The tax reform debate has finally come to an end, with President Trump signing last month the most sweeping overhaul of the U.S. tax reform system in more than twenty years.
Leading up to its passage, and during the lengthy debate, various retirement-related proposals floated around, from talk of reducing the amount of pre-tax contributions to limiting catch-up contributions for workers over age 50, as it applies to 401(k) plans. While no notable retirement plan provisions were included in the final bill, conversations about pre-tax contribution limits and possible Rothification of 401(k) plans raised much uncertainty when they were at the debate’s forefront, likely causing some to question the future of their retirement planning portfolios.
Consequently, we can glean a valuable lesson from the debate, when it comes to retirement planning: Tax reform has taught us more than ever that Americans need to examine and evaluate their current retirement savings strategies while educating themselves on all available options for planning.
Americans have expressed confusion around retirement long before the recent, heightened discussion. In fact, according to data released in October 2017 from the Indexed Annuity Leadership Council (IALC), of which I serve as Executive Director, 56% of Americans who have saved for retirement admit they are unsure their savings will last them through their golden years.
At one time during the tax reform debate, policymakers suggested lowering the limit for pre-tax 401(k) contributions from the current $18,000 to a limit as low as $2,400 but maintaining current limits for Roth contributions. The Rothification discussion and resulting worries only enhanced the current uncertainty swirling around retirement preparedness, as the tax advantage of a 401(k) is a top reason individuals invest in their companies’ 401(k) plans.
From this, we are reminded that Americans need to learn what financial products are available to them outside of traditional retirement savings options, like 401(k) accounts. The Wells Fargo/Gallup Investor and Retirement Optimism Index found nearly half of U.S. investors would save less or stop saving if the tax-deferred status of their 401(k) plans was removed.
Fortunately, 401(k) plans will remain without change, but American workers should still work toward creating peace of mind now when it comes to their financial future. And they can start today.
As a first step, American savers must examine their retirement preparedness plans, ensuring they are saving enough now. Financial certainty can be improved if Americans utilize financial resources, such as a retirement calculator, to estimate their retirement living expenses and determine how much Social Security they’ll receive each month.
Secondly, diversifying portfolios and adding an array of options will help maximize potential gains and minimize risks. Not putting all your eggs in one basket is key for successful planning. One option to consider adding to your financial portfolio is a fixed indexed annuity (FIA), which can provide balance to financial plans and offer a steady stream of income in retirement. FIAs also offer tax-deferred growth, meaning taxes are not owed until a withdrawal is made.
Finally, become more educated when it comes to retirement planning, especially as one in five Americans have absolutely nothing saved for retirement. Enhancing your retirement confidence can include reading up on tips to boost your savings or testing your knowledge with quizzes, like the “Master of Retirement” game created by the IALC.
Thanks to the tax reform debate, we are reminded that Americans can (and should) take control of their financial future when it comes to retirement planning.
Take the time to evaluate the way you save for retirement and educate yourself about all available options to prepare for your golden years. It’s not too late to make this your New Year’s resolution.
Article Published by Forbes Jan 24 2018
Written by Jim Poolman