Over the past couple of decades, numerous companies have done away with defined benefit pension plans, and “replaced” them with defined contribution plans, such as the 401(k). Yet, while a 401(k) plan can certainly offer you a range of investment choices, there is no guarantee that you’ll generate enough – or even any – retirement income when you need it in the future. But help could be on the way. That’s why it is important to have a good understanding of the lifetime income provisions under the SECURE Act.
What is the SECURE Act and What is Its Purpose?
There are several different objectives that the SECURE Act was designed to help solve. These include:
- Offering incentives – such as tax credits – for companies to provide their employees with 401(k) retirement savings plans
- Allowing long-term employees who work on a part-time basis access to benefits (versus only having benefits if employees work 32 or more hours)
- Allowing for withdrawals that are not penalized – up to $5,000 – from retirement plans if an employee or their spouse has or adopts a child
- Providing penalty-free withdrawals of up to $10,000 from 529 education savings plans for the employee if he or she is using the money to pay off student loans
- Relaxing the rules on companies that offer annuities via sponsored retirement plans
Yet, even though these particular provisions may seem enticing, there are other “tradeoffs” you might need to make. For example, the SECURE Act also removed the stretch IRA estate planning strategy that allows non-spouse beneficiaries of Individual Retirement Accounts to spread out (or “stretch”) the disbursements over their own lifetime, and in turn, limited this time frame to just 10 years. (Note that all of the funds can be withdrawn in the 10th year, and there is no requirement that money must be accessed from the account in each of the following years).
One of the biggest reasons behind the passage of the SECURE Act was the low savings rate in the U.S. This, coupled with longer life spans, can be a dangerous combination when it comes to securing a livable income in retirement.
Lifetime Income and the SECURE Act
The SECURE Act includes three key lifetime income/income-related provisions. These include the following:
- A lifetime income illustration is required to be given to participants of the retirement plan
- A fiduciary safe harbor is required for the prudent selection of the providers of lifetime income
- Lifetime income benefits must be portable in connection with a change in providers
Are You Ready to Secure Lifetime Income in Your Retirement Strategy?
Not all investors have a lifetime income plan in place for when they retire. But it is essential to have a strategy in place. Otherwise, you may find that the amount of income you are generating won’t be enough to cover your desired lifestyle.
If you would like to schedule a time to talk about lifetime income in retirement, we’re here to help. At Annuity Gator, our mission is on helping consumers (and financial advisors) understand the concept of retirement income, as well as how it can be generated safely and securely, as well as in any type of market environment.
So, please feel free to contact us directly by phone at (888) 440-2468 or send us an email through our secure online contact form. We look forward to answering any of the lifetime income or related questions that you may have.