There Are Flags Rising For Increased Legislative Risk For Retirees And Their Investments

As retirees and those entering retirement start to shift gears from earning to harvesting it can be an intricate field to navigate.

There may be complexities for individuals when it comes to commonly analyzed items such as Social Security maximization or portfolio performance. However, some items may potentially have a bigger impact on retirement accounts but may be less researched by the average retiree.

I had the pleasure of chatting with a team that focuses on “down the mountain” strategies for those entering into retirement. The brothers Samuel Dixon and Christopher J Dixon Jr, founders of Oxford Advisory Group. 

Down the mountain refers to strategies specifically aimed to harvest income in retirement in the most beneficial way possible. Not all advisors or agents focus on this part of the investment journey.  It may be prudent for those nearing retirement to find out what their advisor specializes in. Strategies can be vastly different when one focuses on investing for long term growth, recovering from market volatility or the flip-side when an advisor focuses on tax-efficient harvesting of income, Social Security maximization and risks that may affect retirement accounts once you are no longer working.

It has often been compared to having a general practitioner as your primary doctor, but seeing a cardiologist when it comes to matters of the heart. Sure, they are both doctors, but their fields of expertise are different. Personally, though I respect and trust my primary doctor, I would not feel comfortable having them operate on my heart.

Speaking with Oxford, they brought up some interesting things to consider once a saver has reached the peak and is now looking to start the transition of harvesting from their hard earned retirement accounts.

For quite some time many savers were encouraged to use tax-deferred accounts with aims to maximize growth and hoping to push off taxes until they could see lower tax brackets during retirement years as they were no longer earning. Many Americans have a large percentage of their retirement in such accounts as 401(k)s or IRAs.  It has been said that an estimated $40 Trillion dollars now resides in these tax-deferred accounts.

Rules changes around items such as Required Minimum Distributions and the elimination of the “stretch” IRA have given the government some access to these accounts in the form of taxation.

RMD and IRA rules have changed in the last few years due to new legislation.  For the savvy advisor or well-read investor, this raises a new red flag - Legislative Risk.

Following alongside how retirees should be cognizant of what their retirement tax bill will look like, now, maybe more than ever before, there is a potential risk from changing legislation. 

“It is not only important to understand how taxes affect your retirement accounts today, it is prudent to look forward and see what accounts have the highest legislative risks.” - Christopher J. Dixon

There is speculation that with the national debt being at its highest in history that the government will find new ways to balance their books and that $40 Trillion in tax-deferred accounts may now have a larger target on it.

Retirement accounts that have grown tax-deferred are those that are still subject to taxation such as: IRA, 401(k) and 403(b).  Those are the accounts that would be at the highest risk, some speculate, for changing legislation allowing taxes to be harvested during this all-time high of national debt. If you are not sure of your tax bill you can access a free estimation here to see your potential tax bill.

New legislation does not solely pose a threat in the form of taxation.  Other staples of retirement may also be subject to the decisions made at a federal level.

Three things that may see changes with new legislation:

1. Long-term Care: Legislation concerning long-term care services, including Medicaid coverage and policies related to nursing homes or home healthcare, can have implications for retirees who may require such care in the future. Certain states are considering implementing additional taxes for those who do not have qualifying LTC policies in place.  Some workers will already see a LTC tax bill as soon as July 1st 2023.

2. Inflation and Economic Policies: Retirees should be aware of legislative actions related to economic policies and inflation. Changes in monetary policy, interest rates, or government spending can impact the purchasing power of their retirement savings and the overall stability of their financial situation.

3. Social Security: Changes to Social Security policies can have a significant impact on retirees. It's crucial to stay informed about potential adjustments to retirement age, benefit calculations, and cost-of-living adjustments. There have already been presidential candidates weighing in on Social Security changes.  Some have suggested raising retirement age or removing eligibility based on income.

If you are curious about what your retirement tax bill may look like, get your free estimate here.

Oxford Wealth Group, LLC is a federally registered investment adviser under the Investment Advisers Act of 1940. Registration as an investment adviser does not imply a certain level of skill or training. The communications of an adviser provide you with information about which you determine to hire or retain an adviser. Information about Oxford can be found by visiting the SEC site www.adviserinfo.sec.gov. and searching by our firm name.

This is prepared for informational purposes only. It does not address specific investment objectives, or the financial situation and the particular needs of any person who may receive this report. The information herein was obtained from various sources. Oxford Advisory Group does not guarantee the accuracy or completeness of information provided by third parties. The information in this report is given as of the date indicated and believed to be reliable. Oxford Advisory Group assumes no obligation to update this information, or to advise on further developments relating to it.