America's retirement crisis

Congress recently passed the Securing a Strong Retirement Act 2022 or Secure 2.0. The proposal is a result of the observation that more than half of the retired or retiring population in America do not have a retirement plan or sufficient savings. According to a new Allianze Life Study, 6 out of 10 retirees fear running out of money more than death. 

The bill has 5 major suggestions which will eventually secure life after retirement. One of the major pitfalls of the current system is that many times workers don't participate in employer-sponsored retirement programs. The bill addresses this issue by making automatic enrollment mandatory for all businesses with over 11 employees. As per the bill, about 3% of the employee's salary would automatically be shifted into their retirement fund, this percentage will increase every year capping it at 10%. "Pre-retirees" or older workers who are just a few years away from retirement can supercharge their retirement savings under Secure 2.0. So that by the time they retire, they have a significantly large nest egg.  

The bill also makes changes to the RMD or reacquired minimum distributors or RMDs. This is the mandatory amount that retirees have to withdraw every year. Secure 2.0 will delay RMDs to when retirees turn 75 rather than 72 as specified by the current law, therefore providing more flexibility. The new bill states that employers could help with student loan payments by considering them as elective deferrals to their retirement account, this helps employees who aren't able to save for retirement due to student loan repayments. Employers could also put up matching contributions into an employee's Roth IRA. 

Source: CBS News