How Much Taxes Will Retirees Owe on Their Retirement Income?

To evaluate their retirement resources, households approaching retirement will examine their
Social Security statements, defined benefit pensions, defined contribution balances, and other
financial assets. However, many households may forget that not all of these resources belong to
them; they will need to pay some portion to 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 project aims to shed light on the tax burdens that retirees face
by estimating lifetime taxes for a group of recently retired households. The project uses data
from the Health and Retirement Study (HRS) linked to administrative earnings to determine
Social Security benefits and administrative records on state of residence to estimate state tax
liabilities. Income is then projected over the expected retirement of each household. Federal and
state taxes, are estimated with TAXSIM, for each household on its reported and projected income.

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2020 Public Plan Investment Update and COVID-19 Market Volatility

  • Despite the market rebound, most public pension plans ended FY 2020 with investment returns that fell short of actuarial expectations.
  • Moreover, the March crash raised concerns about the liquidity needs of public plans, which already must sell assets to pay benefits.
  • In particular, alternatives are harder to value and more illiquid, which make them a poor option for selling in a downturn.
  • However, plans do maintain a cache of Treasuries that could be easily liquidated, so most plans are equipped to weather a sharp downturn.

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401(k)/IRA Holdings in 2019: An Update from the SCF

  • The 2019 Survey of Consumer Finances offers a picture of households’ 401(k)/IRA assets after a period of strong economic growth and stock market gains.
  • And these balances may not differ much from today, as the market is modestly higher in 2020 and most job losses have been borne by those without a 401(k).
  • For working households nearing retirement with a 401(k), median combined 401(k)/IRA balances rose from $135,000 in 2016 to $144,000 in 2019.
  • $144,000 provides a married couple with only $570 per month in retirement.
  • The bigger problem is that only half of households have any 401(k)-related assets.
  • The main reason for low savings is the lack of continuous coverage, so the solution is for policymakers to mandate coverage for all workers.

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How Much Taxes Will Retirees Owe on Their Retirement Income?

  • Households nearing retirement may forget that not all of their retirement resources belong to them, as they will need to pay some portion in taxes.
  • The question is just how large the tax burden is for a typical retired household and for those at different income levels.
  • Using the Health and Retirement Study, this study estimates the present discounted value of lifetime taxes at retirement to the present value of retirement income.
  • While the results show that taxes for most households are negligible, the burden rises to 11 percent for the top quintile, 16 percent for the top 5 percent, and 23  percent for the top 1 percent.
  • Because the HRS excludes many of the very wealthy, the reported average 401(k)/IRA holdings for the top 5 percent and 1 percent look quite similar to what many academics hold in their TIAA accounts.

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An Updated Guide to Benefits.gov Resources

What is Benefits.gov?

One of the longest-serving E-Government initiatives, Benefits.gov was launched by the U.S. Department of Labor in April 2002, creating the U.S. government’s official benefits website. Our mission is to increase citizen access to benefit information while reducing the difficulty of interacting with the government. On Benefits.gov, you can find information on over 1,000 government assistance programs, check your eligibility, and learn how to apply.

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2020 Public Plan Investment Update and COVID-19 Market Volatility

The brief’s key findings are:

  • Despite the market rebound, most public pension plans ended FY 2020 with investment returns that fell short of actuarial expectations.
  • Moreover, the March crash raised concerns about the liquidity needs of public plans, which already must sell assets to pay benefits.
  • In particular, alternatives are harder to value and more illiquid, which make them a poor option for selling in a downturn.
  • However, plans do maintain a cache of Treasuries that could be easily liquidated, so most plans are equipped to weather a sharp downturn.

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COVID-19 LEGISLATIVE ANALYSIS: Coronavirus Aid, Relief, and Economic Security (CARES) Act

WHAT’S IN THE CARES ACT?
• This presentation briefly summarizes the highlights of the CARES Act.
• It also provides links to government and other useful websites to help interested parties
calculate benefits, find additional resources, and follow the details as to how the federal
government will implement CARES and provide loans, funding, tax relief, and regulatory relief to
individuals and businesses.

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