By: AnnaMarie Mock, CFP®
According to Northwestern Mutual’s 2019 Planning & Progress Study, 17% of baby boomers have less than $5,000 saved for retirement and 20% have less in personal savings. With an increase in longevity and decreased purchasing power, more individuals have to supplement Social Security income with personal savings during retirement. According to the US Bureau of Labor Statistics, only 55% of the adult population participated in an employer retirement plan in 2018, and Vanguard reported that the median 401(k) balances for individuals age 65 or older are $58,000.
The Setting Every Community Up for Retirement Enhancement Act of 2019, SECURE Act, is aiming to encourage employers to administer retirement plans for their employees, counteract the retirement savings crisis, and prevent retired individuals from outliving their assets. The bill was passed in the House of Representatives in May 2019 but languished in the Senate for months until it was approved on December 19th. President Trump signed it into law on December 20th to begin on January 1, 2020.
There are 29 sections to the SECURE ACT that will affect individuals and employers, but below are some of the major Provisions of the SECURE Act:
Increase the age to start taking required minimum distributions (RMDs) from 70 ½ to 72 if you turn 70 ½ after 12/31/19.
Flexibility for businesses to offer a retirement plan to part-time workers.
Employers will receive tax credits to cover the startup costs for pension plans.
Small businesses can offer lower cost 401(k) plans and automatically enroll employees to encourage savings.
Plan sponsors will be able to offer annuities in the investment options and be protected from any liability of the annuity provider (i.e. any losses from the annuity provider going out of business, defrauds employers, or unable to satisfy financial obligations).
Expands 529 education savings accounts to cover the cost associated with registered apprenticeships, student loan repayments, and certain costs for elementary and secondary education.
Allows new parents to withdraw up to $5,000 from a retirement account without penalty if used for the adoption of a child or expenses for a newly born child.
Individuals can contribute to a traditional IRA past the age of 70½ if they have earned income.
All distributions from an inherited IRA (defined contribution plan) must be made by the end of the 10th year after the original owner’s passing; some exclusions apply.
The SECURE Act contains many changes that may affect an individual’s current savings strategy, financial plan, and legacy plan. This legislation creates new opportunities and challenges for retirement income planning as well.
About 56% of Americans do not know how much they will need to retire comfortably, but this “retire comfortably” figure is very subjective and changes from household to household. Working with a “Real Fiduciary” financial advisor can help identify that target figure, ensure that you are able to meet your financial goals, and modify your plan based on any new laws implemented like with the SECURE ACT. We will explore some of the provisions in the new SECURE Act in more detail in upcoming articles. If you have any questions, please feel free to reach out to the HIGHLAND team.
Author’s Bio
AnnaMarie Mock is a CERTIFIED FINANCIAL PLANNER™ and Partner at HIGHLAND Financial Advisors, LLC, a Fee-Only financial planning firm that offers comprehensive financial planning, retirement planning, employer retirement planning, and investment management. AnnaMarie graduated from Montclair State University with a degree in finance and management and successfully passed the CFP® national exam in 2016. She has been working at Highland Financial Advisors since 2013 as a fee-only, fiduciary Wealth Advisor and is a member of NAPFA.