Lewis & Ellis Inc.

Washington considering potentially harmful retirement incentive cuts?

Life Insurance and Annuities
by Jan DeClue and Bob Gove
Washington considering potentially harmful retirement incentive cuts?
Washington considering potentially harmful retirement incentive cuts?

Many baby boomers with average incomes rely on a number of tax incentives from the federal government as a means of increasing their retirement savings funds and setting themselves up for a happy and health post-career life. With uncertainty surrounding the federal budget, some of the incentives might face the axe, which could be troublesome for companies that sell annuities and other investment products.

Tax deferrals and other incentives typically associated with popular types of retirement accounts could be cut. The majority of boomers say that if these incentives are reduced it will only further endanger their retirement savings, which are already not as large as they should be, according to the Insured Retirement Institute. Of the American workers between the ages of 50 and 66 years old, 58 percent say that they will cut back on retirement savings if income taxes go up. Meanwhile, another 40 percent responded similarly if Social Security payroll levies rise, and 29 percent felt the same way about burdens for capital gains.

Nearly three-quarters of those polled said they consider tax deferral to be one of the most important considerations related to their investing in retirement savings, and one in five polled also say that tax-deferred growth is their primary reason for buying annuities. Further, 77 percent said that tax deferral options plays an important role in helping them to decide which retirement products they want to choose.

Cathy Weatherford, president and chief executive officer of the Insured Retirement Institute, notes that any changes to these rules would be extremely detrimental to the ability of older workers to not only save for retirement but also afford other costs in their lives.

"Middle-income Boomers, who make up the majority of annuity owners, overwhelmingly show that they value and utilize tax-deferred retirement savings vehicles," Weatherford said. "Our consumer research found that tax policy changes would have negative consequences for retirement savings, with about a quarter of middle-income boomers likely to curtail their retirement savings if tax deferral is reduced or eliminated."

Annuities providers and other insurers who do a large amount of business with boomers may want to make sure their customers fully understand the implications of any changes to the tax code which might affect their investment options, as well as help them to prepare for alternatives.



Consultants to Contact