Episode 29 — What Could the SECURE Act Bring to Your Financial Life? — Part 1
Did you know there is a new piece of legislation called the SECURE Act that could possibly go into effect on December 31 of this year?
When it comes to our financial lives, Danielle Howard is all about keeping an open mind towards intentional opportunities to grow. To do so, it’s important to understand how changes in public policy can impact the decisions you need to make in your financial life.
Today, Danielle helps you stay informed on what the SECURE Act could mean for you and your financial life by breaking down what it is and what changes it could bring to your fall season.
In this episode, you’ll learn:
- What the SECURE Act is
- How the change in contribution age limits may benefit those who are rewiring
- How the Act will change defined contribution plans
- New changes that could benefit small businesses
- How the Act may allow for more flexibility in your savings options
- Why it’s important for you to consider your own version of prosperity when considering these changes
- And more!
[00:00:02] Welcome to the Wealth Done Differently Retirement Podcast. Danielle Howard a certified financial planner shares insight into the financial tools techniques and temperaments needed to make the most of your retirement dollars and relationships. Danielle bridges the gap between Wall Street and Main Street bringing complex financial topics down to earth. Danielle will educate and inspire you as you define and refine your version of prosperity. [00:00:35] Hello and welcome to Wealth Done Differently Retirement with Danielle Howard a Certified Financial Planner. Today we’re going to be talking about the secure act and how it may impact you so the very first question is besides Good morning Danielle how are you doing? [00:00:47] I’m doing well thank you Aric. [00:00:50] We’ll start with that one but the second question I do is Danielle what is the secure act? [00:00:55] Well it is legislation that is going through the process of being put into law. It is the secure act it’s a setting every community up for retirement Enhancement Act 2019 is created by the Ways and Means Committee it has passed the House voted know four hundred and seventeen to three so passed with flying colors and it’s now sitting on the Senate’s desk and we’re looking at changes that could possibly go into effect December 31st of this year. [00:01:32] Mm hmm. All. That’s moving quickly. [00:01:34] Possibly Yes. Yeah. So we’re we’re in we’re in summer and we’re focused on growth and I think it’s really important that as we’re looking at our our mindsets around abundance and gratitude and intentional opportunities to grow that we understand what is changing in public policy and how it will impact the decisions that we need to make in our own personal financial lives as it as it moves forward. We’re just kind of getting used to the the tax law changes that took place in 2000 18 people looked at their tax returns and gone Oh my goodness this was this really worked well for me. Or maybe there’s some things I need to change to have it and enhance what stays in my pocket. And I think this this potentially has the opportunity to impact people both for the positive and will string this along for two podcasts and maybe even negatively as we’ll address in our next guest. So Danielle what is the goal for today’s podcast and as part one we’re going to glean some insight about this new season of life and how these tax laws are going to impact you. But my goal with this podcast is to dig into some financial technical pieces and delve into quality of life in this retirement season. And I want to make sure that people who are listening don’t take any of this personally literally I think your financial life situation is so unique that you should have an advisor get to know you really well before you make any decisions on what to do with financial tools or how you know especially what we’re gonna be talking about over the next couple week weeks may impact you and impact what you’ve built up over your lifetime. So with that in mind let’s dive into what the secure act is going to do for folks or has the potential to do for folks. [00:03:33] All right class is in session and I’m listening. Where do we start? [00:03:36] Well we’re going to start with our changing demographics one of the things I really focus on is that you know retirement is changing and people are living longer. Again there’s a lot of research that has been done around the preparedness for the traditional retirement. You know that idea of you know OK we’re going to retire at 62 or 65 and most people are inadequately prepared for that April 2019 for a report from the Insured Retirement Institute says that more than 4 in 10 Baby Boomers believe that Medicare is going to cover their long term costs. And only fifty five percent of boomers have any money saved for that season of life called retirement which is really scary. [00:04:30] Yeah that’s crazy. Yeah almost half of that forty five percent do not have any retirement savings at all. [00:04:39] So you know that the numbers out there are pretty scary. Six in 10 boomers have taken no action with their workplace