It’s been said that the secret to humor is surprise, but we can tell you that the definitely unfunny surprise expense for retirees is taxes. In an excellent piece for planadviser.com, Rebecca Moore, citing a Lincoln Financial Group survey, writes that “retirees significantly underestimated the impact taxes would have on them during retirement years.” Excerpts from her article:
“When asked what they expected their top expenses to be before they retired, the majority of retirees surveyed for the ‘2013 — Expense Challenges of Age 62-75 Retirees’ survey anticipated home and mortgage, health care and travel/leisure to be the most significant expenses during retirement. However, these retirees found their actual top expenses included taxes, rather than health care.
“On average, when reviewing all household expenses paid on an annual basis, retirees reported spending the most on federal income tax. Additionally, 36% of retirees said taxes were a larger expense than they had anticipated, while 23% did not even consider planning for taxes as an expense prior to retirement.
“Underestimating the role of taxes was not based on a lack of knowledge among those responding to Lincoln’s study. When participants were asked if they were aware of recent tax law changes, 62% said they were, while only 16% were unaware of tax law changes. Fifty-seven percent of survey participants said their advisers regularly discussed tax changes with them and shared the impact those changes could have on retirement. However, 43% said their advisers did not take that initiative.
Among other key survey findings:
“ Women had higher levels of concern, especially as it related to the health of their spouse, health care expenses and receiving full Social Security and Medicare benefits throughout retirement.
“About 43% of retirees ages 62 to 65 indicated they would like to pass on a financial legacy to children, grandchildren or a charity, yet nearly half of survey participants indicated they had not worked with a professional to establish an estate plan.
“The survey is based on interviews with 750 individuals, with an annual household income of $100,000 or more. The survey included individuals who worked with a financial adviser, as well as those who did not.”
UNEXPECTED AND UNWANTED