No, I’m not among those who believe the U.S. pension system won’t be around when I’m ready to retire.
That apocalyptic vision doesn’t take into account how politics work.
Retirees are a powerful voting bloc. If Social Security nears a point when it can no longer meet its obligations, retirees will demand – and they will get – legislation from Congress to shore up the system.
Those measures will probably include small changes, such as a higher retirement age or a different way to adjust benefits for inflation. Those will save a bit of money around the edges. But more significantly, the government will increase the payroll taxes that working Americans pay by enough to save the system.In fact, just last month President Trump signed the SECURE Act to help prevent older Americans from outliving their assets.
It’s worth remembering how Social Security came about…
It’s estimated that in 1934, more than half of the elderly in America could not support themselves financially.
That increase in old-age poverty was a result of the devastating economic contraction of the 1930s, of course. But other factors were important too, including longer life spans and the disappearance of the extended family, when three generations would typically live together under one roof.
So President Roosevelt signed the Social Security Act into law in 1935 as protection against a poverty-ridden old age. Social Security was originally – and still is – designed to provide just enough income to keep the elderly out of abject poverty.
Does Social Security still meet this goal? Barely. The average Social Security benefit today is about $1,475 per month. That’s just $17,700 per year, just above the federal poverty level of about $13,000 per year for an individual. And, if anything, this amount will decrease in the future if cuts are made to benefits, as I suggested above.
So if you’re looking merely to avoid poverty in your old age, Social Security may do the trick. But if you want a comfortable retirement, you’ll need to do a lot more than pay Social Security taxes.
You’ll need a plan. That means deciding when to retire. The average retirement age today is 63, but working longer and delaying Social Security benefits can increase the amount of benefits you receive each month.
But long before that, you’ll need to put your savings to work. And the way to do that is to invest. The stock market is the greatest wealth generation machine in human history, according to Chief Investment Expert Alexander Green. The opportunities it presents us with to build a solid nest egg and a comfortable retirement are astounding.
This bill aims to prevent older Americans from outliving their assets. It also includes other crucial provisions with big changes for small business owners.
The SECURE Act will give small business owners the ability to set up “safe harbor” retirement plans. The plans are less expensive and can provide automatic enrollment for their workers. Another benefit is the use of multiple employer plans.
Multiple employer plans give small businesses the chance to band together to offer retirement accounts. Many small businesses don’t offer these benefits at all.
Small business owners now have more resources to offer benefits to their employees. On top of that, the SECURE Act retirement bill offers many more provisions. Other major changes include:
Minimum distribution age for 401(k) or IRA increase from 70.5 to 72. Account holders can now postpone required minimum distributions until the age of 72.
Eliminates maximum age of 70.5 for traditional IRA contributions. You can now continue to contribute as long as you have income from work.
Employers can offer annuities as investment options within 401(k) plans more easily.
Tax credit for employers that automatically enroll workers into retirement plans.
The changes to automatic enrollment for employers are the greatest asset to this bill. The United States needs more automatic enrollment to ensure young people are saving money.
Instead of opting in, employees have to opt out. By providing this auto enrollment, employers will receive a tax credit to offset any costs of starting the 401(k) plan or IRA.
How the SECURE Act Can Help You
These changes will encourage more employers to offer retirement benefits. According to a recent report on CNBC, more than 1 in 5 Americans (21 percent) don’t save any of their annual income.
These numbers are concerning for many reasons. The Stanford Center on Longevity reports that, by the age of 25, you should be saving 10% to 17% of your income if you plan to retire by 65. Based on the numbers above, many Americans are already well behind with retirement savings. They won’t be able to retire at a comfortable age, if at all.
The new changes will give employers more tax breaks if they provide auto enrollment. If, for whatever reason, you cannot afford to put money into your retirement at that time, you can simply opt out. However, you will now have a clear path to setting up a 401(k) or IRA through employers who previously didn’t offer any retirement benefits.
Knowing when to retire comes down to your financial stability, health, family and other factors, such as your investments. If you aren’t financially stable, you may need retirement income solutions to keep you above water. Preparation is the key for all retirees, and the SECURE Act retirement bill can help. No matter how big or small, there are some key improvements.
The SECURE Act Retirement Bill Overall Impact
The SECURE Act is encouraging to a degree, but it also has some drawbacks. Americans are having to work longer as the cost of living continues to rise. As you can see, Congress is taking notice. It’s increasing distribution ages to offset these changes, but not necessarily addressing the hardships causing these problems in the first place.
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The SECURE Act retirement bill gives small business owners and employers across the nation a better way to provide retirement benefits. The tax incentives and automatic enrollment alone will make a huge difference. Nevertheless, prioritizing your retirement plan early can make all the difference in the future.