defined contribution plans or only 23 percent of boomers age 56 to 61 expect to receive income from a private pension plan where they work. I don’t like to really focus on, on these statistics because it can put that element of the fear of god into you, which if that’s what it takes to motivate you to think about what do I need to save for my future then so be it. But I also feel that again our traditional retirement is changing and the whole way people are going to be taking money is changing and what they need in retirement is changing. And so again that we could look at the traditional retirement out there or we can look at a new season of life called rewirement and what it needs to have a positive mindset around this season. Then using your financial resources wisely as we head into that. On that I get is my choice to look at it a little bit differently. We know people are living longer. I call it that yes Second Adulthood. It isn’t that you know five to seven years of collecting a Social Security check. Sitting on the porch and and knitting or working in the garden. People are active and we want to look at these statistics and say they can either scare or empower you. So looking at the reality of what financial means you have to create your version of prosperity. I truly believe is going to open doors and help you move into this new season with zest and vigour. I think that personal awareness of what’s going on whether it’s in legislation or in your your personal accounts what’s going on in tax environments and again what these policy rules and regulations will help you discern direction. [00:06:44] There’s a phrase don’t become a statistic. But here’s the thing is if, if a statistic says 9 out of 10 people are gonna pass away from a disease or cancer or heart failure or whatever. Nobody wants to be part of that statistic but the 1 out of 10 who die peacefully in their sleep at a hundred years old or whatever surrounded by family and success. That’s also a statistic we want to be part of positive things. But again like you’ve said before so much of the media so much of the environment that we live in focuses on negative statistics and I think that truly can be a positive tool if that negative statistic makes you think I don’t want to be part of that one. I don’t know the part of the 9 out of 10 I want to be part of the 1 out of 10 perfect. [00:07:26] Yes exactly. Now as we look at what is what is changing. You know we’re seeing more Americans working into their 70s whether it’s by by choice or necessity and according to the U.S. Census Bureau over the past 20 years. It’s raised to nearly 15 percent of Americans are now working into their 70s and it’s in my mind that it’s a good thing. It is the idea. It’s not. You don’t need to focus on whether you need the money or not but you’re staying engaged. And with research showing that you know whether it’s quitting a career and how that leads to isolation or loneliness especially in men and that many college educated workers are choosing to stay in the labor force to stay engaged and have those social benefits. And so as we look at what’s changing with this legislation how can we take advantage of some of these pieces. Let’s take a look at the first thing that is happening. They are looking at repealing the age for contributions to your IRA whether is a traditional or Roth right now at age 70 and a half you can no longer contribute no matter if you’re you’re working or not. And the maximum you can get into it is seven thousand dollars if you’re over 50. And if you’re under 50 you can get six grand a year into it. So you know most people they hit that age 70 and a half and they’re still working but you can’t put money into an IRA anymore. This is going to change. They’re looking at repealing that age limitation. So if you’re continuing to work you can continue to contribute to that traditional IRA or Roth IRA depending on what your income levels are and what you’re trying to accomplish tax wise both now and and down the road. So as long as you have W-2 income you’re going to be able to contribute. You would also be able to contribute right now you can contribute for a spousal even if they don’t have that earned income. Many people don’t know that that if your spouse isn’t working you can put money aside in an IRA for them and that will that will increase. You know again that age repeal is going away. If you continue to work after age 70 you can continue to continue to make your personal IRA contributions as well as spousal one you know which is big enough know if there’s folks out there that want to continue to to build up that tax deferred bucket of money whether it’s an employer sponsored plan or on their own. This is a great way to do it. [00:10:17] Yeah fantastic I mean that definitely sounds like good news. [00:10:19] Yes I think the hard thing is if you have been a saver turning 70 and a half is not going to change your your your habits or your behavior. You know I think people need to address some of behavior issues and creating that intentional spending plan in order to be able to take advantage of the fact that you can contribute for a longer amount of time into your IRS if you know