Retirement news you might have missed while trying to take a summer break:
More chances to save?
If you’re like most folks, you haven’t saved enough for retirement. No less than seven bills are working their way through Congress at the moment that could help. Here’s the amazing part: both Republicans and Democrats are actually cooperating on some of them. Here’s a rundown.
One big bill is called the “Retirement Enhancement and Savings Act” (RESA), which the Washington Post notes “could add millions of people to the rolls of tax-deferred retirement accounts.” RESA would require your employer to tell you how much your 401(k) plan might generate in retirement (as opposed to just telling you how much you have). The thinking here is that telling people how little (probably) they have could spark a greater effort to save.
Then there’s an idea to let you save more for an unexpected emergency like a car repair or medical bill. The “Strengthening Financial Security Through Short-Term Savings Act” would allow you to sign up at work and build up tax-free earnings for that inevitable rainy day. This would keep you from having to tap your retirement accounts — and pay a penalty for early withdrawal, if you’re too young.
Congress also wants to make it easier for small businesses to offer retirement plans to workers. Many employers don’t, the asset management giant BlackRock says, because they’re too complex and costly for a small firm to run. The idea here is a good one: Let small companies band together to offer retirement plans — while lowering costs by spreading the administrative costs among them. As usual, there’s an acronym for this: MEPS, short for Multiple Employer Plans.
And you know the rule that says you can’t contribute to an IRA after age 70½ and you have to start taking distributors from it at the same age? There’s a proposal to scrap both requirements. That means if you want to work past that age, you might be able to keep salting cash away.
Millennials: Down on Social Security
Retirement’s a long way off for the 83 million Americans born between 1982 and 2000 (that’s the date range used by the Census Bureau to identify millennials), but the smart ones are already planning. One big worry they have: Despite all they’re paying into Social Security now, most — a whopping 80% — say they don’t expect to get a nickel of it back.
Read: Social Security: What to know, what to expect, and how to make it better
Their fears — captured in a recent study by the Transamerica Center for Retirement Studies — are well-founded. At current funding levels, Social Security will begin paying out more than it takes in come 2021, and by 2034, benefits could be cut an estimated 23%. Congress can change this, with one or more painful moves: lifting the wage cap, so all wages are taxed (right now. the ceiling is $128,400), or raising the full retirement age (currently 67). It could also increase legal immigration thus allowing more young workers into the country. But none of these ideas are seriously being discussed at the moment. Something’s gotta give.
Read: What you probably don’t know about Social Security
Juice up your investment income
The growing U.S. economy is pushing interest rates higher (and thus bond prices lower), but they’re still relatively low, meaning they’re not generating much in the way of income. NextAvenue.org highlights a few investments that could potentially help. It says you may want to consider parking some of your portfolio in so-called “pass-through” securities, which are required to pay out just about all of their earnings in cash to shareholders. That means more (taxable) income for you. In general, there are four types of pass-through securities:
Closed-end funds: These could be a specialized portfolio of securities actively managed by an investment adviser and typically concentrated in a specific industry, geographic market or sector.
Real-estate investment trusts (REITs): These can invest in income-producing real estate properties or in mortgages. Some, known as hybrid REITs, invest in both.
Asset management and business development companies (BDCs): A BDC is a company that invests in other companies, usually smaller ones, that are expected to grow quickly.
Master Limited Partnership (MLPs): These can include energy production, transportation and processing companies that generate 90% of its revenue from natural resources — energy pipelines, energy storage, commodities or real estate.
Of course, depending on your age, investment expectations and tolerance for risk, these types of investments may or may not be for you; as usual, you should talk things over with an adviser.
