the same time, many Americans worry about retirement income from tax-advantaged sources like Social Security. The majority (72%) of Americans say they can’t count on Social Security benefits when planning retirement income. Even more (79%) worry about the future of Medicare and Social Security.
Most fear another big market crash
While Americans are concerned about the taxes they will have to pay in the future, right now, they worry that a big market crash is coming. More than half of those surveyed (53%) expressed this fear.
At the same time, fewer Americans now worry that a major recession is coming than all of last year. While 55% worry a major recession is right around the corner in Q3, 64% of Americans said the same in Q2.
Still, this ongoing worry is leading Americans to hold more money in cash. Most Americans (54%) say they are keeping more money than they should in cash because they’re worried about a recession.
“While you might not feel like you’re losing money by holding it in cash, over the long term you will lose out,” said Kelly LaVigne, vice president of consumer insights, Allianz Life. “Money kept in cash, or in low-interest bearing accounts, isn’t keeping up with the rising cost of living. The idea is to incorporate risk management strategies that may also lower volatility into your financial strategy so that you can invest more confidently and weather market downturns over the long term.”
Millennials are most concerned about an economic downturn affecting their personal finances than Gen Xers or Boomers. More than half (52%) of Millennials are concerned they will be laid off because of an economic downturn in 2023, compared to 29% of Gen Xers and 25% of Boomers. And, 57% of Millennials say they are keeping more money that they should in cash because they’re worried about a recession, compared to 52% of Gen Xers and 46% of Boomers.
Concerns about inflation are lower than they have been in a year with 70% expecting that inflation will get worse in the next 12 months. This is down from 77% last quarter.
SEE ALSO:
• 64% of Americans Believe a Recession is Around the Corner
• Inflation Fears Continue as U.S. Ranks 18th in Retirement Security
Veteran financial services industry journalist Brian Anderson joined 401(k) Specialist as Managing Editor in January 2019. He has led editorial content for a variety of well-known properties including Insurance Forums, Life Insurance Selling, National Underwriter Life & Health, and Senior Market Advisor. He has always maintained a focus on providing readers with timely, useful information intended to help them build their business.