if you’re just getting the ball rolling with that. Another piece that is going to be changing is that they are going to shift that required minimum distribution age. Right now you’ve got that 70 and a half. And it’s just a bizarre calculation. It’s the April 15th following your 70 and a half birthday. A bit kind of a bit convoluted. [00:11:09] Well that hits me really quick because my birthday is April 12th so I’m right there. Oh my gosh it’s the media thing isn’t it. Oh wow. If you’re going a few years to think about that. [00:11:18] Yeah. You know I think this could be either a win or lose depending on you know a specific situation. And today next week we’re going to look at the downside of that. But today let’s look at the win side. This basically you’re going to have they’re going to increase to age 72 and there’s two different. The Senate has a similar bill in the works it’s called the retirement enhancement Savings Act known as RESA. So we’re talking about secure or RESA and they’re looking at pushing back the requirement of distribution age to 75. But for the secure act it’s age 72. [00:12:01] But those are those are big differences. And if either one of them pass that’s a positive right. [00:12:06] Well it can be today we’re going to look at the win. I think there’s some considerations that you need to make based on your situation and based on you know what kind of tax environment we’re in et cetera. But right now to look at the positive is that you with the secure act you could have an extra 18 months to contribute and get that tax deferred growth. Is that going to make a huge difference in your retirement security or or you know extend the bucket of your IRA money. A huge amount not necessarily but again it gives you a little bit more more time. And if we’re in a summer growth season in the economy it could give you that potential for some tax deferred growth. Got it. Yeah they’re going to have to support. Yeah. You know Congress and the Senate they’re going to have to reconcile the two before any legislation is going to get sent to the president’s desk. So which one of those play out. [00:13:07] Well we’ll continue to see that over our summer and fall this year. All right. What else? We’re getting, [00:13:15] We’re going to see some changes with defined contribution plans. Those are your employer sponsored plans. You’re 401KS 403B’s 457 SEP Simples all of those and that this is an area that you know has been really an opportunity to create some, some change. And again there’s some positives and as I’m looking at it I think there’s some a few downsides which again we’re going to address next week. But to start out with they are going to have your employer contribution plan give you some disclosures. And that is similar to what you get from Social Security on an annual basis. Once you hit that you either have to request it from Social Security or once you hit full retirement age you get a copy of it in the mail. Is that it shows you given what you have in this bucket. This is your anticipated amount that you could receive for over a lifetime. So it kind of creates an annuitization picture of what you could expect to receive which for many people would help them understand you know what their spending capacity is going to you what are they going to have based on a certain a certain age. I think one of the challenge with this right now is going to be looking at the methodology that they’re going to use for calculating that lifetime income. I know that that’s still in the work and all of the disclosures and information on assumptions are they have to be provided. But I think it potentially could give people a better insight as to what they could expect the same way that they’re looking at their social security reports. Got it. [00:15:05] All right.
[00:15:06] Participation. This is a interesting one because I think you know again for many people especially women who maybe have not been in the workforce you know for a long time or been more in a part time work situation where they’ve not qualified to participate in a employer sponsored plan this new legislation says that if you’ve worked at a company for at least three consecutive years and you work at least 500 hours a year that you that your employer is going to allow you to participate in it’s defined contribution plan. And I think this again for four folks that are moving into that fall season of life they may not want to work or may not need to work full time and they could work part time still have access to be able to contribute to a qualified program with their employer and continue to build up that nest take her down the road.
[00:16:08] Gotcha. No no absolutely. I think that’s a fantastic thing.[00:16:10] They are looking at permitting employers to auto escalate which means just kind of increase their employee contributions. Right now that the maximum they that you can contribute to a plan is 10 percent other and then looking of your pay and they’re looking at being able to increase that up to 15 percent. Again an opportunity to kind of engage in and boost up your employer sponsored plan. [00:16:40] I think that any opportunity to save more. I think that’s a positive thing.
