Retirement planning is a popular topic in our political climate, and for a good reason. Now is the time to shift the narrative from a “retirement crisis” to sound solutions for retirement.
In recent months, there has been a Congressional push for multiple employer plans (MEPs), the introduction of federal legislation to create a private benefit review panel and the emergence of several state-run retirement programs, both on paper and in practice.
With potential Social Security funding shortfalls, likely due to factors like lower birth rates, Americans are concerned about outliving their retirement savings. Employer-sponsored defined benefit plans are only available to 65% of employees, 2017 Pew research found, which means the responsibility is often on individuals to plan for their retirement. The problem is, many Americans have no idea where to begin.
Recent data from the Indexed Annuity Leadership Council (IALC) — where I am the executive director — suggests that although 57% of Americans surveyed are excited about retirement, many are unprepared to turn their dream golden years into reality. In fact, according to USA Today, a 2018 study GoBankingRates study found that 42% of Americans have less than $10,000 saved for retirement.
In response to the lack of retirement readiness, states and Congress are working to enact political change. Here are three legislative developments that could shape the future retirement planning landscape:
Re-Emergence Of The Retirement Enhancement and Savings Act (RESA)
RESA, sponsored by Senators Orrin Hatch (Utah) and Ron Wyden (Oregon), aims to increase voluntary retirement savings, according to MarketWatch. In addition to making it easier to form multiple employer plans, RESA would encourage auto-enrollment plans and look to incorporate lifetime income.
Greater access to lifetime income options could help lead us in the right direction, introducing more certainty into the retirement equation and helping mitigate risk in outliving savings, no matter the length of retirement. After all, IALC’s research showed American workers surveyed were, above all, looking for lifetime income in retirement.
Federal Retirement Commission Act
Senators Todd Young (Indiana) and Cory Booker (New Jersey) introduced plans for a bill in April establishing a federal commission to assess private retirement benefit programs and deliver recommended ways to improve these programs to Congress.
If significant action stems from the anticipated report, it will likely be the first time in more than four decades (since the Employee Retirement Income Security Act of 1974) that the private sector’s retirement rules see a broad-based overhaul. Since that time, the retirement landscape has evolved. Today, I believe workers are experiencing less access to traditional retirement plans because of the apparent increase in less conventional career paths, including freelance and contract positions. With these changes comes a shift in how Americans plan for retirement.
As IALC data shows, more than half of all of America’s workforce reports their access to retirement plans and products has either flatlined or decreased in the past decade, and nearly 14% of Americans surveyed are taking on side work with the explicit goal of saving for their golden years.
State-Run Retirement Programs
Certain states are currently implementing state-run retirement programs, according to 2017 Georgetown University research, including programs that automatically enroll individuals in savings plans. Most recently, Oregon, Illinois and California have announced they hope to help residents put money away by enrolling them in plans with an opt-out feature.
Because success may vary by location, I’ve observed that states are looking at how plans perform, which can both refine and improve them for the future and ultimately establish them as viable options for additional states.
It is clear we need to address the “retirement crisis” and give Americans the solution they want in their golden years: guaranteed lifetime income.
How You Can Act
Regardless of how these legislative developments evolve, there are steps you can take right now to help secure your financial future. The “retirement crisis” offers a challenge to those approaching retirement age, but it is one that can be met with careful planning and understanding of all the available options.
1. Arm Yourself With Information
The breadth of choices can seem overwhelming, but it’s best to consider a variety of options when planning for retirement. I recommend examining your retirement preparedness plans and weigh that against other factors, including how tax options will impact your savings, what your Social Security payments will be and what your overall financial risk tolerance is. Carefully assessing your portfolio may uncover potential to enhance your savings strategy.
You can review your financial plan with a five-point checklist:
- Growth potential
- Solid rate of return
- Preservation of principal
- Monthly payments for life
If your current plan does not check off all the above, investigate different products to achieve the right mix in your portfolio.
Also, I recommend speaking to your financial professional to ensure you have all the relevant information at your disposal to make informed choices.
2. Diversify Your Retirement Portfolio
Market swings, legislative changes and unforeseen life changes can have adverse effects on your savings. Diversifying your portfolio can help mitigate these by ensuring that no one risk carries too much damage potential.
Betting your entire retirement on a single product or product class could put you at extreme risk for an unstable retirement, whereas a balanced portfolio is essential for managing risk and reward in the financial markets.
Options such as FIAs, 401(k) plans, IRAs and mutual funds all offer solutions for different individuals with their own financial positions and varying levels of risk tolerance. (Full disclosure: my council provides education about FIAs.)
As Congress and others work to shape the future retirement landscape, you can help mold your own retirement outlook by taking steps now to get on track for the years ahead. Whether your retirement is 20 years away or just 2, the bottom line is: Get all the information, talk with your financial professional, and don’t leave securing your finances to chance.
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