Retirement planning has become a crucial aspect of financial planning for many Americans. With an aging population and a shifting economic landscape, it is more important than ever to understand the state of retirement plans in the US.
One of the major trends in retirement planning is the shift from traditional pensions to defined contribution plans such as 401(k)s. According to the Investment Company Institute, in 2019, Americans held approximately $6.2 trillion in 401(k) plans alone, making it the most popular type of retirement plan. This shift has put more responsibility on individuals to save for their own retirement, rather than relying on employer-funded pensions.
Another trend is the rise of automatic enrollment and contribution escalation features in retirement plans. These features have been shown to increase participation rates and encourage employees to save more for retirement. The Pension Protection Act of 2006 made it easier for employers to adopt these features, and many have taken advantage of them to help their employees better prepare for retirement.
However, not all Americans have access to retirement plans through their employers. According to the Economic Policy Institute, only about half of workers have access to a retirement plan at work, and this number drops significantly for workers in lower-paying jobs. This has led to calls for more universal retirement savings options, such as state-sponsored retirement plans.
In addition to these trends, there have been several recent changes to retirement plans in the US. The Setting Every Community Up for Retirement Enhancement (SECURE) Act, which was signed into law in December 2019, made several changes aimed at increasing access to retirement plans and making it easier for individuals to save for retirement. Some of the key provisions of the SECURE Act include:
- Allowing long-term, part-time workers to participate in 401(k) plans
- Raising the age for required minimum distributions from retirement plans from 70 1/2 to 72
- Allowing penalty-free withdrawals from retirement plans for certain expenses related to childbirth or adoption
- Repealing the maximum age for contributions to traditional IRA accounts
Overall, the state of retirement plans in the US is constantly evolving. While there have been positive trends and changes aimed at improving access and encouraging savings, there is still much work to be done to ensure that all Americans can adequately prepare for retirement.
