Only 2% of Americans can identify financial solutions with tax advantages, despite one-third wanting to prioritize these investmentsLincoln Financial Group shares five tax-efficient strategies to consider as part of a holistic financial plan. View Lincoln Financial Group’s Consumer Sentiment Tracker here.
07 March 2023–RADNOR, Pa. (BUSINESS WIRE), March 07, 2023 – As consumers focus on filing their taxes and spending those returns, a new study reveals a need for increased awareness around tax-efficient financial strategies. Lincoln Financial Group’s Consumer Sentiment Tracker reports that only 2% of Americans can correctly identify financial solutions with tax advantages, despite one in three saying they prioritize investments that would help them pay less in taxes either now or in the future.
“Lincoln’s research shows consumers are under-educated about tax strategy and tax-efficient investments, revealing a disconnect between aspirations and actions,” said David Berkowitz, president, Lincoln Financial Network – the wealth management arm of Lincoln Financial Group that provides advice and guidance through its extensive network of independent financial professionals. “There is a real opportunity for our industry to help simplify these products and solutions so that Americans can feel more confident making the right financial decisions for themselves and their loved ones.”
A few key points from the study include the following:
- More than 6 in 10 consumers who work with a financial professional say they’d like to discuss strategies to reduce the impact of taxes on their investments and on wealth transfer plans
- Those who have had discussions on ways to minimize exposure to taxes are nearly 2x more likely to say they’re very satisfied with their financial professional
- Just 1 in 5 U.S. adults feels very confident about making financial decisions to minimize exposure to taxes
- 47% say they are more concerned about the impact of taxes on their retirement savings as a result of the current market
Lincoln Financial Group recommends the following five tax-efficient strategies that can be considered as part of a holistic financial plan:
1.) Contribute to a workplace retirement account. Pretax contributions to a retirement savings plan offered through one’s employer will reduce total taxable income and allow savings to grow tax deferred. A good rule of thumb is for consumers to save at least 10% to 15% of their pay, but if that feels out of reach, start wherever possible and try increasing contributions by a little each year to see big changes in total savings over time. Remember to save up to the employer match, if offered.
2.) Explore the value of lifetime income. At a time when people are living longer and face greater risks to their savings, an annuity is an investment solution that can provide pre-retirees with guaranteed monthly income that’s protected and can last a lifetime. Taxes on the gains aren’t paid until the money is withdrawn, so interest can be earned on the money that would have otherwise been paid in taxes. If people are in a lower tax bracket during retirement, that means potentially paying less in taxes overall on the same amount of money. A financial professional can help determine which type of annuity might be best for individual needs, preferences and income planning goals.
3.) Prepare for unexpected long-term care costs. The greatest changes to income and lifestyle may result from an unexpected long-term health care event. Different solutions can help provide a cushion, and many of these benefits are income tax-free. Understanding the various policies is the first step in helping prepare for the future to ensure receiving needed care without passing a financial burden on to family or loved ones.
4.) Diversify a portfolio with life insurance. Adding cash value life insurance to a portfolio can help protect consumers’ savings and provide an income tax-free death benefit for their beneficiaries, as well as tax-deferred growth opportunities. As part of a larger financial plan, life insurance benefits can also offer advantages that help meet goals at every stage of life, including funding a child’s education costs; strengthening retirement savings; creating additional cash flow; and helping to protect wealth for future generations. If loans or withdrawals are taken, it will reduce the death benefit and other values, as well as have potential tax consequences.
5.) Work with a financial professional. According to Lincoln’s study, just 1 in 5 U.S. adults feels very confident about making financial decisions to minimize exposure to taxes, yet nearly half (47%) say they are more concerned about the impact of taxes on their retirement savings as a result of the current market. A financial professional can help tailor a holistic plan to one’s specific needs, as well as provide education about various insurance and retirement solutions.
“Ongoing challenges like market volatility, inflation and changing tax laws have the potential to hit us all hard in the wallet,” said Berkowitz. “That’s why tax-efficient investing is an especially important aspect of financial planning that can help you build wealth and achieve your financial goals.”
Visit www.lfg.com for more tools and resources.
Consumer Sentiment Tracker 2022 Methodology
The goal of this research is to gauge consumer sentiment on a variety of financial topics. Data was collected in March, April, May, June, July, September, October, and November 2022 using the Qualtrics survey platform. Responses were collected from a total of 1,000+ U.S. adults each month. The sample included quotas to be representative of the total U.S. adult population.