The new year often comes with a renewed commitment to getting healthier physically and financially. Both are important goals throughout life and, together with a sense of purpose and family relationships make up The Four Pillars of the New Retirement. While retirees in our research studies with Age Wave tell us all four pillars are essentially equal in importance for living well in retirement, the most recent survey delivered some sobering news about the financial pillar.
Perspectives on Retirement Planning
Data from our 2021 survey, in partnership with Age Wave and The Harris Poll, suggests a significant disconnect between what retirees say is important in preparing for retirement and what pre-retirees are doing about it, especially as it relates to financial planning. For example:
- While 93% of retirees say that planning for and saving enough to last through retirement are important to consider before retiring, less than 40% of pre-retirees have thought a great deal about this aspect of retirement.
- Further, 61% of retirees said they wish they had planned better for the financial aspects of retirement. More specifically, they wish they would’ve had more help, discipline, coaching, and motivation to make better financial decisions.
The Pandemic Effect
On a more positive note, the pandemic has prompted a financial wake-up call for many Americans. In fact, 69% of Americans who plan to retire said the pandemic motivated them to think more about the financial aspects of retirement planning. This sentiment rang true especially for Millennials and Generation Z. For many, thought moved to action as 59 million Americans began contributing more to retirement savings.
Unfortunately, many Americans have reduced, stopped contributing, or worse, withdrawn money from retirement savings during the pandemic. In early 2021, more than 14 million Americans had stopped making monthly retirement contributions.
The pandemic has exacerbated the women’s retirement funding gap and eroded their confidence about retirement savings. Our study showed 46% of women were confident in their retirement savings, compared to 63% of men. Career interruptions, much more likely for women than men, are a key contributor to this gap. The economic impact of this reality has never been clearer as the pandemic hit working women especially hard with many leaving the workplace to care for children or aging parents.
Expanding Opportunities for Retirement Saving
There is some potential good news on the horizon. Congress is considering several bipartisan pieces of legislation that support private-sector solutions by expanding and extending savings opportunities for Americans. Here at Edward Jones, we believe this legislation advances the interests of individual investors and are actively supporting these bills.
Incentives for Small Employer Retirement Plans
According to the Bureau of Labor Statistics, only 53% of those working for companies with less than 50 employees have access to company retirement plans. This is especially troubling when you consider that two-thirds of new jobs are created by small businesses and that they account for 44% of US economic activity (US SBA Office of Advocacy).
In our experience, cost and complexity are the most significant barriers for small- and medium-sized businesses to establishing a workplace retirement plan. The Retirement Security and Savings Act (S. 1770) and the Securing a Strong Retirement Act of 2021 (H.R. 2954) that Congress is reviewing would increase the start-up cost tax credit for small businesses to establish retirement plans for their employees. H.R. 2954 would also provide a new credit for small employer contributions up to $1000 per employee.
Student Loan Repayment
S. 1770 and H.R. 2954, would allow employers to make matching contributions with regard to employee student loan repayments as part of a voluntary employer benefit. This benefit would allow employees burdened with large student loan debt to start saving for retirement.
Raising the Limit
Currently, those age 50 or older can make catch-up contributions of up to $6,500 to eligible retirement plans to take advantage of higher earning years and build up savings as they approach retirement. The Retirement Security and Savings Act would increase the catch-up contribution limit to $10,000 for those age 60 or older contributing to 401(k), 403(b), and governmental 457(b) plans and up to $5,000 to a SIMPLE IRA or SIMPLE 401(k) plans.
Americans are working and living longer, and many are concerned they will outlive their retirement savings. 69 million Americans indicated the pandemic has altered their retirement timing with one-third indicating they will retire later. The SECURE Act increased the age at which participants are required to begin taking distributions from their retirement plans from 70½ to 72. It’s a start, but we don’t believe anyone should be forced to draw on retirement savings before they have a financial need. Under the legislation, the required minimum distribution age would increase over time from 72 to 75.
As more pre-retirees look to for retirement planning guidance, financial advisors have a responsibility to educate them on current savings opportunities and the potential expanded opportunities these new measures would provide. We believe this legislation will go a long way to strengthening our retirement savings system and helping millions more Americans achieve a secure and dignified retirement. At Edward Jones, we’ll continue to advocate for this legislation in 2022, and we encourage you to ask your elected officials to support the Retirement Security and Savings Act and the Securing a Strong Retirement Act of 2021.