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Meeting client expectations by planning for taxes in retirement

FEB. 17, 2020

When I was in college, I spent a summer waiting tables at an exclusive country club outside of New York City. I’ll always remember one party hosted by a wealthy stockbroker for his clients. The club manager told me that this guy was a big deal, one of the best brokers in the city, and that he made his clients tons of money in the stock market. That was the expectation in the 1980s. But times have changed. Now clients expect a broader range of services.

What clients may expect from a financial advisor

  • Asset management
  • A comprehensive retirement plan
    • Social Security claiming strategy
    • Guidance on Medicare
    • Planning for the cost of health care

Expectations are still evolving

Investments are still important, but now they’re just one part of why people hire an advisor. Clients are looking for prudent management of their retirement assets, as well as guidance on a wide range of other issues. One topic that is increasingly important is how to manage taxes on retirement income. In fact, according to a recent Nationwide Retirement Institute Study, 87% of future retirees (defined as those within 10 years of retiring) said they expect their financial advisor to help them plan for taxes in retirement.1

Interest in tax planning is broad-based. Future retirees are especially hungry for information. Consider what our survey revealed:

  • 65% of all surveyed (75% among future retirees) are interested in information on general tax planning
  • 64% of all surveyed (77% among future retirees) are interested in how taxes impact Social Security benefits
  • 62% of those surveyed (79% among future retirees) are interested in the tax impact of required minimum distributions (RMDs) from retirement accounts

Advisors who don’t stay informed and knowledgeable about taxes in retirement are at risk of disappointing clients — or worse. When we asked people where they expect to turn for information about taxes in retirement, 45% said a financial advisor (50% among future retirees). To put that in perspective, only 33% (31% among future retirees) said they would go to their accountant.

Furthermore, 42% of future retirees told us they would switch advisors for someone who could help them plan for taxes in retirement.

The bottom line is that your clients are likely to ask you about taxes in retirement, and they expect you to be knowledgeable. If you don’t engage them, it can negatively impact your business. So how do you do it? It may be a lot easier than you think.

For clients who haven’t retired yet

Talk to them about building diverse sources of spendable assets in retirement:

  • Taxable: traditional brokerage account, savings and CDs, life insurance, nonqualified annuity
  • Tax-deferred: Traditional 401(k) and IRA
  • Tax-free: Roth 401(k), Roth IRA and Health Savings Account

Tax diversification allows flexibility to react to any changes in tax laws and to make strategic withdrawal choices that offer control over taxation in retirement.

What about those who are already retired?

Help retired clients take advantage of their large standard deduction and low tax brackets. In 2019, a married 65-year-old couple (filing jointly) enjoys a $26,600 standard deduction. The first $19,400 of taxable income is taxed at 10%. From $19,401 to $78,950 of taxable income, they’ll pay just 12%.2 If they keep their eye on that upper limit, this could be a good time to withdraw assets from tax-deferred retirement accounts (or perform Roth IRA conversions) at a relatively low tax rate. Doing so can help reduce RMDs in the future.

Once taxable income moves past $78,951, a married couple filing jointly will move into the 22% bracket. Therefore, for those needing more income, tax-free qualified distributions from a Roth IRA can help them avoid the higher tax rate. Depending on how much additional income the couple wants or needs, long-term capital gains (generally taxed at 15%) can also be a better alternative to the 22% bracket. A simple conversation at the beginning of the year about how much to withdraw from each account can help clients take control of their taxes.

Engaging your clients on tax planning is a win-win scenario

When you can help clients form a strategic, tax-efficient withdrawal plan, you’ll be meeting their expectations and may create referral opportunities. More importantly, your clients will benefit from a more tax-efficient retirement income.


  • 1

    2019 Nationwide Tax Efficient Retirement Income Study. This online survey was conducted April 18 to May 7, 2019, to a targeted subset of the U.S. population: 1,301 U.S. adults age 50 or older, who currently collect or plan to collect Social Security benefits, have at least $150K in investable assets and fall into one of the following groups: future retirees (n=435), recent retirees (n=440) and 10-year + retirees (n=426).

  • This information is general in nature and is not intended to be tax, legal, accounting or other professional advice. The information provided is based on current laws, which are subject to change at any time, and has not been endorsed by any government agency.

    Neither Nationwide nor its representatives give legal or tax advice.  Please have your clients consult with their attorney or tax advisor for answers to their specific tax questions.