Individuals need a lot of knowledge and information in order to make informed decisions about saving and investing for retirement. However, due to several recent rule changes, workers who are making retirement preparations will receive less information and fewer guarantees that the information is accurate unless they carefully seek it out on their own. Here are several recent retirement benefit changes that could impact how you prepare for retirement and how to overcome these challenges.
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No more paper Social Security statements. The Social Security Administration stopped mailing paper statements to people under age 60 in 2017. The agency expects to save $11.3 million in fiscal year 2017 due to lower processing and mailing costs. Paper statements will only be sent to people age 60 and over who are not yet registered for benefits and don’t have a my Social Security account where they can view statements online.
Social Security statements list your earnings history and how much you have paid into Social Security. They also provide an estimate of how much you will receive if you claim payments at various ages, what your benefit will be if you become disabled and how your family members will be provided for if you pass away. You can use your Social Security statement to make decisions about when to retire, the best age to sign up for benefits and how much you need to save for retirement.
Forthcoming research by Barbara Smith, a senior economist for the Social Security Administration, and Kenneth Couch, an economics professor at the University of Connecticut, found that receiving a Social Security statement resulted in statistically significant decreases in early claiming and corresponding increases in claiming at later ages. Retirees who start their benefit at older ages up until age 70 get bigger monthly payments going forward. “If you think you are going to live beyond the average life expectancy, then you are going to be better off delaying,” says Robin Sherwood, a certified financial planner for HTG Investment Advisors in New Canaan, Connecticut.
[See: 10 Ways to Increase Your Social Security Payments.]
The SSA has a history of starting and stopping paper statements. The agency previously sent statements to workers in the year they attained ages 25, 30, 35, 40, 45, 50 and 55 between 2014 and 2016, and mailed annual paper statements to all workers ages 25 and older between 1999 and 2011. In the absence of a paper statement, workers age 18 and older who want to check that their earnings have been recorded correctly or get an estimate of their future benefit for retirement planning purposes can create a “my Social Security” account and view their statement online at any time.
Delayed fiduciary rule. A Department of Labor rule requiring financial advisors handling 401(k)s and individual retirement accounts to act in the best interest of their clients that was scheduled to take effect on April 10 has now been delayed for 60 days until June 9. President Donald Trump issued a presidential memorandum directing the Labor Department to review the rule in February. As such, professionals who provide advice to retirement investors will be treated as fiduciaries and required to provide advice in the best interest of clients, charge reasonable compensation and refrain from making misleading statements beginning on June 9.
In the meantime, you can ask potential financial advisors if they are willing to act as a fiduciary and agree to recommend only investments that are in your best interest. Take care to find out how your financial advisor is paid and if he or she will make more money by steering you into specific investments that might not be the best possible fit for you. “Knowing how your advisor is compensated will give you some insight as to their potential conflicts of interest,” says Brian Schaeffer, a certified financial planner for ShankerValleau Wealth Advisors in Skokie, Illinois. “A fiduciary is required to put their client’s interests first.”
[Read: How to Get Reliable Retirement Planning Advice.]
Rule changes for state retirement accounts. Several states, including California, Connecticut, Illinois, Maryland and Oregon, have established state-run individual retirement accounts, often through a program called Secure Choice. Employees who don’t have access to a 401(k) plan or similar type of retirement account could be automatically enrolled and have money withheld from their paycheck and deposited in a personal retirement account unless they take action to opt out. The Department of Labor issued rules last year allowing states to set up retirement accounts for private-sector employees who don’t receive retirement benefits at work. However, the Senate recently voted to reverse a Labor Department rule that made it easier to set up state retirement accounts, and not all states want the responsibility of helping workers to prepare for retirement. “Regardless of any action on the resolution pending in the U.S. Senate, employees who work for employers who do not offer a retirement plan can most definitely plan on participating in Secure Choice,” says Katie Selenski, executive director of California Secure Choice. “Our goal is to open for business in late 2018, with phase-in over three years.”
In the absence of a state-run retirement program, people without access to retirement benefits at work can independently sign up for an IRA, Roth IRA or myRA. These accounts offer similar tax breaks to a 401(k) plan, but the contribution limits are much lower. For example, employees with access to a 401(k) plan can defer paying income tax on up to $18,000 that they save for retirement, and that amount jumps to $24,000 for people age 50 and older. The IRA contribution limit is a much more modest $5,500 each year, or $6,500 for older savers.
Emily Brandon is the author of “Pensionless: The 10-Step Solution for a Stress-Free Retirement.”
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3 Ways Retirement Planning Has Gotten Trickier in 2017 originally appeared on usnews.com
