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This Threat Scares Investors More Than the IRS: Lincoln Financial

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U.S. investors may be a little nervous about taxes, inflation and longevity risk, but they’re really scared of long-term care and elder costs.

Analysts at Lincoln Financial Group have put data supporting that assessment in a summary of results from an online survey of 1,991 U.S. adults ages 18 and older.

(Related: How Emotions Are Affecting Financial Confidence During Pandemic)

All of the participants in the sample had at least some familiarity with financial planning and investments, and all had a role in the purchase of financial and investment products. Lincoln completed the survey in December — before COVID-19 was making news outside of China.

Lincoln conducted the survey to find out what consumers were thinking about tax planning.

The Radnor, Pennsylvania-based company provided a long version of the survey results at a reporter’s request.

Lincoln found that typical survey participants believe they have their income taxes under control.

The company asked the participants to say whether they felt very prepared, somewhat prepared, or not prepared to handle six major financial issues: income taxes, estate taxes, medical expenses, the rising cost of living, living to an old age, and long-term care or elder care.

Here’s how likely the participants were to say they were not prepared to handle each of the issues, ranked from least to most:

  • Income taxes: 18%
  • The rising cost of living (inflation): 23%
  • Medical expenses: 23%
  • Living to an old age (longevity risk): 24%
  • Estate taxes: 33%
  • Long-term care or elder care: 44%

In other words, life insurers may have had a hard time closing stand-alone long-term care insurance (LTCI) sales, or making the policies they sold turn a profit, but consumers know the need for long-term care planning is still there.

The second most common financial fear on the list may be a sign of participants’ confusion about how U.S. tax rules work: Under the current Tax Cuts and Jobs Act rules, an unmarried person can shield $11.4 million estate value from federal estate taxes.

If Congress does nothing, the estate tax exemption is set to fall back to the 2017 level, $5.5 million, in 2025.

Sen. Bernie Sanders, a democratic socialist who caucuses with the Democrats, and may reflect the views of many of the most liberal Democrats in Congress, has proposed reducing the estate tax exemption to $3.5 million for individuals.

In other words: Even if Sanders were in charge of estate tax exemptions, estate taxes might not be much of a problem for most of the people who took the Lincoln survey.

Financial professionals might be able to ease typical middle-market consumers’ worries about the estate tax by helping them understand how the size of their estates might compare with current and future estate tax exemption levels.

On the other hand, the COVID-19 pandemic could force Congress to look for new sources of revenue, including much tougher estate tax rules, and that could bring estate taxes back into the financial planning picture for typical, moderately affluent families.

— Read What Scares Retirement Planning Prospects Nowon ThinkAdvisor.

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