How Will The Secure Act Affect My Retirement?
Planning for retirement is a concern for everyone. You need to consider how much money to save and how to invest those savings in order to have enough money for your senior years. The U.S. House recently passed the Secure Act (Setting Every Community Up for Retirement Enhancement), a bipartisan bill that will change the financial landscape for Americans. Currently in the Senate, the bill is expected to pass and be signed by the President. When the bill becomes law, it will offer you a number of benefits that can brighten your financial future.
Secure Act Basics
The Secure Act is meant to address the financial shortfall facing many of today’s workers when they reach retirement age. According to the Federal Reserve, only 36% of active workers think they will have enough savings to live comfortably when they reach retirement. A full 25% have no pension plan or retirement savings at all, meaning they will be primarily relying on Social Security to survive. Since SS is only meant to supplement retirement finances, many older Americans simply won’t have enough money to meet their basic expenses.
The Secure Act will make it easier for small businesses to offer their employees 401k plans by allowing different companies to join together in one plan. It would also allow more part-time workers to enroll in these plans. As it is now, most plans are only available to employees who work at least 1,000 hours a year. That leaves out most of the 27 million part-time workers in the United States, the majority of whom are women.
Many full-time workers are not saving enough to last through their retirement. In fact, an ARRP survey found that only 40% of workers will have saved enough money to see them through retirement. The Secure Act addresses this issue by allowing seniors to delay retirement savings withdrawals and to invest in annuities that provide a lifelong income.
Specific Secure Act Provisions
Part-time workers are usually excluded from company 401 K plans. The Secure Act will allow employees to participate who have worked at least 500 hours a year and who had been employed by the company for at least three consecutive years. This provision will help workers of all ages, including those who are older but cannot afford to fully retire.
The bill will also raise the current age requirement for withdrawing from your retirement savings accounts. The law now says you must start this withdrawal process at age 70.5. If the Secure Act passes, you will have until age 72 to do so. People are living longer than they did years ago, so you need to keep your money accruing interest as long as possible so it can last your entire life.
You may not want to withdraw your retirement savings in one lump, fearing that it won’t last as long as it needs to. The Secure Act makes it easier for employers to include annuities in their 401k plans. That way, you can take regular disbursements of your funds instead of receiving one large amount. Some people feel more financially secure with this option.
If you work for a small business, you may not have access to a savings plan. The Secure Act will allow multi-employer plans that let small businesses band together in order to offer their employees retirement savings plans. Your employers will also receive a tax credit for offering these 401k and simple IRA plans with automatic enrollment.
In addition, the bill will provide more transparency by requiring 401k statements to disclose your lifetime income stream. The statements would show you how much money you would see monthly during the length of your retirement. This simple step should encourage more saving by young and middle-aged workers.
Secure Act Future
The ball is currently in the Senate’s court. That legislative body is expected to pass a bill quite similar to the House’s, which means reconciling the two versions should not be difficult. Although there are no guarantees, the President is expected to sign off on the bill when it hits his desk. As a result, you may be able to take advantage of these legal changes by early 2020.
This bill will make it easier for many Americans to participate in retirement savings plans. Currently, too many people don’t have the option to join a 401k plan. That’s one reason so many people are woefully unprepared for retirement. Even if you are in your 60s and working a parttime job, you’ll have the chance to increase your savings, a necessity for retirements that often last 20 years or more.
You will also be able to delay your retirement disbursements, which can be a real advantage if you can afford to do so. Again, you want to increase your savings as long as you possibly can. The average lifespan is still near 80, with many people living far longer. That’s a long time to live with inadequate finances.
These changes are meant to encourage employers to make it easier for their workers to save money. They also mean that people nearing or at the “official” retirement age can still improve their financial picture. The Secure Act will not solve all senior financial issues, but it will be a positive step for many.