Major Changes are Coming in Retirement Planning

America is facing a retirement income crisis. For millions of older Americans who are already retired – and for those Boomers and Gen-Xers who are not far behind – their “golden” years may not be quite so golden.

In years past, many people entered into the retirement realm with the mindset of "hello pension, goodbye tension". Sadly, for most, that’s no longer the case.

Pension plans have all but disappeared and even those who have a pension promised wonder if their benefits will actually materialize. No, the current reality seems to be “goodbye pension, hello tension", and those pressures are causing lawmakers in Congress to introduce new legislation to confront these issues.

Facts are Grim

According to data provided by Northwestern Mutual, many Americans feel “unprepared” for the financial realities they are facing in retirement:

• 78% of Americans are "extremely" or "somewhat" concerned about affording a comfortable retirement

• 66% believe they are likely to outlive their retirement savings

• 33% have less than $5,000 dollars saved toward retirement

• 21% have no retirement savings at all

• 34% of retirees have no money left at the end of the month

Combined with increased debt and higher health care costs, there has also been a two-fold increase in the number of Americans 65 or older who have declared personal bankruptcy.

Big Changes to Retirement Planning

There are currently three separate bills making the rounds in Congress that would, if passed, initiate major changes in how Americans manage retirement planning.

The first bill has been entitled the Setting Every Community Up for Retirement Enhancement (Secure) Act of 2019, and it is expected to receive a full House vote sometime yet this week.

The purpose of the Secure Act is four-fold:

• Increase the age limit from 70 to 72 when retirees are required to take minimum distributions (RMDs) from their 401(k)s and IRAs. In addition, workers could also make contributions to their IRA past the current age of 70. The reasoning behind these changes is that people are living and working longer and shouldn’t be required to withdraw money before they need it, or be restricted from making contributions to their retirement funds, simply due to age.

• Increase the top limit for automatic escalations of 401(k) contributions to 15% of wages, up from the current 10%. This would allow some workers to accelerate contributions to their retirement savings.

• Allow small businesses to join together to establish multi-employer 401(k)s and obtain tax credits for creating automatic enrollment plans.

• Allow part-time workers to become eligible for retirement benefits, provided they’ve worked at least 1,000 hours in a single year, or 500 hours per year for three consecutive years.

A second bill, entitled the Retirement Security and Savings Act (RSSA), has been introduced in the Senate by Senator Rob Portman of Ohio and Senator Ben Cardin of Maryland. 

This bill seeks to aid small businesses in an effort to offer 401(k)s and other retirement plans to their employees. It also seeks to expand access to retirement savings plans for low-income Americans who currently have no existing plans in place.

Additionally, RSSA offers special catch-up contribution allowances for people over 60, going from $6,000 to $10,000 for workers with a 401(k). The bill also includes provisions to help employees who are struggling to pay off student loan debt.

A third bill has also been introduced in the Senate by Senator Chuck Grassley of Iowa and Senator Ron Wyden of Oregon. Though similar to the House Secure Act, the Retirement Enhancement and Savings Act of 2019 (RESA) seeks to update the retirement system to keep pace with changes in the economy and to facilitate retirement savings.

Specifically, RESA would modify Multiple Employer Plans (MEPs), which permit small businesses to collectively sponsor retirement plans on behalf of their employees.

The bill also seeks to include provisions which would make it easier for workers to transfer their 401(k)s when they change jobs.

Final Passage

According to legislative insiders, the Secure Act is on track to become law. However, at this point, we will have to wait for the bill’s final passage to learn about its specific details. Once we have clarity on the bill and its nuances, we will share that information with you.

Change is constant and this blog is not intended to make you alter your course immediately, but rather to make you aware of what the retirement landscape could look like going forward in the near future.

Disclosure: The opinions in the preceding commentary are as of the date of publication and subject to change based on subsequent developments and may not reflect the views of the firm as a whole. The opinions expressed in this article are those of the author and not necessarily the views of United Capital Financial Advisers, LLC. This material is not to be relied upon as a forecast, or research or investment advice regarding a particular investment or the markets in general, nor is it intended to predict or depict performance of any investment. Investors should not assume that investments in the securities and/or sectors described were or will be profitable. This document is prepared based on information United Capital deems reliable; however, United Capital does not warrant the accuracy or completeness of the information. The commentary is intended for information only, is not a recommendation to buy or sell any securities and should not be considered investment advice. Equity investing involves market risk, including possible loss of principal. Past performance doesn’t guarantee future results.