Control what you can

Tax moves today for the tomorrow you have planned

If you’ve been thinking about how recent events will affect your retirement plans, you’re not alone. Here’s what pre-retirees had to say about their retirement portfolio in a recent study:

Pie chart displaying 70%

Are more pessimistic about their retirement plans than before the pandemic1

Pie chart displaying 56%

More than half are now rethinking their retirement plan1

Pie chart displaying 33%

Only 1/3 are confident they will have the income they need in retirement1

When the world around us feels out of control, it can be empowering to shift focus onto matters within our control — like taxes.

That’s right, taxes. Tax-smart investing today does more than help you control the tax outcomes for next year’s tax bill — it helps maximize growth so you can better reach your long-term goals.

Planning ahead:

Don’t underestimate — or forget — taxes in retirement2

Average annual expenses in retirement pie chart 33% Housing and related expenses 12% Healthcare 16% Food and Clothing 16% Transportation 11% Entertainment and other 4% Cash contributions 8% Personal insurance and pensions
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But what about taxes?1

If your tax rate is between 22% – 37%, taxes are likely to be your second-largest expense in retirement.

If you need the same amount of income in retirement, chances are you will pay the same amount — or even more — in taxes.

How taxes can hurt portfolio returns

Taxable investments as part of your retirement portfolio may affect your taxes today and your long-term growth potential.

Taxes can be a real drag on your portfolio

US Equity

2.1% lost to taxes each year - footnote 3

International Equity

1.1% lost to taxes each year - footnote 3

Fixed Income

1.4% lost to taxes each year - footnote 3
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Every dollar paid in taxes is a dollar less invested for your long-term goals.

Portfolio activity can be costly

How costly? Your taxes could be as high as

40.8% Short-term gains* - Taxed at ordinary income tax rates
23.8% Long-term gains* - Taxed at ordinary income tax rates

* Includes potential 3.8% Medicare tax. Source: IRS.gov.

It’s not what you make, it’s what you keep

The good news is: You can make smart decisions now that may benefit you in the future.

Case study: Minimize taxes to maximize returns.

Bar Chart - Bar 1 is labeled Initial investment - $1,000,000 Bar Chart - Bar 2 is labeled No rebalance, taxable account - $2,040,685 Bar Chart - Bar 3 is labeled Rebalancing, taxable account - $2,225,068 Bar Chart - Bar 4 is labeled Rebalancing, tax-deferred account - $2,621,098 Even with a passive strategy and lower turnover, tax deferral resulted in an almost $600,000 difference after 20 years. footnote 4

Staying consistent with your target investment strategy can require systematic rebalancing, but that can generate a tax bill. Doing it in a tax-deferred account can save you a substantial amount year over year.

It’s not what you make, it’s what you keep

The good news is: You can make smart decisions now that may benefit you in the future.

Case study: Minimize taxes to maximize returns.

Bar Chart - Bar 1 is labeled Initial investment - $1,000,000 Bar Chart - Bar 2 is labeled No rebalance, taxable account - $2,040,685 Bar Chart - Bar 3 is labeled Rebalancing, taxable account - $2,225,068 Bar Chart - Bar 4 is labeled Rebalancing, tax-deferred account - $2,621,098 Even with a passive strategy and lower turnover, tax deferral resulted in an almost $600,000 difference after 20 years. footnote 4

Staying consistent with your target investment strategy can require systematic rebalancing, but that can generate a tax bill. Doing it in a tax-deferred account can save you a substantial amount year over year.

Who should consider a tax-smart investment strategy?

Are you:
  • Trying to reduce taxes for retirement?

  • A high income earner?

  • In a higher income tax bracket?

  • Preserving assets for later use?

  • Paying too much tax on taxable accounts?

  • Planning to pass along wealth to loved ones?

Talk to your financial professional today and see if there are strategies that can help you reduce taxes!