Hey, We Agree On Something
It's difficult to get a bill passed on a bipartisan basis in the current Congress, but the latest retirement bill is one of those rarities. The Setting Every Community Up for Retirement Enhancement (SECURE) Act is designed to give Americans greater access to retirement funds while making it easier to understand them and contribute to them.
There's no guarantee that the bill will pass the Senate and be signed into law, but the odds are decent. Any legislation that passes the House of Representatives by a 417-3 vote must have something right.
What makes the SECURE Act universally popular? It addresses an important problem – America's lack of retirement savings – in common-sense ways that appeal to both parties.
The Retirement Savings Gap
According to a 2019 report by the Government Accountability Office (GAO), the personal savings rate of Americans dropped from 14.2% of disposable income in 1975 to 6.8% in 2018. The GAO found that 48% of households aged 55 and older had no retirement savings in 2016, while 29% had neither retirement savings nor a defined benefit pension plan.
Everyone will have different financial needs in retirement depending on retirement plans, health concerns, and other life events – but for a comfortable thirty-year retirement lifespan, $200,000 isn't likely to be sufficient, even with Social Security contributions.
The SECURE Act helps by targeting three separate retirement savings concerns – limited access to retirement plans, difficulty contributing to plans when they are accessible, and retirees outspending their nest eggs.
Only about 40% of the active full-time workforce have access to any type of workplace retirement plan, either through an employer or a union. The SECURE Act gives more employers incentive to adopt retirement plans – especially small businesses. The legislation makes it simpler for groups of small businesses to form pooled 401(k) plans while offering automatic contributions and providing lower cost options.
Long-term, part-time employees would also become eligible for retirement plans, opening up access to part-time workers with caregiving duties or retirees working part-time to extend their savings.
Saving is addressed for both early and late stages of retirement contributions. The savings limit for automatic enrollment would be raised, allowing employees who want to save more to do so at an earlier point in their careers. Seniors will be able to make contributions to traditional IRAs at any ages, and will not have to begin taking distributions from retirement plans until age 72. Currently, at age 70½, you must stop making retirement fund contributions and take out minimum distributions.
To handle spending concerns, the bill requires annual retirement fund statements that show account balances as income streams during retirement. Workers approaching retirement can see how long their funds will last and make adjustments if their combined retirement plan and Social Security income won't suffice. Seniors who prefer the security of predictable retirement income will also have greater access to retirement plan annuities.
In essence, you'll be more likely to have access to a retirement plan, and those plans will be more likely to have lower-cost and/or automatic contribution options. You'll be able to see how your retirement funds will stretch over your expected lifetime, and you'll have more options to adjust contributions and withdrawals to make your nest egg last through retirement.
All you have to do is outline your retirement plans to estimate how much money you'll need to retire and set up a budget with contributions to meet that goal.
If it becomes law, the SECURE Act will offer expanded opportunities to help Americans save for retirement and manage their retirement funds wisely. However, the SECURE Act can't make you take full advantage of these opportunities. That's up to you.
The SECURE Act would make it easier for you to direct a portion of your paycheck to a workplace plan, but you can always opt out or reduce your percentage. Retirement savings must be a priority, or you'll find other uses for the money.
Set up a realistic budget that sends as much as you can afford toward retirement contributions. At the very least, you should contribute up to any employer-matching contribution limit. Ignoring matching funds is like refusing a raise – it's essentially free money.
Before you finalize your budget, outline your expected retirement plans. What do you want to do in retirement, and how much is that likely to cost? Check your Social Security account to see how much Social Security should contribute to your monthly retirement income. Subtract Social Security from expected retirement needs to establish your retirement fund goals.
Are you on track for a comfortable retirement? If not, adjust your budget to increase your retirement contributions – or adjust your definition of a comfortable retirement.
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