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Financial Planning > Tax Planning > Tax Reform

Can Tax Reform Save Retirement?

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What could tax reform mean for the retirement struggle facing many Americans?

During an event hosted by the Financial Services Roundtable titled “The Squeeze on Gen X (The Sandwich Generation),” Rep. Peter J. Roskam, R-Ill., called for tax reform in 2017 as a way to help the sandwich generation’s struggle to save for retirement, while also caring for aging parents and paying for children to go to college.

“The tax reform debate has to be framed up with retirement in mind,” he said. “If the tax reform debate is not framed up with a retirement goal and success coming out of the tax code, I will view any subsequent tax reform as being unsuccessful. We don’t want tax reform to set us back as it relates to retirement savings. We want tax reform to help us to move forward and to lean into it.”

He didn’t make any proposals for specific tax changes.

Roskam thinks 2017 is the year that tax reform “gets real.”

“2017 is going to be a very significant year because this tax code is absolutely dissolving underneath us,” he said.

There’s three reasons Roskam sees an opportunity to move forward on the tax reform debate.

“One, there is no defender of the status quo,” he said. “There is no voice out there – and I mean nobody. Nobody says that the tax code is, ‘Y’know, I think it’s great. Leave it alone.’ No one says that. They like certain parts of it, obviously, but nobody is defending the whole thing.”

The second reason is that companies are continuing to “invert,” Roskam said, or move their headquarters to countries with more favorable tax rules.

“Companies are continuing to leave and they’re going to continue to leave largely based on a tax code that no longer serves us and creates this absolutely absurd incentive to head out in a domicile somewhere else,” he said.

The third thing, Roskam said, is the Internal Revenue Service has been “acting with impunity for a long time.”

“The best way to trim their sails is to simplify the tax code,” he said.

He gave the example of a hypothetical couple sitting at a table trying to do their own taxes. They were sure they could squeeze out an extra $1,500 in deductions somewhere, but were worried that if they got it wrong, the IRS would hit them with not only back taxes but interest and penalties.

A tax code reform won’t necessarily solve all retirement planning problems. There is still a widespread lack of preparedness.

According to a recent Employee Benefit Research Institute study, 36% of American workers have less than $1,000 in savings, and less than 60% have $25,000 saved for retirement — and many of those are closer to retirement than they are to the beginning of their career. A panel discussion during FSR’s event offered a number of tips to help this sandwich generation — those who have to juggle saving for retirement, paying for college and caring for aging parents.

Here are six highlights from that discussion:

  1. “Starting early. Asking your employer what options are available and looking into those,” Rhonda Richards, senior legislative representative for AARP, said.
  2. “Looking into options to automate your savings. So you have automatic payroll deduction, auto-enrollment. That makes it easier, that makes it simpler,” Richards said.
  3. “Most importantly to me is if you have access to an employer plan, participate in it. Join it. Minimum defer up to the match because you really can’t beat that from a return standpoint,” said Joe Ready, director of Wells Fargo Institutional Retirement and Trust.
  4. “Save funds for emergencies so you don’t have to dip into retirement  … so you have savings for the unexpected as well,” Richards said. “They can help you with the short-term, long-term juggling of things.”
  5. “People trust information from their employer,” Ready said. “Every survey we see, ‘I trust information from my employer.’” He added that workplace plans also offer access to education and advice and allow payroll deductions.
  6. Richards said one way to help with aging parents is through private long-term care insurance. “Where you’re paying premiums up front and when you have a need later on for services — whether that be care in the home or assisted living or a nursing home for example — then the policy will pay part of the expenses for those services,” she said. Adding, “That’s one option people can look into. It’s not for everyone. Some people may not be able to qualify for the policies or to afford them, but obviously people need to look into those on their own and decide what’s right for them.”

— Check out Living With Your Adult Child? Charge Rent or Retire Poorer on ThinkAdvisor.


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