Yes, I sometimes sound like a broken record, but… I’m doing all I can to persuade a younger generation that thinking about a future retirement is important. And then actually do something to make success more likely.
In terms of reform, I see an initial effort by Congress to move the goal posts. This is in response to the fact that millions of Americans are living longer than ever and not having enough money to pay their bills.
Why? Because modern medicine is keeping us alive longer and many are forced to work longer because they don’t have enough money saved to finance what will likely be a 30 year trek into the future.
I hope this resonates with you as there appears to be a bipartisan effort in the House of Representatives that could make a positive difference. It appears that both employers, and employees, could be further incentivized to set aside money from current income to be used in the future.
Today, the IRS offers several plans, all identified with Internal Revenue Code Section numbers. These include 401(k) plans, 403(b) plans, 457(f) plans, 223 HSA plans, and maybe some more. And then there is the Thrift Savings Plan, similar to a 401(k) plan, but for Federal government employees, the military and the post office. There are some 5 million participants.
The motivation for this is to give people more opportunity to put pre-tax dollars into an account where it will grow. Then allow all income taxes on this money to be deferred until later in life. And to provide more flexibility, which also takes pressure off existing programs like Social Security.
There’s a zillion people out there telling you how to invest your money. I’m more interested in helping you understand ‘why’ you should set aside money in the first place than worry about ‘what’ it should be invested in. If you plan to live beyond zero in retirement years, you’re going to need money if you expect to pay your bills.
Many readers of my posts are still in the workforce and many already set money aside every payday into pre-tax retirement accounts. On April 2, 2019, the House Ways and Means Committee voted to advance legislation that offers a number of good ideas for discussion:
- the ability to keep adding pre-tax dollars into IRA accounts beyond age 70½ ,
- delaying the start of Required Minimum Distributions (RMDs) to age 72 from the present 70½ ,
- removing some restrictions with respect to automatic enrollment in 401(k) plans and presumably other payroll deduction options,
- incentivize small business owners to offer plans to their employees by awarding tax credits to those who automatically enroll workers,
- offer annuities as an investment option, the advantage for which is the transfer of downside risk, or protection against market crashes, for a fee, and
- expanded opportunities for how money can be used from 529 college savings plans, and perhaps HSAs.
“Our reforms will help families save more and earlier for the future, ensuring folks have the flexibility and control over their own savings they need for whatever life throws their way,” the top Republican of the House Ways and Means Committee, Rep. Kevin Brady, R-Texas, said in a statement last week.
I suspect the House of Representatives will pass a bill to make some or all of this happen. But don’t hold your breath when it gets to the Senate.
Finally, independent of anything happening in the House, changes are proposed for those who participate in the Thrift Savings Plan. By mid-September of this year, participants will have much more flexibility when it comes to accessing their money. It opens up options to better meet the current financial needs of retired, or separated employees, so they can better manage their funds and pay their bills on time.