Taxes, Social Security and The Secure Act (and How to Plan for Them)

What will your clients be talking about in 2021? As an advisor, you can help focus those conversations on topics that will help your clients, whether they aware of them yet or not.

The past 90-120 days have brought a lot of changes. And those changes will provoke additional volatility throughout the next 90-120 days. It’s important to guide your clients past the short-term volatility to focus on their true long-term goals. After all, that’s what retirement income planning is. So, the question to consider is how these current changes will affect the future? Some of the changes are significant and need to be discussed with your clients as you work to become a High Performing Practice.

Acceleration of the Reduction in Social Security. By many accounts, the Social Security reduction expected to occur in 2034 could happen as soon as 2028. In other words, the pandemic, lower unemployment figures and loss of the payroll tax have basically accelerated by 50% the time when the Social Security board of trustees might have to enact a 24% reduction in Social Security. Your clients may be caught flat-footed when they open up their April statement and see that reduction in as few as seven years.

We have avenues to help mitigate that risk. Reach out to us and find out how.

The Secure Act. This was a monumental piece of legislation and retirement income planning. There is some bipartisan support for an updated Secure Act which would further push out the RMDS, possibly as far as age 85. This is where a QLAC could be a solution. It allows you to transfer in and push out RMDs to age 85. Looking over the last six years, I think the government has been giving us a clear indication that they need Americans to take more responsibility for their retirement income planning.

I encourage you to sit down before it’s too late and have that conversation with your clients. Whether your client is 10, 15 or 20 years away, you need to be making moves toward solid retirement income planning now.

Increased Taxes. Political statements aside, economically the stimulus money spent during the pandemic, including possible additional stimulus packages, must be accounted for at some point with an increase in revenue. In addition to creating a little bit of inflation, this also creates some higher interest rates. Your goal is to put your clients in a great position to take advantage of whatever economic conditions happen. And tax rates are likely to go up sometime in the next five to 10 years.

Ask your client if they believe tax rates will be higher when they retire than they are today. If the answer is yes, think about how to get your clients in a more tax-efficient spot. We have software to help you do that, but we also have products that work on a tax-deferred basis to help your clients grow their money faster without taxation. Since taxes reduce your AUM, these strategies help you as well.

For more information on how to strategically think about Social Security and tax deferral, and about the overall changes in retirement income planning, I encourage you to reach out to your local retirement income consultant by calling 1 (800) 589-3000.

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By utilizing available resources and focusing your client conversations, you can ensure your clients have a secure retirement plan, regardless of the changing economic landscape.

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