[00:16:44] Yes sure. Sure. And if it’s done with intention I love the idea that they’re going to allow small employers to band together and participate in a retirement plan. You know right now according to the U.S. Small Business Administration we have twenty eight point eight million small businesses in the United States ninety nine point seven of all businesses. You know so many times we just take out the Wal-Mart the Facebook the Google you know that those are the major employers that Yes Wal-Mart employs more people than anywhere else but the bulk of employers out there fifty six point eight million employees are employed by small businesses. And many times you know in order to there’s this economies of scale and that’s what many times you know a chamber of Congress does come in and look it’s out to band small businesses together in order to get better deals on on you know. Our in our valley as we get better deals on skiing the line to the chamber to bring together what these employers and be able to sponsor a retirement plan and kind of maybe negate some of the costs for one case or are really expensive and their administrative heavy you know your simple plants or They’re simple they’re a lot less expensive. And in determining what type of an employer sponsored plan is right for you is again very different based on what you’re trying to accomplish usually for the employer. But I think overall it’s encouraging people to to come up with new ways to save. And I think that overall is a good thing.[00:18:38] Yeah absolutely. What else do we need to discuss about this. [00:18:41] Let’s see there is going to be there’s a tax credit for small employers to encourage that automatic enrollment into one of their retirement plans. So here’s again a benefit for a small employer to offset some of the costs of starting those. This plan is a tax credit of five hundred dollars and tax credits are always a good thing on a tax return. They definitely weigh heavier than year deductions because it offsets that what you’re going to pay in taxes or directly. I think you know again that idea of of how do we encourage saving when we’re looking at young people. You know again my focus is primarily on the pre retirees those within five years of retirement or heading into that fall season of life and the earlier you start the better. One of the things that will be changing is they’ve got penalty free withdrawals from a employer sponsored plan or your IRAs. In the case of a birth or adoption. And I think the idea behind this one is too many times people don’t save. Younger people won’t save because they don’t know if they’re going to have enough money to cover you know a birth or have enough money to see them through maternity leave. And for them to be able to you know start saving early knowing that right now they get penalized 10 percent if they pull money out of their traditional IRA or your Roth IRA or your player sponsored plan. And if they they remove that then many people will again use those vehicles as tax deferred savings opportunities. [00:20:31] Nice. [00:20:32] Again giving some flexibility it sounds like you know that’s so that’s that’s what it’s all about the more flexible we can be the more options you have the more you understand how any of these opportunities fit into your particular situation and can benefit you I think is is good stuff. The next one is you know annuity opportunities annuity options with in employer sponsored plans. This one is with something you’re going to really dig into next week. But again it potential positive side of it you know annuities are incredibly complex products and they’re expensive. And the idea that they’re they’re going to update the safe harbor provisions for plan sponsors to be able to select annuity providers in order to offer you know annuity plans inside of your for one case right now you know many many companies stay away from them because they’re they’re complex. And I think that you know the new rules are going to ease up this liability concern for four companies. And you know it’s another opportunity to use the tool inside a retirement plan. Again I’m on the fence as to whether this is a good one or a bad one. We’ll play that out a little bit more. [00:21:54] Sounds like we got a lot to discuss. It’s a teaser. [00:21:57] It’s a teaser teaser something that doesn’t have to do with retirement plans. But it has been incorporated into this new legislation is changed to the 529 plan and 529 so are the tools that people use to save for your education your future education. And there were some changes made when we passed tax law that now allows people to use their 529 plans to up to ten thousand dollars a year to go to high school private schools or secondary education not just your college. And now this the secure act is going to allow families to take tax free distributions for student loan repayment. This this could be an interesting way of looking at your college funding to say you know. All right. You may want to allow a child again not too sure. Good or bad but to take out loans initially if you’re in if we’re in a summer economic season and your accounts are still growing and you want to keep that tax sheltered growth. So you take some loans during college you get out of college you don’t occur any interest on those loans until you finish school as soon as you’re finished. You’ve been you’ve been able to grow the 529 a little