Congress is Getting Serious About Retirement Savings: You Should Too
Episode 203 – Congress is worried about Americans’ insufficient retirement savings and you should too. Various legislative proposals seek to address these concerns.
Transcript of Podcast Episode 203
Hello this is Bill Rainaldi, with another edition of Security Mutual’s SML Planning Minute. In today’s episode, Congress is Getting Serious About Retirement Savings: You Should Too.
In June, 2022, The Vanguard Group, Inc. (Vanguard)–one of the largest investment management firms in the U.S.–released a study How America Saves 2022, detailing retirement savings habits and account balances.
Vanguard manages many employer-sponsored retirement plans as well as personal IRAs. It found the average account balance for Vanguard participants was $141,542. Many Americans’ retirement accounts had balances less than that, however, because the median balance was only $35,345. Looking at this data led me to ask: “Can someone comfortably retire on this amount of retirement savings, even with Social Security and other assets they may have?”
Members of Congress undoubtedly have had similar thoughts and concerns because there has been a flurry of activity in 2022 with various legislative proposals submitted to address retirement savings. While these proposals have not yet been passed into law, it is instructive to review a few of these proposals to understand Congress’s views and why you should be concerned.
Let’s start, however, with the SECURE Act (or Setting Every Community Up for Retirement Act of 2019) which was signed into law on December 19, 2019. By now, everyone should know it was a major piece of legislation and changed many aspects of retirement planning. Most importantly, for individuals, the SECURE Act recognized that people were working and living longer. It, therefore, changed the age to take minimum required distributions from 70 ½ to 72, and allowed individuals who were still working to continue to contribute to an IRA regardless of age. Certain part-time workers were also now included in employer-sponsored plans.
Since then, the Securing a Strong Retirement Act of 2022, dubbed SECURE 2.0, was proposed. This bill overwhelmingly passed the House in March but remains a work in progress in the Senate. For workers between the ages of 62 and 64, SECURE 2.0 would increase the catch-up contributions from the current $6,500 to $10,000 in a 401(k) or 403(b) plan. IRA catch-up contributions would not be raised but would be indexed for inflation, which they are not currently. This proposed legislation would also require employers to automatically enroll new employees into an employer-sponsored retirement plan and slowly but steadily increase the age to take minimum required distributions to 75 by 2032.
In June, a Senate committee proposed the Retirement Improvement and Savings Enhancement to Supplement Healthy Investments for the Nest Egg, dubbed the RISE & SHINE Act. In September, bipartisan legislation was proposed in the Enhancing American Retirement Now (EARN) Act. Together, the expectation is that both proposals would be combined to be the Senate’s version of SECURE 2.0. Both proposals contain similar offerings to the House version of SECURE 2.0, such as increasing the age to take minimum required distributions, indexing the IRA catch-up provisions with inflation, and increasing catch-up provisions in 401(k) and 403(b) plans for employees but only between the ages of 60 and 63. There are other provisions as well.
The RISE & SHINE Act would allow employers to offer a feature in its retirement plan to permit employees to create an emergency savings fund on an after-tax basis. It also requires employers to prompt employees on a regular basis to enroll in the retirement plan if employees opt out of the automatic enrollment feature.
The EARN Act would also allow up to $2,500 per year to be withdrawn from a qualified retirement plan, without a premature distribution penalty, to pay long-term care insurance premiums. Qualified Longevity Annuity Contracts (QLACs) would be encouraged. QLACs are deferred income annuities that are funded with qualified retirement account monies and designed to provide a lifetime income stream to a retiree later in life. QLACs are designed to prevent a retiree from running out of money if they live a long time. Currently, the most that can be taken from a qualified retirement account is the lesser of $135,000 or 25% of the account balance. The 25% limitation would be eliminated, and the cap would be increased to $200,000.
Notwithstanding the colorful and descriptive titles given to these proposals, they all offer something that many Americans need and want, and that is the ability to increase and stretch out retirement savings. Clearly, members of Congress are concerned that Americans are not saving enough for retirement, so any measures to increase that would be beneficial. People are also living longer so retirement savings must last longer, and provisions such as raising the age to take minimum required distributions or increasing investments in QLACs would impact that.
Contact your Security Mutual Life insurance advisor today to review your retirement plan. Your advisor will coordinate with your attorney and tax professional to review your situation and determine a course of action that is appropriate for your retirement needs.
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