Gen X retirement tax mistakes

What happened: Gen X workers, aged 46 to 61, are at risk of making costly tax mistakes as they approach retirement. These include drawing down retirement savings without a plan, which can lead to surprise tax bills, and not understanding how Social Security benefits are taxed. For instance, adding just 50% of a $2,076 monthly Social Security benefit to adjusted gross income (AGI) can push married filers past the $44,000 threshold, triggering taxation of up to 85% of benefits.

Market impact: This narrative impacts financial services and wealth management sectors, as Gen Xers seek advice to avoid these pitfalls. It also affects retirement-focused mutual funds and ETFs, as investors may rebalance their portfolios to optimize tax efficiency. Companies like Fidelity, Vanguard, and Charles Schwab, which cater to retirement planning, may see increased demand for their services.

What to watch next: The upcoming tax filing season will provide insights into how many Gen Xers are affected by these mistakes. Additionally, changes in Social Security tax brackets and thresholds, expected to be announced in late October, will influence retirement planning strategies. Lastly, the release of Gen X's consumer confidence data will indicate their financial sentiment heading into retirement.