How a Transformed Washington May Change Retirement Savings
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We’re less than a month into the new Congress and presidential administration, and the pace of announcements, proposals and executive orders has been frenetic. It can be hard to sift through all of these policy pronouncements, to understand which ones will have immediate and long-term impact on both the work of financial professionals and also our customers: regular workers and retirees.
While it’s true that every administration brings policy shifts that can directly impact retirement savings, the speed and breadth of what is currently being proposed feels like we are headed into unprecedented territory.
Here we discuss four changes. Some are certain to happen, as they are a part of enacted legislation. Others are more uncertain, and very much depend on what happens in Washington. Taken together these changes promise to bring both opportunity and also challenges for retirement.
The Social Security Fairness Act: Relief or a new burden?
First, let’s start with a change that is already signed into law. The Social Security Fairness Act has gained bipartisan support for its goal of getting rid of the Windfall Elimination Provision and the Government Pension Offset. These provisions have historically reduced Social Security benefits for public sector workers and others receiving substantial pension payments. Retirees who were previously penalized will see an increase in their Social Security benefits, which many argue is long overdue.
This relief comes with a cost. The Congressional Budget Office estimates the Act will add $190 billion in expenses over the next decade. This raises concerns about further straining Social Security’s long-term solvency, particularly as broader tax cuts could necessitate reductions in federal spending. While the Act could bring gains to current retirees, future retirees may face a less reliable safety net.
An update from the Social Security Administration during the third week in January made clear that it may take some time before retirees see payments – in some cases up to a year. Additionally, the agency made clear that the amount of the benefit will vary. “Some people’s benefits will increase very little while others may be eligible for over $1,000 more each month,” they wrote.
Tackling zombie 401(k)s: A new lost & found
One of the most anticipated developments is the DOL’s lost and found database, designed to help retirees locate abandoned or “zombie” 401(k) accounts. The initiative has potential, but its current limitations are notable. Initially covering only individuals over 65 and relying on voluntary submissions from recordkeepers, the database will leave many younger workers out of scope.
Employers and policymakers must rally behind this initiative to expand its coverage and effectiveness. Legislative support and broader adoption by plan sponsors could transform the database into an indispensable tool for retirement planning. Until then, retirees must proactively track and consolidate accounts to avoid losing hard-earned savings.
SECURE 3.0: A glimpse into the future
The rumored SECURE 3.0 legislation has the potential to significantly enhance retirement security for millions. Among its proposed measures are simplified rollovers, default investments for IRAs, and expanded coverage for underserved populations.
Although the timing of SECURE 3.0 remains uncertain (and there’s been very little chatter so far this year on Capitol Hill), its focus on broadening access and reducing complexity aligns with the pressing need to modernize the retirement system. If enacted, it could pave the way for easier management of retirement funds and increased savings participation across diverse demographics.
The expiration of the Tax Cuts and Jobs Act
In 2025, the expiration of the Tax Cuts and Jobs Act (TCJA) – commonly called the “Trump tax cuts” in the media – looms large. If extended, retirees could benefit from lower income tax rates, which would enhance disposable income and savings potential. On the other hand, if the TCJA sunsets, taxes on retirement withdrawals from 401(k)s and traditional IRAs could increase, cutting into retirees’ budgets.
Corporate tax cuts – which have been discussed – have historically fueled stock market growth. Retirees invested in equities through retirement accounts may see portfolio gains under similar initiatives. However, market volatility and policy uncertainty mean that diversification remains critical.
Actionable takeaways for retirees and employers
Instead of focusing on the minutiae of daily headlines, stay focused on what matters:
1. Start saving early and often: The sooner you start saving, the more time your money can grow through compounding. Even small amounts can make a significant difference over time.
2. Maximize contributions: Take advantage of employer 401(k) matches and tax breaks on IRAs and 401(k)s. These contributions are essentially free money that accelerates your savings.
3. Diversify your investments: Avoid over-concentration in one sector or region. Global ETFs, target-date funds, and other diversified options can minimize risks while delivering growth.
4. Pay attention to fees: Hidden fees can erode your savings over time. Aim for all-inclusive fees under 1% to keep more of your money invested and growing.
5. Leverage planning tools: Use planning tools like retirement calculators to help figure out how much savings you need to have. Consolidating 401(k)s into one account can simplify management and reduce fees, helping you towards a happy retirement.
For individuals, the time to prepare for these shifts is now. Whether it’s maximizing contributions, diversifying investments, or avoiding excessive fees, small steps today can yield significant security tomorrow. For employers, proactive measures like financial education programs and fair handling of employee accounts can help workers of all ages achieve greater financial independence.
The future of retirement savings isn’t just a political issue – it’s a deeply personal one. The choices we make as voters, employers, and savers will shape the landscape for years to come. By staying informed and acting with intention, we can navigate this period of uncertainty with confidence and ensure a more secure retirement for everyone.
Romi Savova is the founder and CEO of PensionBee, a FinTech company transforming how individuals consolidate and manage their retirement savings. Through an intuitive mobile app, PensionBee empowers users to take control of their financial futures with simplicity and transparency.
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