The SECURE Act of 2019 is supposed to help more Americans save for retirement. The new legislation will have an impact on retirement plans – and not all of them are good.
In December of 2019, Congress passed H.R.1994 – the SECURE Act of 2019 – which contains the most sweeping changes to government-controlled retirement accounts – such as 401(k)s, 403(b)s, and IRAs – in more than a decade.
The SECURE legislation – which stands for “Setting Every Community Up for Retirement Enhancement” – put into place several provisions supposedly intended to strengthen retirement security.
Not surprisingly, the financial services industry spent many millions of dollars lobbying Congress to ensure passage.
So is the new legislation in your best interests? Is the SECURE Act really likely to increase your retirement security?
Knowledge is power, and the SECURE Act will impact your retirement savings, so stick with me while we look at…
The Good, the Bad, and the Ugly of the 2019 SECURE Act…
The Good: The SECURE Act legislation removed regulatory barriers that prevented companies from offering lifetime-income options in their employees’ retirement plans.
These lifetime-income options come in the form of annuities which provide a guaranteed income over the course of your retirement – no matter how long you live.
One of the biggest fears people have today is living longer than their money, and thanks to the rise of “do-it-yourself” 401(k)s and IRAs, those fears have been stoked because these plans give you no guarantees and no way to predict how much money you’ll actually have when you need it.
There are many kinds of annuities, and some are much better than others. Although I have rarely discussed annuities, my husband and I own six annuities of various types. They give us great peace of mind, and I will discuss them more in the future.
The Problem: Although the legislation is a big step in the right direction to encourage retirement plans to offer lifetime income options, the fact remains that the amount of money people have been able to save in their 401(k)s and IRAs doesn’t even come close to being able to provide a comfortable retirement lifestyle.
According to the most recent Federal Reserve Survey of Consumer Finances, the typical household approaching retirement has saved enough in their combined 401(k)s and IRAs to provide an annuitized income of only $600 per month! That’s not even enough money to cover groceries, let alone health care, heating, transportation, and other necessities.
The Good: The age at which you must start taking withdrawals from your government-controlled retirement account – your Required Minimum Distribution or RMD – has been pushed back from the year you turn age 70.5 to age 72.
That would seem to be a good thing for retirees who don’t need or want to take withdrawals, right?
The Problem: Some seniors are discovering that once they have to start taking their RMDs, they’re being pushed into the highest tax brackets of their lives!
The whole reason for RMDs is that the IRS needs the revenue from the taxes they let you defer all those years in your tax-deferred accounts.
So let me ask you, why do you think the government wants Americans to build a huge pool of money that’s going to be FULLY TAXABLE in the future?
Could it be because they’ll need enormous amounts of revenue to cover our country’s runaway debt and to pay for all the Social Security and Medicare benefits they’ve promised our aging population? Do you really think tax rates can go anywhere but UP over the next 20 to 30 years?
Now Let’s Discuss What’s BAD About the SECURE Act
The Bad: The SECURE Act makes it easier for small businesses to set up automatic enrollment in retirement plans for its workers and to band together with other companies.
Wait, what!?! You’re probably wondering how that could be a bad thing…
I can assure you that Wall Street is whooping for joy over this. After all, what’s not to like about the prospect of having more of your dollars automatically going into these plans where they can charge you confiscatory fees and offer no guarantees – other than the guarantee that they’ll get paid whether you make money… or lose your shirt in the next market crash.
Fees can easily consume one-third to one-half of your account value, as I prove in Chapter 7 of my new book, Rescue Your Retirement: Five Wealth-Killing Traps of 401(k)s, IRAs and Roth Plans – and How to Avoid Them! You can get a FREE copy of the book for just a small shipping charge here, if you haven’t already.
The Bad: In most cases, the increased contribution you make to a 401(k), 403(b) or similar plan will go into a Target Date Fund (TDF), since 90% of employers now have TDFs as the “default option.” That means your employer automatically puts your money into it unless you specifically tell them otherwise (which almost no one does).
I explain in Chapter 3 of my book, Rescue Your Retirement, why TDFs are bad for your wealth and why you should avoid them at all costs. And if you really want to get scared out of your wits, listen to the recent interview I did about the problems with TDFs for the Wall Street Journal podcast.
And Now for the Truly UGLY Parts of the New Retirement Law…
The Ugly: The passage of the SECURE Act legislation makes it obvious how little control you have over the money in your government-sponsored 401(k), IRA, or similar plan. Once you put money into these plans, they control it.
They can – and do – change the rules any time they want – and they don’t need your permission to do it.
Decades of careful tax and estate planning by families were thrown out the window when Congress drastically and immediately changed the laws for inherited or so-called “stretch” IRAs, as part of the SECURE Act.
The REALLY Ugly: Even though many experts have declared the 401(k) an experiment that has failed, Wall Street has just succeeded in finding yet more ways to lock up more of your hard-earned money into accounts that lack guarantees, predictability, control or liquidity, while charging you insane fees for the privilege.
Even Ted Benna – the man who invented the 401(k) – says it’s become a monster that should be destroyed.
The “Father of the 401(k)” now prefers the Bank On Yourself strategy because it gives you an unbeatable combination of advantages, including:
- Control of your money
- A 160+ year track record of guaranteed growth, even when the market is crashing
- Unmatched ability to access your money without restrictions or penalties
- Tax-deferred growth and tax-free retirement income
- The rules of your contract can’t be changed unless you agree to it
The bottom line is any legislation that impacts your 401(k), IRA or other kind of retirement plan needs to be scrutinized. While the SECURE Act has a nice name and looks good on paper, when you dig into the nitty-gritty, it’s anything but “secure.”
However, there is an alternative to retirement savings plans that are run by the government and loved by Wall Street: Bank On Yourself. Using the Bank On Yourself strategy, a Bank On Yourself Authorized Advisor can show you how to use a super-charged dividend-paying whole life insurance policy, along with annuities where appropriate, to secure your financial future.
You’ll gain many advantages missing from 401(k)s and IRAs, such as guaranteed growth, control of your money, liquidity, safety, and numerous tax advantages. To find out how a custom-tailored plan can help you reach your financial goals and objectives – without taking any unnecessary risks, request a FREE, no-obligation Analysis and referral to an Authorized Advisor.