1) Boomers need to be saving more for retirement. “We have a catch-up contribution for that, as an example.”
2) “Let’s be sure that we really are doing everything we can to increase access to employer-sponsored plans in small businesses. And that that’s where that’s where the issue is. Fifty-eight percent of private sector workers have access to an employer-sponsored plan, and it’s only 49% if you work for a small business.”
3) Low-income Americans and part-time workers who are particularly missing out on the ability to save for retirement. While the SECURE Act expands access to 401(k) plans for part-time workers, Portman-Cardin goes a little further than that. “But also with the legislation we have to expand the saver’s credit, substantially, it as they are living longer, healthier lives. “And that’s a good thing. But Social Security, while it’s an incredibly important safety net, it’s really tough to live on,” Portman said. “So you need to supplement it with private savings. And that’s what Portman-Cardin would do.”
QLACs and RMDs
A specific product now in the spotlight as a result of the SECURE Act and Portman-Cardin is the aforementioned Qualified Longevity Annuity Contract (QLAC), a deferred income annuity where payments can be delayed up to the age of 85.
As Sage Advisory Research Analyst Andrew Poreda pointed out in a blog post after the SECURE Act was passed by the House last year, that will help with regard to low-income Americans to be able to save, because we see that as a huge issue,” Portman said, citing a statistic that just 22% of low-income workers are now participating in a retirement plan. “It’s an incredibly low, low number.”
4) “The final one, I would say, is this lifetime savings issue—making sure the retirees don’t outlive their savings.
“We provide incentives for QLACs and encourage the ability for people to be able to spread out their retirement savings in a responsible way.” Citing a Northwestern Mutual survey that says two-thirds of Americans think they’re going to outlive their retirement savings, he says people are rightly nervous about a big benefit of the QLAC is that a portion of one’s 401(k)—up to 25% or $130,000—can be used to purchase one, and it is exempt from RMD calculations, a factor to consider for some retirees.
The other huge benefit, Poreda noted, is the significant increase in the monthly payout values that are a result of delaying payments until a much later date. As many retirees may have to deal with the distinct possibility that they live well into their late 90s, while also facing significant medical care costs, a QLAC could provide these individuals the peace of mind that they are not going to outlive their savings.
When coupled with a traditional retirement account, one could drawdown from funds remaining in a traditional IRA, and once depleted the QLAC would kick in, in essence acting as an insurance policy against longer life expectancy.
Poreda said many employers have been reluctant to offer QLACs and annuities in general, but predicted that will soon change in light of the new and proposed legislation. Portman thinks so, too.
“I think there’s more demand for annuities as people again, look at longer life. But you need to have a pretty substantial nest egg to make an annuity work. And one reason we like these QLACs is that they tend to be something more practical for people who don’t have a huge nest egg already,” Portman said.
He adds that another common-sense reform in Portman-Cardin is to change the way the minimum distribution rules work. “What we say is that if you have $100,000 or less in aggregate retirement savings, you don’t have to worry about the required distribution at all. And that will really help with a lot of individuals who, they’re still working at age 70½ and, you know, for some age 72 and 75 and on up. And they just don’t want to worry about having to pull money out and pay taxes on it. They want to continue to accrue more retirement savings.”
