Generally, on Keen on Retirement, we don’t like to discuss proposals that are floating around in Washington. There’s so much politicized chatter in our newsfeeds every day that we prefer to wait until the facts get separated from the fiction, all the dust settles, and a new law is actually put into effect.
But we’re making an exception on today’s episode for the SECURE Act of 2019, which passed the House back in May and is currently kicking around in the Senate. The discussion surrounding the House version of the bill gives us some important insights on what the government is thinking about your nest egg and the future of retirement planning.
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A more “secure” retirement for everyone.
SECURE is an acronym for “Setting Every Community Up For Retirement Enhancement.” And, like many government acronyms, it makes the potential law sound like something no one could possibly be against! Who wouldn’t want an enhanced retirement for every community? Heck, it even passed the House with almost universal support, 417-3!
All joking aside, what the SECURE Act proposes are new ways to incentivize businesses to create retirement plans and to encourage more employees to take advantage of them.
Currently, around 50% of US workers1 do not have access to retirement plans through their employers. There’s also a sizeable portion of the workforce that doesn’t take advantage of the plans their employers do provide. Low participation rates and financial costs are two reasons why many small businesses don’t offer retirement plans.
And, maybe worst of all, most folks who don’t have that employer-match 401(k) at their place of employment, simply do not take it upon themselves to open their own self-directed retirement accounts.
In a sense, the SECURE Act is official government recognition of some topics we’ve discussed at length on Keen on Retirement. Corporate pensions and retirement plans are vanishing. Social Security isn’t enough to live on. And folks are going to have to take a more active role in saving and investing for the future, especially millennials who are just entering the workforce.
An “automatic” retirement plan.
So why don’t more people take advantage of retirement plans?
One reason is that getting in on that 401(k) or setting up your own Roth IRA takes some effort. Many companies require employees to opt-in to automatic monthly contributions from their paychecks. Some folks don’t bother, others forget. In addition, the self-employed small business owner trying to set up her own retirement account can get overwhelmed by the options available and give up.
That’s why a key component of the SECURE Act is a tax break to corporations who automatically enroll new employees in retirement plans. The hope is that if the extra step is opting-out instead of opting-in, workers will get started and participate. Another proposal is to pool together smaller retirement plans to keep costs down, which will hopefully give small business owners some better options.
“Stretching” to foot the bill.
On the personal side, the SECURE Act proposes moving the age you have to take required minimum distributions from your retirement accounts from 70 1/2 to 72 or 75. Congress is also considering that folks be able to keep contributing to an IRA after age 70 1/2 if they’re still working, as well as adding guaranteed income options that would let you treat a 401(k) like a self-created pension. We need to see the final details in these proposals before deciding if they’re going to make much of a difference to retirees.
If you’re wondering how the government proposes to pay for all these programs … Well, that’s the big proposed change that folks might not be too enthusiastic about.
Government spending requires tax dollars. And, not for the first time, the government is taking notice of all that tax-deferred money sitting in retirement accounts – especially inherited accounts. So the SECURE Act proposes reducing “stretch” IRA distributions to beneficiaries. Instead of taking required minimum distributions based on a life-expectancy schedule, heirs would have to take the full distribution in ten years. Anyone currently taking distributions from an inherited IRA would be grandfathered into their current distribution schedule. Government projections estimate this would generate around an additional $16 billion in tax revenue2.
Stay tuned to Keen on Retirement.
I want to emphasize, again, that the SECURE Act is not waiting for President Trump’s signature right now. We don’t recommend you make any changes to your financial plan based on the bill the House passed or additions the Senate might make. If the SECURE Act does become law, you can expect a follow-up episode. But I can say that the SECURE Act is another sign that your retirement and your kids’ retirement is going to be very different than in past generations. You need your nest egg to keep pace with what we hope will be a long, active, fulfilling retirement. And your kids need to take more responsibility for their long-term financial security. These topics are going to be important no matter what happens with the SECURE Act. Don’t hesitate to call us up if we can help your family plan accordingly.
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Bill Keen is a CHARTERED RETIREMENT PLANNING COUNSELOR℠ and independent financial advisor with more than 25 years of industry experience. As the founder and CEO of Keen Wealth Advisors, a registered investment advisory firm, he specializes in providing personalized retirement planning designed to help people thrive before and during their retirement years. With a passion for educating others, Bill regularly blogs about retirement planning, hosts the podcast Keen on Retirement, and has contributed to U.S. News and World Report, Reuters, Wall Street Journal’s Market Watch, Yahoo Finance, and other publications. Based in Overland Park, Kansas, Bill and his team work with clients throughout the greater Kansas City area and across the nation. To learn more, connect with him on LinkedIn or visit www.keenwealthadvisors.com.
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