bit more then you can take out in an aggregate lifetime limit of ten thousand dollars to make a repayment on on that loan. So there’s some tactical strategies that you could use around those those 529 is to take advantage of you depending on what kind of an economic season when we’re we’re in and what life season you’re in with those 529 plans now everything that you’ve discussed today so far has been really focusing on flexibility. [00:23:54] It seems like they’re trying to give people a little bit more flexibility different ways to do things better ways possibly maybe not so much better. We’ll talk about it next time. But with all of these items do you feel these policy changes will enhance or help people to see and make some changes in their behaviors like you spoke about earlier how much people save for their future do you think that’s going to kind of force people to do it or really open their eyes or know. [00:24:20] Yeah I’ve never seen legislation that really helps people change their behavior. I truly think it can be a motivator or a deterrent. But I think we have to look at our behavior in light of our vision for what true prosperity is in our own life and then take advantage of whatever new legislation or our tax rolls come down the line in order to take advantage of them and use them for our benefit. And this is where I come back to the qualitative side of people looking at what is important about creating their version of prosperity their unique idea of what true wealth is especially in this season of life. You know, usually I would think that this you know legislation is going to help out people mostly who already have some good behavior and you know have built up some potential and you know we’re going to continue to, to build on the wins. So the sooner people can take a look at what they’re you know where they’re at in their long term goal planning in their you know trying to address their needs around liquidity and and lifestyle and longevity and, and legacy and really know themselves then I think you know yes there’s elements of, of this legislation that could be really beneficial. The same thing with tax law changes. You know you can work them in your favor if you don’t just kind of acquiesce to the status quo and you are you are proactive instead of reactive in understanding what’s best for year personal family situation. Yeah absolutely. You know again my goal is to plant some seeds to help people understand you know what is out there to encourage them to do some more homework either learning about what’s what’s happening you know whether it’s this legislation you you have folks that you know that you can write letters to your representatives you can get engaged in ways whether it’s around secure act or RIMA or you know what’s going to be happening with Social Security changes or Medicare changes. I think people that you know again it’s that creating awareness of what is going on and how we need to be proactive in understanding how it’s going to benefit us and how we need to use it to build on the wins. [00:27:05] I agree 100 percent. Danielle I know that we are running low on time for this podcast and this is only part one so I know we have got a lot for part two. But what do you have for closing thoughts for this podcast. [00:27:16] Well entice people to join us next time not all of the secure act is leaving me feeling really secure and we’re going to discuss the downside and some of the components that you really need to consider as you look at planning for yourself and your family moving forward.
[00:27:33] Gotcha it sounds like we’re going to be possibly going from the secure act to the not sure act, something like that for the next podcast. Sure. You know we’ve got a lot to discuss I’m sure Danielle. And speaking of that I mean this is probably going to bring up a lot of questions in people’s minds so how do they reach out to you if they want to. Chat about this podcast especially after the next one I’m sure there’ll be a few more phone calls.
[00:27:56] But how do they get ahold of you? Meeting with us face to face. You start by checking out the Web site. Www.wealthbydesign4U.com. This is where we can get to know you and your personal situation. If you’d like to get to know me better and understand read more of my blogs and podcasts. And just hear and get yourself educated check out DanielleHoward4U.com you can download financial affirmations we’ve got we’re working on a few other little educational tidbits that should be up and coming real soon.[00:28:37] Fantastic. Thank you so much for your time today. [00:28:40] You’re welcome Aric you have a great continuation of your summer events. [00:28:46] I will and I look forward to the next podcast. It’ll be fun. All right. Thank you. Thank you. You bet. Thank you all for listening to the Wealth Done Differently podcast. If you have not subscribed to the podcast yet please click the Subscribe now button below. This way when Danielle comes out with a new podcast it’ll show up directly on your listening device. This makes it much easier to share these podcasts with your friends and family. This is a great one for starting those discussions around the table. Again thanks for listening today. For everyone at Wealth Done Differently Retirement. This is Aric Johnson reminding you to live your best day, every day. And we’ll see you next time.
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