The good news: You're statistically going to live longer.
The bad news: You may not be able to afford it.
Despite recent declines in life expectancy, Americans are living longer than before, but their financial well-being might not share the longevity of their predecessors.
For more than 100 years, Americans' life expectancy has been climbing (and peaked in 2014, before starting to decline slightly). The life expectancy of people born in 1900 was 47.3 years, according to the Centers for Disease Control and Prevention (CDC), and had increased steadily to 78.9 years for people born in 2014.
But, with those longer lifespans come concerns about whether people will be able to take care of themselves as they age.
Recent changes to federal laws surrounding individual retirement accounts are intended to help prevent Americans from outliving their savings after they retire.
SECURE Act supports saving
In late December, Congress passed, and President Donald Trump signed into law the Setting Every Community Up for Retirement Enhancement (SECURE) Act.
The act primarily affects people in two different categories - employers who may or may not have considered retirement plans and individual savers, according to Travis Ford, a financial planner with Wall Street Group in Jefferson City.
"There are provisions that affect each," Ford said. "For example, the tax credits for employers with 401(k) plans - that's targeted at employers. The stretch provision, the new (Required Minimum Distribution or RMD) age of 72, that affects individuals. Most of these things can be divided into those two categories."
The "stretch provision" refers to how inherited IRAs could be distributed. Until the SECURE Act, most people could stretch distributions from inherited IRAs for their lifetimes and leave them to someone else after they die. That person in turn could stretch distributions and defer paying taxes on non-distributed funds. The SECURE Act requires the inherited IRAs to be distributed within 10 years of receipt. Surviving spouses are excluded.
And the SECURE Act extended the age when people have to take RMDs from 70-72.
The act is intended to give more Americans chances to save for their retirement.
Among other things, the SECURE Act delays when retirees must begin taking withdrawals from their retirement accounts, allowing them to grow longer. It also removes the age limit to contribute to a plan.
Possibly more important is the bill makes it easier for small businesses to create retirement plans by offering a tax credit to employers who set up automatic enrollment for employees.
The financial outlook is bleak for some.
Fewer Americans have access to traditional pensions to sustain them after retirement than they once did. And few have socked away much for the future.
An annual study from Northwestern Mutual found one in five Americans have no retirement savings. And only about a third of Baby Boomers (generally born after World War II from 1946-64) has up to $25,000 in retirement savings.
Additionally, those who plan to use personal retirement accounts - such as a 401(k) - to supplement Social Security may not be putting enough away to stay afloat. And, the plurality of older Americans already relies primarily on Social Security benefits to survive after retirement, according to a new report by the National Institute on Retirement Security.
The stool wobbles
Released Wednesday, "Examining the Nest Egg: The Sources of Retirement Income for Older Americans" looked at the "three-legged stool" that was once considered the foundation for workers' savings, which ensures secure income after retirement.
The stool consisted of Social Security, a defined benefit pension and individual savings (typically created through a contribution plan, such as a 401(k) or individual retirement account).
Only 6.8 percent of retired Americans receive income from each of the three legs, according to the institute report, in part because the option to receive a pension has gone away for most workers.
In many cases, workers can't be blamed for not having three legs. Fewer and fewer industries offer pensions to workers. They may be found in the manufacturing, finance, nursing, teaching, government and military sectors. But, in few others.
The National Public Pension Coalition reported in 2016 that 88 percent of private sector workers in 1975 had workplace retirement plans that included pensions. By 2016, the report said, only 33 percent of workers had plans that included pensions.
The shift occurred as the economy evolved, manufacturing jobs left the country, tax laws changed in the President Ronald Reagan era, and there was a move away from unionization, the coalition report ("What Happened to Private Sector Pensions?") stated.
"Defined benefit pensions were once the most common retirement plan in the private sector (for those employers that offered a retirement plan)," it said. "Workers knew that if they worked for a company for 20 or 30 years, they would be able to retire with a reliable and secure pension. That promise is now gone for most private sector employees."
The National Institute on Retirement Security's nest egg report said data showed only 22 percent of workers in the United States participated in pension plans in 2017.
It said 64 percent of private sector workers in 2018 had access to defined contribution plans. The Government Accountability Office (the GAO, which provides information to Congress to help it decide how best to spend and save revenue) used data from a 2013 survey to look at households where the head of the households was 55 or older. The GAO found only 48 percent had some retirement savings in a contribution plan or IRA.
The nest egg study found a plurality of Americans (40.2 percent) receive income only from Social Security after retirement.
People can start saving
"The more sources of retirement income a household has, the more total retirement income (it) is likely to have," the report contends. "This highlights the importance of plan access for achieving retirement security."
Several portions of the SECURE Act are created to encourage people who own small businesses to create 401(k) programs. A 401(k) is a retirement savings account that an employer may divert a portion of an employee's salary to before taxes. The employer may match part of the employee's contributions.
"The government's main focus is to help people be ready for retirement - to set up retirement plans. That means, get them involved in a retirement plan, get them saving as much as possible and make it as easy as possible for them to do that," Ford said. "And now through the tax code, they're giving employers an incentive to have automatic enrollment in their 401(k) plan, even if they already have a 401(k) plan set up."
The new rules for automatic enrollment gives employers a "really nice tax credit," whether they operate as a corporation, partnership or sole proprietor.
"Automatic enrollment is something the (U.S.) Department of Labor encourages," Ford said.
Once people get started in a 401(k) plan, they are likely to continue with it, he added. And he said automatic enrollment (in which an employer automatically enrolls employees in the plan and allows them to opt out) is a proven way to involve employees in plans.
"So, it's a good way to get people into a plan and get them saving for retirement," he said. "What this means for employers is that anybody who doesn't have a 401(k) plan - or any type of retirement plan - should look at whether or not it makes sense for them to start one."
And, companies that do have the plans should review to see whether they should add automatic enrollment.
Do retirement plans intimidate?
Ford said he works daily with business owners who may be able to take advantage of the new rules.
"Retirement plans sometimes have a mystique about them that seems confusing or overwhelming. But, it can be fairly simple for a small business to implement a retirement plan," he said. "Many of them would be pleasantly surprised by the ease of the process and the cost."
Some employers may be intimidated by the thought of starting up a retirement plan, he said.
Cost may be a factor in employers' hesitancy to implement one. The SECURE Act has a solution.
New rules under the act allow multiple employers to go in together on a retirement plan.
"The rules have loosened on that. It used to be pretty difficult to go in with an unrelated business and do a 401(k) plan together," Ford said. "The rules have made those easier."
Now, an employer may partner with another employer and share fees to manage the plan 50/50. If an employer goes in with four other employers, they would then each be responsible for 20 percent of fees.
They'll hire a firm that will offer an investment lineup, and that firm will design a 401(k) for the customer.
"We will have an investment lineup that has been vetted - and present it to your employees. It will be based on risk - everywhere from aggressive to conservative and everything in between," Ford said.
It will include some risk-free or very low-risk options, such as a money market or guaranteed interest account.
"So, that may be appealing to some people - to set up a multiple-employer arrangement," Ford said. "There are already exceptions in the law for various types of IRA withdrawals - to waive the penalties. So, (the SECURE Act) just adds to that list. For example, buying your first home might avoid a penalty. Certain education expenses might avoid a penalty, so this will add to that list."
"It's very early to digest all of this."