Investors expect higher taxes, but many aren't changing their plans

Most investors say they’re anticipating higher taxes down the road, but relatively few are taking steps now to reduce the potential hit to their retirement income, according to a new survey commissioned by Nationwide.

Drawing from the Advisor Authority study from the Nationwide Retirement Institute, it found 80% of investors expect taxes to rise in the future. Yet among that group, less than one-third (31%) said they are proactively adjusting their financial plan.

The research draws from an online survey conducted by the Harris Poll on behalf of Nationwide in January and February, covering 528 advisors and financial professionals and 2,012 investors ages 18 and older with at least $10,000 in investable assets.

“Our study highlights that for most investors, tax anxiety is real – however, their plan to address it is lacking,” Kush Kotecha, president of Nationwide Annuity, said in a release announcing the findings. “A majority of investors are telling us they're concerned about rising taxes, but only a fraction are taking steps to prepare their portfolios.”

The results point to a familiar pattern for advisors: clients often treat taxes as a once-a-year administrative chore rather than a year-round planning variable. In the survey, 34% of investors said they mostly pay attention to taxes during tax season, while 26% said they engage in ongoing tax management throughout the year.

Even when investors work with an advisor, tax conversations may be sporadic. Among investors who have a financial advisor, 29% said they rely on that advisor to help plan for taxes in retirement. According to separate polling by Allianz Life, 70% of Americans today – including 78% of Gen Xers – harbor concerns about how taxes will impact their retirement income.

But only 37% of respondents in Nationwide's survey research said their advisor proactively discusses tax planning strategies or tax policy changes as part of regular review meetings. Another 11% said those discussions happen only when major tax law changes occur, and 11% said taxes come up only when the client asks.

Read more: State-level groundswell on wealth taxes puts advisors and billionaires on notice

“Advisors should make taxes a part of regular client discussions,” Kotecha said. “Investors with an advisor who are not receiving regular guidance on this important topic should ask for it or consider looking for a financial professional who will help them prioritize tax-efficient retirement planning.”

The survey also suggests some investors may not have a clear view of how their accounts will be taxed once withdrawals begin. While 44% said their portfolio includes a mix of taxable, tax-deferred, and tax-free assets, 13% said they don’t know how to describe their portfolio’s tax composition. Separately, 17% ranked not knowing the best tax strategies for their portfolio among their biggest retirement-planning concerns, and 14% cited not understanding tax implications before taking withdrawals.

On the advisor side, respondents described a client base that may be concentrated in the wrong places from a tax perspective. In the survey, 45% of advisors said their clients have a risky mix of taxable asset classes, while 85% said they’re working with clients to diversify their tax profile.

The report also points to growing advisor interest in products positioned as tax-efficient income tools. Sixty percent of advisors said that, given events over the past 12 months, they are more likely to recommend putting part of a client’s portfolio into an annuity or other guaranteed-income solution.