The SECURE Act (Setting Every Community Up for Retirement Enhancement) will not live up to its acronym. It is like putting a Band-Aid on a heart when it actually needs stents or surgery.
The problem is that most of us have not saved enough for retirement. Many are losing their pension benefits. Those who have not saved will be forced to live on the meager amounts that Social Security retirement pays, which was never intended to be the sole source of retirement income.
Many companies stopped providing pension benefits as their pension funds began to go upside down. In other words, there were more people collecting pension benefits or who would become eligible for benefits than there were to support the pension benefit payments. As is true with any budget, when you have more going out than coming in you have a problem. Many companies which still have a pension are cutting back on pension benefits and some pension funds are becoming insolvent. There are more pension cases in my practice now due to illegal cutbacks (and other more nefarious activity) than ever before. And, there are many more cases out there.
When pensions became too difficult to fund and manage, many employers began to offer 401(k)s. However, people have not begun saving into a 401(k) until it is far too late. If you started putting a little aside every paycheck when you were in your twenties, you have a much better chance of having sufficient income to live on when you retire. I am amazed at the number of people who do not participate in a 401(k) even when their employer makes a matching contribution. That's free money!
If you wait until you are in your fifties or sixties to begin contributing to a 401(k), you will likely not have saved enough to live on for a modest standard of living. Statistics show that the average amount in a 401(k) is about $104,000. The poverty level for 1 person is about $12,500. If you suddenly became disabled or had to retire how long do you think $104,000 would last? Life expectancy overall is approaching 80 years of age. Further, medical expenses generally rise the older you get, your 401(k) could be depleted even faster.
We must start buckling down and setting aside money every paycheck, if we want to live above the poverty level during retirement. The only other option is to keep working into your seventies and maybe eighties if able. This is where the SECURE Act comes into play.
Below are five impacts of the SECURE Act:
- The SECURE Act allows working individuals age 70.5 or older to continue making contributions into a 401(k) or IRA. So, if you are turning 71 this year, you can continue to contribute to your 401(k), which hopefully will earn more than a savings account. 401(k)s performed remarkably well in 2019, but there is no guarantee they will continue to do so well in the future.
- The SECURE Act raises the required minimum distribution age from 70.5 to 72. Given our historically low unemployment rate, perhaps employers will be to hang onto those older workers who need to continue working.
- The SECURE Act also reduces the time for taking IRA distributions for those who inherit an IRA from someone who passes after January 1, 2020, to 10 years after their death. For those who are still working and supporting themselves this creates an additional tax due to withdrawing the money before it is really needed. On the other hand, if you inherit it at age 72 or later and you are not working, it may not impact you as much. It will cause some estate planning lawyers to pull their hair out, as it can impact current estate plans.
- The SECURE Act also allows you to take a 401(k) distribution of up to $5,000 if you adopt a child or birth one to cover associated expenses.
- Finally, the SECURE Act also allows 401(k) distributions of up to $10,000 to repay certain education or apprenticeship loans.
As you can see, the SECURE Act doesn't really make most folks any more secure in their retirement or otherwise. It's more like a Band-Aid on a heart condition.
Do you believe your retirement payments are safe? They may not be. It is important to review and understand your retirement and pension plans. Our experienced retirement benefit lawyers can help make sense of them.
Whether you need advice before applying for retirement benefits or you need help with a problem afterward, contact an experienced pension lawyer or retirement lawyer at The Martin Law Group.