For around half of Americans, retirement isn’t as restful as its moniker implies – if they can achieve retirement at all.
“We do deal with folks often enough … who don’t have the amount of savings to support their lifestyles later in life,” said Frank Giorgio, vice president of investments and business development at Lax & Co. LLC financial planning services in Warwick.
It’s a trend that extends well beyond the firm’s clientele, with Giorgio characterizing retirement as “severely underfunded” overall.
In fact, in a survey released by CNBC/SurveyMonkey in August, 56% of respondents from throughout the U.S. reported they have inadequate retirement savings. And according to 2017 U.S. Census Bureau statistics, 49% of Americans aged 55-66 have no retirement savings at all.
But local financial advisers say that the Secure 2.0 Act, legislation passed in 2022 that was originally slated to go into effect in 2023 but was pushed to 2025 to give employers more time to adjust to the changes, could help working Americans get a head start on retirement savings, or overcome earlier obstacles to creating a strong retirement fund.
Clients often aren’t surprised to learn that they don’t have adequate retirement savings, Giorgio said.
But with broader economic challenges, it can be hard to avoid. In the CNBC/SurveyMonkey report, 74% of respondents described themselves as stressed about their personal finances, and 37% of those respondents said they are “very stressed,” while 61% of overall survey respondents said they’re living paycheck to paycheck.
For Giorgio, a standout component of the legislation, which builds upon the 2019 Setting Every Community Up for Retirement Enhancement Act, is the option to push back required minimum distributions to age 73.
With people living longer, this provision “gives [the account] a couple more years to grow before you have to start touching it,” Giorgio said.
“If you have your IRA [individual retirement account], and you’re not necessarily using it for retirement income, the idea is that you’re going to pass it on,” he said, “and it’s nice to have another one, two, three years to let it cool before you have to go access it.”
Under another stipulation of the Secure 2.0 Act, companies will have to auto-enroll new employees into 401(k) and 403(b) plans. The law provides exceptions for smaller employers, and employees still have the choice to opt out of contributing to these accounts.
Giorgio expects that this provision will allow more Americans to adequately prepare for retirement and has long advised clients to take advantage of 401(k) and 403(b) benefits.
“I would even look at the company match as part of your pay,” Giorgio said. “If the company was going to pay you a dollar, two dollars an hour more, you shouldn’t say no. … I think it’s a good thing to get people immediately on the right path, and they can always opt out if they want to.”
This portion of the legislation can make a particularly significant impact for Black, Latinx and lower-wage employees in retirement planning, according to the bill’s supporters. The legislation’s text cites research finding that automatic enrollment in 401(k) plans saw ongoing 401(k) participation among Latinx employees surge from 19% to 75%, for instance.
Giorgio said these regulations shouldn’t pose major expenses to businesses and he sees the legislation as “a home run for the employees and for the employer.”
That’s not to say employers won’t foot any new bills.
“On the negative side, it will cost employers more to change their plan documents,” said Richard Anzelone, managing partner and chief compliance officer at StrategicPoint Investment Advisors in East Greenwich. “But that’s the cost of running the business.”
Overall, Anzelone doesn’t get the impression that employers are particularly upset about the new expenses, as they can work in favor of employee success and retention strategies.
Like Giorgio, Anzelone expects the legislation can help working Americans with retirement savings regardless of age and where they are in their careers.
“For older people, that’s going to allow them to catch up when they’re behind,” Anzelone said. “For the young ones, it helps you start earlier.”
For those trying to catch up, a particularly pertinent change allows those 50 or older to contribute up to $10,000 per year to their retirement savings – an increase from the previous $7,500 cap.
In addition to changes to required minimum distributions and auto-enrollment, Anzelone said another piece people don’t always consider is the changes the act implements on the Roth 401(k), or an employer-sponsored savings account that is funded using post-tax dollars.
“Right now, your matching contribution from your employer cannot go into the Roth,” Anzelone said. “With this new rule, you put the option to put it into the traditional 401(k) or the Roth 401(k).”
