Early retirement could cost you thousands of dollars
A new study by economists from Boston University and the Federal Reserve Bank of Atlanta indicates that only 6% of American workers wait until the maximum age of 70 to claim all possible Social Security benefits.
WASHINGTON – A part of the $1.7 trillion spending bill passed Friday was touted as a dramatic step toward consolidating the retirement accounts of millions of working Americans. But the real windfall may go to a much safer group: the financial services industry.
The retirement savings measure called Secure 2.0 would reset the way people enroll in retirement plans — to force them to adhere to the plans, to force them to withdraw. The layout is designed to ensure greater participation.
It also allows workers to use their student loan repayments in lieu of their contributions to their pension plans – meaning they can get matching pension contributions from their employers by paying off that debt – increases the age of required plan distributions and expands the deductible savings credit of tax.
But as with so many high-profile spending bills that receive little public attention, the provisions of the legislation also benefit corporate interests with a strong financial stake in the outcome.
December 23: Sunlight falls on the United States Capitol building in Washington, DC on December 23, 2022. (Photo by Carolyn Van Houten/The Washington Post via Getty Images)
“Some of these provisions are good and we want to help people who want to save, but it’s a huge boon for the financial services industry,” says Monique Morrissey, an economist at the liberal Economic Policy Institute in Washington. Parts of the bill, she says, are “disguised as savings incentives.”
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Daniel Halperin, a Harvard law professor who specializes in tax policy and retirement savings, said one of the most obvious benefits for the industry is the provision that gradually raises the age of mandatory distributions from 72 to 75 years old. “The goal is to leave that money there for as long as possible,” in order to collect administrative costs, he said. businesses continue to collect fees. It’s crazy to allow them to leave them there.”
Companies like BlackRock Funds Services Group, Prudential Financial, Pacific Life Insurance, and business lobby groups like the Business Roundtable and the American Council of Life Insurers are just a few of the entities that have lobbied lawmakers on Secure 2.0, according to Senate lobbying disclosures.
Katherine DeBerry, a representative for Prudential, said the company applauds the adoption of Secure 2.0, saying it “will help ensure that employees’ retirement savings will last a lifetime.”
A representative for Blackrock declined to comment, and Pacific Life, the Business Roundtable and the American Council of Life Insurers did not respond to requests for comment from The Associated Press. Disclosure forms only require minimal information about the result sought by lobbyists.
The Prudential logo is seen on a building in Chicago, U.S. on Oct. 14, 2022. (Photo by Beata Zawrzel/NurPhoto via Getty Images)
Retired Sen. Rob Portman (R-Ohio) and Sen. Ben Cardin (D-Md.) ushered in Secure 2.0 through the massive spending bill known as the omnibus. Nearly half of the 92 provisions of Secure 2.0 come, in whole or in part, from the Cardin-Portman legislation that was unanimously approved by the Senate Finance Committee this summer.
“Senator Cardin is proud of his role in producing a balanced package supported by business, labor and consumer groups,” Cardin’s spokeswoman Sue Walitsky said in a statement. “It protects and encourages retirement savings for the most vulnerable, especially low-income people.”
Mollie Timmons, spokesperson for Portman, said the Secure 2.0 provisions “will help part-time workers and help more small businesses provide retirement plans for their workers, where most low-income workers are. employees”.
Free Financial Planning Clinic Retirement planning sign at the Hyatt Regency Hotel. (Photo by: Jeffrey Greenberg/Universal Images Group via Getty Images)
The campaigns of both lawmakers have received significant contributions from companies linked to the retirement industry, according to OpenSecrets – Cardin receiving $329,271 from the securities and investment industry from 2017 to 2022 and Portman receiving $515,996 from the same sectors during the same period.
Experts say the legislation contains good provisions for average Americans, such as creating emergency savings accounts for employers alongside retirement accounts. The new accounts allow workers to create tax-protected rainy day funds. The legislation also expands the Saver’s Credit, which provides a 50% tax credit on savings up to $2,000, which will be deposited directly into the taxpayer’s IRA or retirement plan.
Morrissey and other pension experts also say the provisions serve as a reminder of the need to strengthen Social Security – the social program that benefits more than 70 million recipients – retirees, people with disabilities and children. The Social Security and Medicare trustees’ annual report released in June says the program’s trust fund will not be able to pay full benefits from 2035.
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For many Americans, Social Security — funded by payroll taxes collected from workers and their employers — is their only means of saving for retirement.
In the sweeping spending package passed on Friday, lawmakers authorized about half of the Biden administration’s proposed $1.4 billion spending increase for Social Security.
“Funding for the Social Security Administration has steadily eroded over the past decade, while the number of people it serves has grown,” said Nancy LeaMond, executive vice president of AARP. . “This has resulted in longer wait times, overwhelmed field offices and disability claims processing times that have skyrocketed to an all-time high.
“More needs to be done,” she said.
In a Pew Research Center poll in January, 57% of American adults said “taking steps to make the Social Security system financially sound” should be a top priority for the president and Congress. Securing Social Security has won bipartisan support, with 56% of Democrats and 58% of Republicans calling it a top priority.
Nancy Altman, co-director of Social Security Works, an advocacy group, said Congress should adequately fund Social Security if “the goal was really to help middle-income families.”
Still, the latest legislation is a small step to help the millions of Americans who haven’t saved for retirement.
US Census data shows that about half of Americans are saving for retirement. In 2020, 58% of working-age boomers had at least one type of retirement account, followed by 56% of Gen Xers, 49% of Millennials, and 7.7% of Gen Zers.
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Olivia Mitchell, a Wharton economist specializing in retirement savings, says the results of moving to Secure 2.0 can be felt most with workers at companies that match their employee contributions.
She said research suggests that automatic enrollment may initially increase pension plan coverage, but participation may decline over time.
Mitchell studied the first such state-based plan, OregonSaves, which self-enrolled workers whose companies did not have a retirement savings plan. She found that only 36% of workers had a positive balance after one year. Less than half of those enrolled in the scheme were still contributing after one year.
Nevertheless, she said, “the fact remains that low-wage workers who change jobs are often a difficult target to reach via retirement savings schemes.”