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Social Security and ESG Investing News for Financial Advisers

Latest for financial advisers: Social Security proficiency, ESG Investing, taxes and the $2 trillion infrastructure plan.

Here’s a roundup of new ideas, reports and research of interest to financial advisers.

A Third of Near-Retirees Fail Social Security Quiz

Just over one-third (35%) of near-retirees failed a basic quiz of their knowledge about Social Security benefits and another 18% earned a D, meaning more than half of Americans ages 55 to 65 do not understand the program’s basic rules, according to a new MassMutual consumer poll released recently. The level of knowledge is improving but the public still needs guidance on decisions about claiming benefits, writes Mary Beth Franklin.

Tax Hikes Boost Interest in Tax-Advantaged Retirement Plans

Concerned that tax rates and IRS bills may rise under Biden, wary advisers note that Roth plans are not just for younger investors, writes Lynnley Browning.

Minimize Taxes When Social Security, RMDs Kick In

Today, more retirees understand the value of maximizing their Social Security benefits by delaying collection up to as late as age 70, writes Martha Sheddon. This sudden increase in retirement income, and potentially even greater amounts at age 72 when required minimum distributions (RMDs) begin, can trigger higher taxes that retirees may not have anticipated. As an adviser, how do you help your clients plan for this tax increase?

Rules for Claiming Social Security Benefits as an Ex-Spouse

Even in the best of times, Social Security is a maze of complicated rules and notable exceptions, writes Ginger Szala. For a divorced spouse who wants to claim benefits on their ex’s record, it can get even trickier.

What Biden's $2 Trillion Infrastructure Plan Means for Taxes

To foot the bill of President Joe Biden’s new $2 trillion infrastructure plan, the administration is weighing corporate tax provisions, which will likely soon be followed by a new tax plan, writes Michael Mora.

ESG Investing's Return Premium Still Unproven, Exec Says

There are two reasons advisers and investors consider ESG investing, but thus far only one is grounded in reality, according to Envestnet’s Dana D’Auria. D’Auria, co-CIO at Envestnet PMC, has noticed that advisers are increasingly pitching environmental, social responsibility and corporate governance-oriented (ESG) portfolios and investments on their potential to offer excess financial returns, or alpha, or market returns with less risk, a “smart” or “strategic” beta, writes Christopher Robbins.

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Social Security Repair Bills, Compared by Actuaries

In a recent webinar, a panel of Academy actuaries presented their analysis of three legislative proposals now floating inside the Beltway, writes Kerry Pechter. One raises taxes, one lowers benefits, and another does some of each.

The Eight Great Misconceptions About Bonds

Allan Roth writes about overcoming eight great misconceptions about fixed income.

Research on Retirement Resources

To evaluate their retirement resources, households approaching retirement will examine their Social Security statements, defined benefit pensions, defined contribution balances, and other financial assets, according to How Much Taxes Will Retirees Owe on Their Retirement Income?, a research report published by the Center for Retirement Research at Boston College.

However, many households may forget that not all of these resources belong to them; they will need to pay some portion to the federal and state government in taxes. It is unclear, however, just how large the tax burden is for the typical retired household and for households with different income levels. This research report aims to shed light on the tax burdens that retirees face by estimating lifetime taxes for a group of recently retired households.

The paper found that:

  • These estimates show that households in the aggregate will have to pay about 6% of their income in federal and state income taxes.
  • But this liability rests primarily with the top quintile of the income distribution.
  • For the lowest four quintiles, taxes are negligible – ranging from 0% to 1.9%.
  • In contrast, the average liability is 11.3% for the top quintile, 16.4% for the top 5%, and 22.7% for the top 1%.

The policy implications of the findings are:

  • Taxes are meaningful for the top quintile, who are mostly married couples with average combined Social Security benefits of $50,900, 401(k)/IRA balances of $325,400 and financial wealth of $441,400.
  • If these retirement and financial assets were fully annuitized, the amount a household would receive is equivalent to about $3,000 a month, and these households face tax liabilities of about 11%.
  • Thus, for many households reliant on 401(k)/IRA or financial assets for security in retirement, taxes are an important consideration.