We research all brands listed and may earn a fee from our partners. Research and financial considerations may influence how brands are displayed. Not all brands are included. Learn more.

Published: Sep 27, 2023 4 min read
Illustration of a machine scooping up money.
Money; Getty Images

A majority of Americans are concerned about taxes siphoning money out of their retirement accounts, according to new research.

A third-quarter market perceptions study from insurance company Allianz Life found that more than 70% of roughly 1,000 U.S. adults surveyed in August said they're worried that taxes will go up in the future and affect accounts like 401(k)s. The data also showed they have little faith in the reliability of tax-advantaged income from Social Security.

What the data says

Almost three-quarters of respondents (72%) said they’re concerned about higher taxes impacting the retirement income in their Individual Retirement Accounts and 401(k)s, both of which are tax-deferred savings vehicles.

In fact, they’re so concerned that roughly the same share said that if their current financial advisor didn’t help them manage taxes on retirement income, they would stop using that advisor. Gen Xers, or people born between 1965 and 1980, were the most willing to fire their financial advisors if they weren’t effective at managing taxes on their retirement income, followed by millennials (born between 1981 and 1996) and baby boomers (born between 1946 and 1964).

In addition to being nervous about their investments, respondents expressed not feeling confident in the public retirement safety net.

Seventy-two percent said they feel they can’t count on Social Security benefits when considering where they'll get their income in retirement, and an even greater share (79%) said they are worried about the future of Medicare and Social Security programs.

Social Security isn't likely to disappear, but the program has faced a looming insolvency crisis for years. The latest projection from nonprofit Committee for a Responsible Federal Budget estimates that the trust fund used to bankroll Social Security will run out of reserves by 2033 if Congress doesn't reach an solution to increase its funding, resulting in a universal benefits cut of 23% on average for recipients.

How taxes impact your retirement portfolio

When a retirement account is tax-deferred — such is the case with IRAs, 401(k)s, annuities and 457 plans — that means you don’t pay taxes on your contributions. Instead, your contributions are immediately deductible, which means you can subtract them from your taxable income at the time you sock away the money. Then you pay taxes when you withdraw that money in retirement.

Tax increases can have a negative impact on retirement portfolios, according to Kelly LaVigne, vice president of consumer insights at Allianz Life, especially if you haven’t factored tax strategies into your retirement plan and diversified across tax categories. Tax diversification is when you look at how your retirement accounts are taxed and consider how to best allocate your money among them.

Typically, you want to put your money into three different pools: an account with long-term capital gains, one that offers “regular” or taxable income, and one with non-taxable income.

“This strategy, along with incorporating strategic tax deferral, will help achieve some control over the amount or timing of taxes you will pay,” LaVigne said in a news release.

Considering how expensive retirement is, savers would be wise to start thinking about taxes in advance. While there isn't an exact consensus on how much people should have saved before they retire, Americans estimate on average that they'll need at least $5,000 a month to live comfortably in retirement, according to a recent survey — that's over $1 million in total.

More from Money:

5 Ways a Government Shutdown Could Affect Your Money

Retirees Are Heading Back to Work, and It Could Affect Their Social Security Benefits

This Investing Strategy Could Be the Key to a Better Lifestyle in Retirement