Retirement Tax Considerations for Middle-Income Americans

April 2014

Many middle-income Americans age 50 and older have significant gaps in their understanding of how federal taxes will impact their retirement finances. In fact, they know more about how lottery winnings are taxed than the mainstays of their retirement income.

Adults aged 50 and older in this income bracket could face negative tax implications as they near and enter retirement. Among other consequences, they risk incorrectly estimating future income from their retirement accounts, paying penalties on withdrawals, missing allowable deductions and other consequences.

With its newest study, Bankers Life Center for a Secure Retirement looks at the impact of taxes and tax knowledge on Americans’ retirement finances. Download the Full Study




  • More Americans have an accurate understanding of how lottery winnings are taxed (94%) than the mainstays of their retirement income: Social Security benefits (39%), traditional IRAs (35%), Roth IRAs (31%) and 401(k) plans (29%).
  • When asked to choose which activity they dislike the most, respondents say that doing taxes (23%) is almost equally as disliked as the unpleasant experience of going through airport security (29%). In fact, getting a flu shot is preferable to doing taxes for many middle-income Americans over age 50. Only 6% ranked flu shots as their most disliked task.
  • More than half (57%) do not know that 70½ is the age at which required minimum distributions (RMDs) from traditional IRAs and 401(k) plans must begin.
  • Most middle-income Americans are not aware that in certain circumstances they may be able to withdraw traditional IRA funds penalty-free to:
    • Pay for health insurance during periods of unemployment (90%)
    • Pay college expenses (89%)
    • Buy a home (84%)
    • Pay for medical expenses (71%)
  • Seven in 10 (68%) cannot correctly identify 65 as the age at which a higher standard tax deduction is granted.
  • Only 38% of middle-income Americans over age 50 work with a tax professional to complete and file their annual tax returns. Among those who do, the majority (61%) do not receive additional guidance on tax savings tips, long-term tax strategies or how to invest tax refunds.
  • More than half (54%) prepare and file their own tax return without any external advice or guidance.

42014-Infographic

chart-understanding-42014
chart-knowledge-42014
chart-withdrawal-42014
chart-awareness-42014
chart-sources-42014

The research for this report was conducted in February 2014 for the Bankers Life Center for a Secure Retirement by the independent research firm The Blackstone Group. A nationwide sample of 1,000 Americans ages 50 and older, who have an annual household income of between $25,000 and $75,000, participated in the internet-based survey on questions relating to federal taxes. The margin of error is +/- 3.1 percentage points at the 95% confidence level.

Customer Resources

If you want to receive professional guidance on improving your financial security in retirement, these resources can help you find a licensed advisor or agent.

American College

National Association of Insurance and Financial Advisors

National Association of Personal Financial Advisors

Bankers Life and Casualty Company


Bankers Life & Casualty Logo