As present fears about a big market crash or recession persist, Americans also are increasingly worried about taxes on retirement income from 401(k)s and IRAs increasing in the future, according to the 2023 Q3 Quarterly Market Perceptions Study from Allianz Life Insurance Company of North America (Allianz Life).
Seven in 10 Americans (72 percent) worry that higher taxes in the future will impact their retirement income from tax-deferred accounts such as a 401(k) or IRA.
“While paying taxes is inevitable, how much we pay in taxes will change,” said Kelly LaVigne, VP of Consumer Insights, Allianz Life. “And, a change in taxes can have a significant effect on your portfolio if you have not incorporated tax strategies into your financial plan and diversified across tax categories. For a goal like retirement, you want to diversify your assets across a spectrum of long term capital gains, regular income and 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.”
Americans want help to reduce tax risk with 73 percent saying they would stop using their current financial advisor if they didn’t help effectively manage taxes on retirement income. More Gen Xers (84 percent) than boomers (67 percent) or millennials (77 percent) said they would stop using an advisor if they didn’t help effectively manage taxes on retirement income.
At the same time, many Americans worry about retirement income from tax-advantaged sources like Social Security. The majority (72 percent) of Americans say they can’t count on Social Security benefits when planning retirement income. Even more (79 percent), worry about the future of Medicare and Social Security.
Majority of Americans fear another big market crash
While Americans are concerned about the taxes they will have to pay in the future, right now, they worry that a big market crash is coming.
Fewer Americans now worry that a major recession is coming than all of last year. While 55 percent worry a major recession is right around the corner in Q3, 64 percent of Americans said the same in Q2. At the same time, 53 percent of Americans worry that another big market crash is on the horizon.
Still, this ongoing worry is leading Americans to hold more money in cash. Most Americans (54 percent) say they are keeping more money than they should in cash because they’re worried about a recession.
“While you might not feel like you’re losing money by holding it in cash, over the long term you will lose out,” said LaVigne. “Money kept in cash, or in low-interest bearing accounts, isn’t keeping up with the rising cost of living. The idea is to incorporate risk management strategies that may also lower volatility into your financial strategy so that you can invest more confidently and weather market downturns over the long term.”
Millennials are most concerned about an economic downturn affecting their personal finances than Gen Xers or boomers. More than half (52 percent) of millennials are concerned they will be laid off because of an economic downturn in 2023, compared to 29 percent of Gen Xers and 25 percent of boomers. And, 57 percent of millennials say they are keeping more money that they should in cash because they’re worried about a recession, compared to 52 percent of Gen Xers and 46 percent of boomers.
Concerns about inflation are lower than they have been in a year with 70 percent expecting that inflation will get worse in the next 12 months. This is down from 77 percent last quarter.
*Allianz Life conducted an online survey, the 2023 Q3 Quarterly Market Perceptions Study in August 2023 with a nationally representative sample of 1,005 Respondents age 18+.
