Tax Planning for High-Net-Worth Individuals: Avoiding Collateral Damage

Executive summary:

  • Many advisors today are helping clients with a broad range of their financial planning needs.
  • With millions of baby boomers preparing to retire by the end of the decade, enrolling in Medicare will become a crucial aspect of the financial planning process.
  • Advisors should be aware of which income levels could trigger a surcharge and increase their Medicare premiums.
  • Tax-aware advisors can help their high-net-worth clients avoid this type of collateral damage.

Do you remember the 2002 movie "Collateral Damage" starring Arnold Schwarzenegger? Don't worry if you don't: it received negative reviews and was a commercial failure. I don't remember much about it except for the title. And that title is what matters right now because it relates to financial planning in 2023.

Stick with me here for a minute!

In my 19 years at Russell Investments, I have had a front-row seat to seeing how the role of an advisor has evolved and continues to do so. We are so far past the days of advisors simply providing investment management services alone because clients can essentially get that service anywhere now. It's largely been commoditized. What hasn't been commoditized is the importance of planning. In fact, today I see more advisors doing more planning. And these advisors aren't just helping clients with relatively simple planning questions like, "please help me retire, help me save for college, help me generate income." Instead, today MANY more advisors are addressing a much broader range of financial planning topics. For instance, they're helping with tax planning, Roth conversions, estate planning, and Medicare enrollment (just to name a few). Essentially, advisors are helping their clients manage potential collateral damage in their portfolio, especially as it relates to taxes and tax management. This is a great thing!

This expanded role might have something to do with the fact that about 10,000 baby boomers (born between 1946 and 1964) reach retirement age every day. According to Pew Research Center, baby boomers are retiring at a faster pace since COVID-19 began. Nearly 29 million boomers retired in 2020 – three million more than in 2019. By 2030, 75 million more boomers are expected to retire.1