You may have heard that Congress is looking at changes to the ways in which Americans save for retirement. Lawmakers think we need to save more and, for once, they’re right.
Among the things they’re looking at: changes to 401(k) plans—the most substantive in years—and ways for you to guarantee yourself an annual income after you retire.
Retirement is, of course, a huge problem for millions of Americans. A survey earlier this year by GoBankingRates said 42% of Americans have less than $10,000 saved. While this data point can be discounted somewhat because it includes millennials who are relatively young, the fact remains that one-third of those age 55 and over have less than $10,000 saved and 10.5% have nothing at all. On top of that, health care costs are surging and the federal government warns that Social Security may have to be slashed 23% by 2033, which sounds far off but really isn’t. So to say we have a crisis on our hands is hardly an overstatement.
Here are some of the specifics that lawmakers are floating:
You know about individual retirement accounts (IRAs) and 401(k) plans, right? One idea would be to lift the age limit—currently 70½—on contributions to IRAs. At first glance, that sounds fine.
Lawmakers also propose to tinker with existing 401(k) plans in two ways, one of which sounds promising, but one, perhaps not so much.
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In the first instance, small employers would be allowed to join forces to offer retirement plans to workers that might not have them now. Since administrative costs would be spread out, fees could be lowered, allowing more employers to help their workers participate. This sounds like a decent idea.
The other proposal might provoke more scrutiny. It would require investment firms to tell you how much guaranteed cash your savings would generate each month if it was treated like an annuity. Annuities are hardly new and can be complicated. Some financial advisers warn against them, and some 401(k) plans won’t offer them at all, fearing they could be sued if they fail to generate that “guaranteed income” as promised. When it comes to money, no one should ever think that anything is guaranteed, and workers who may be less experienced in such matters should be made to understand this.
Since we’re talking about annuities, which are sold by insurance companies, I’ll point out here that the chairman of the House Ways and Means Committee, Texas Republican Kevin Brady, has gotten nearly $300,000 in campaign contributions from (drumroll) the insurance industry in this election cycle.
And now he’s proposing something huge for them. Funny how all this works.
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Lawmakers are also looking at a new kind of savings plan that would have fewer rules, including the ability to tap into that plan for cash in an emergency without paying a penalty. To me, this sounds like an old-fashioned savings account; you salt away as much as you can and take it out when you need it. So to differentiate from current financial products, lawmakers would have to incentivize people by, say, giving them some sort of tax break.
Whatever the merits of these ideas, and the possible motivations behind them, you shouldn’t expect something to happen.
It’s the middle of July. The Senate will likely stick around in August to deal with Supreme Court nominee Brett Kavanaugh, but House lawmakers have only 23 more work days scheduled between now and election day—and there are already a ton of other issues to deal with.
And if Democrats win a majority in November, which seems to be a possibility, they’re likely to have a far different agenda come 2019.
So don’t hold your breath.
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