The U.S. House of Representatives just approved H.R. 2954, better known as SECURE Act 2.0. This bill comes on the heels of the SECURE Act 1.0 that was signed into law by President Donald Trump on December 20, 2019. These acts are designed to strengthen the retirement readiness of Americans. Americans today are at significant risk for not being able to sustain their current income once they stop working. Boston College’s Center for Retirement Research notes that fifty percent of all pre-pandemic Americans were at risk, or even severely at risk, of not being able to cover an unforeseen emergency.
With SECURE Act 1.0, employers could build annuity deferral options in a 401(k), but with 2.0 they can build a ROTH Option with their matching contributions. Under the 1.0 plan, part time workers were eligible for 401k benefits, but under 2.0, new 401k and 403b plans will have to have automatic enrollment. Under 1.0, employers could pool their 401(k), while under 2.0, 50+ savers contributions have been expanded. With 1.0, non-spousal IRA benefits needed to be distributed within ten years, but under 2.0 there is easier access to retirement accounts in emergency and family planning situations. And lastly, with the SECURE Act 1.0 plan, required distributions increased from age 70.5 to 72, but with 2.0, required distributions have been phased from age 72 to 75.
The SECURE Acts are legislative steps in the right direction. On the ground, however, the trucking industry faces many of the same problems as the rest of America. According to a survey conducted by Truckers News, “51% of truckers in our survey said they have not decided when or if they will retire, and 28% of those who expect to retire want to do it between the ages of 65 and 67.” Unfortunately, many drivers simply are not made aware of the importance of saving for retirement.
These days, trucking companies are offering significant benefits to attract drivers to work for them. These usually come in the form of signing bonuses and higher starting pay. Savvy firms are engaging with their drivers like never before to build an inclusive company to foster retention. These include company parties, raffles after safety meetings, and financial education. A firm’s financial education classes should cover a variety of topics and be interactive. Trucking outfits can have significant impacts in employees’ lives by making retirement readiness a priority. Here are some objectives a firm could put forward to help their employees with retirement.
Retirement Readiness Workshops. These workshops would most likely be conducted by your human resources professional. They could include topics such as replacing your income, impacts of long-term care, and/or understanding your 401(k) plan.
Employer Retirement Policy. This is a set of guidelines and procedures that outline how a firm is engaging with their employees on their retirement readiness. Not only does this help a firm by having a game plan, but it also provides further documentation in the event of an audit.
401k Review. Annual 401(k) plan reviews are not necessary, but highly encouraged by the Employee Retirement Income Security Act (ERISA). During a plan review, a firm should be reviewing the investment menu (investment fees and returns), fiduciary services, plan costs, and deferral limits. Performing these plan reviews once a year will also ensure that the executive team members are up to date with the plan.
Despite all these great efforts by Congress and firms around the country, many employees or self-employed are not moving in the right direction to build their retirement income plan. Following are lists of age-appropriate strategies using SECURE Act’s legislation, firm incentives, and proper planning.
Ages 18-35. At this early stage in someone’s life, retirement might seem like a million years away. However, this age group has the most significant advantage. If a twenty-five-year-old saved $5,500 a year for ten years, their account balance would be over $1,100,000 at age 65 (assuming an eight percent return). If a thirty-five-year-old saved $5,500 a year for thirty years, their account balance would only be $750,000 at age sixty-five (still assuming an eight percent return). The twenty-five-year-old has $350,000 more in their account and paid $110,000 less for it!
Ages 36-55. Retirement may still seem like a good ways away, but it is fast approaching. Currently, there are usually a lot of expenses going out during this age range, such as paying for childcare, college, paying down debt, etc. To pay for these commitments, many Americans are cashing out of their retirement plans. A wiser move would be to roll pretax money into a 401k and take a loan to avoid taxes and penalties. Better yet, set aside an emergency fund to cover any large unforeseen expenses that arise.
Ages 56-70. Retirement is now close, and some irrevocable decisions will need to be made. At ages sixty-two, sixty-three, and sixty-four, you can take advantage of the ten-thousand-dollar additional catch-up contribution. If you are still working at sixty-two, defer your Social Security until your full retirement age (or longer if you were unable to build a decent retirement account).
Planning for your future does not need to be a terrible burden. With the proper guidance and help, conservative spending, some generous saving, and thoughtfully aggressive planning, you can have a fulfilling retirement without the anxiety of wondering how you are going to live. If you have any questions or would like help with you or your company’s retirement plans, call me. I am an independent financial advisor working with trucking companies, their owners, and employees in Houston, TX. I can be reached at (903) 658-3809 or at john@safeguardfinsvs.com.
