Help manage the sources of tax risk and uncertainty in clients’ retirement income plans.
We know that taxes are a source of frustration for your clients. Yet it’s easy to underestimate the uncertainty surrounding taxes. It’s not only important to talk to your clients about the benefits of tax deferral while they grow their assets. You can also provide valuable guidance on a topic they may not be considering: their tax risk in retirement. Put simply, tax risk is the chance that clients’ decisions could have unforeseen tax consequences, potentially reducing their income during retirement.
Sources of tax uncertainty during retirement
Managing tax risk doesn’t stop after accumulation. Few clients relish writing a tax check during retirement. Yet even worse are the many sources of uncertainty surrounding their tax bill:
Higher or lower?
Many retirement savings strategies operate under the assumption that clients will face a lower tax rate in retirement. Yet for high net worth clients, this hypothesis may not hold true. With the wrong plan, clients may pay unnecessary taxes in retirement.
The impact of capital gains.
Retirees in 2017 may be enjoying the bull markets, but they’ll soon see the impact of capital gains on their tax bills. Not only may they be paying taxes on gains when they take income from investments, but they may not have tax losses to harvest as in previous years.
Unpredictable policy changes.
Clients may realize that tax brackets and rates on capital gains can change. But more significant legislative changes may be harder to anticipate. One example is the healthcare surtax, a 3.8% tax on net investment income for higher-income Americans that went into effect in 2013.
Take action today
Help clients learn how to bring tax-efficiency to their retirement income plan as well as their accumulation strategy with this client guide.
Lincoln Financial Group® affiliates, their distributors, and their respective employees, representatives, and/or insurance agents do not provide tax, accounting, or legal advice. Please consult an independent advisor as to any tax, accounting, or legal statements made herein.
ABOUT THE AUTHOR
For more than 22 years, Christopher H. Price, JD, LLM, CLU®, ChFC®, AVP, Advanced Sales, Lincoln Financial Distributors, has helped advisors and their clients accumulate, distribute and transfer annuity assets by using a holistic approach. In 1983, he began his career as a trust officer with Sovran Bank (now Bank of America). Chris moved into financial planning, and followed that by managing an insurance agency that served some of the wealthiest families in the country. In 1994, Chris joined Delaware Investments, formerly a member of Lincoln Financial Group, where he was responsible for the product management of Delaware mutual funds and eventually Lincoln variable annuities. From 2000 to 2004, Chris used his expertise to help financial advisors and their clients with advanced case issues. In 2005, he transitioned to the Lincoln Advanced Sales team. Chris holds a BA in history from Vassar College, and law and master’s degrees from the Marshall-Wythe School of Law at the College of William & Mary.