Close Close
Sign In
Newsletters
Popular Financial Topics Discover relevant content from across the suite of ALM legal publications From the Industry More content from ThinkAdvisor and select sponsors Investment Advisor Issue Gallery Read digital editions of Investment Advisor Magazine Tax Facts Get clear, current, and reliable answers to pressing tax questions
Luminaries Awards
Podcast Center Video Center Webcasts Resource Center Events
About ThinkAdvisor Contact Us Advertise With Us Asset & Logo Licensing Sitemap Terms of Service Privacy Policy Copyright © 2024 ALM Global, LLC. All Rights Reserved.
ThinkAdvisor
Catherine Collinson of TCRS

Retirement Planning > Saving for Retirement

Why Secure 2.0’s RMD Delay Matters Even More Than Many Think

By John Manganaro

X
Your article was successfully shared with the contacts you provided.

What You Need to Know

  • Transamerica’s Catherine Collinson says advisors should not assume their clients have fully appreciated all the ins and outs of the Secure 2.0 Act.
  • She urges advisors to carefully consider the ways a higher RMD age adds much-needed flexibility for pre-retirees grappling with sequence risk.
  • Challenges associated with growing longevity are also top-of-mind for Collinson, who says more education around care planning is needed.

Financial advisors may feel like the passage of the Setting Every Community Up for Retirement Enhancement (Secure) 2.0 Act is old news, but the truth is that the complexity and scope of the landmark retirement legislation is still being absorbed by the public, Catherine Collinson, founding president of the nonprofit Transamerica Institute and head of Transamerica Center for Retirement Studies, tells ThinkAdvisor.

The increase in the required minimum distribution age, in particular, creates planning flexibility for retirees and older workers and could provide a buffer against sequence of returns risk, she says.

Collinson encourages financial advisors to continue speaking to their clients about the important ways the law has changed the retirement planning landscape for the better, from extending the date at which one must begin taking required minimum distributions to opening up the possibility for employers to make 401(k) plan matching contributions against their workers’ student loan debt payments.

“The Secure 2.0 package is an example of a legislative win for retirement readiness that includes something for everybody, and I think that’s a big part of the reason why it has been so well-received,” Collinson told ThinkAdvisor in a new interview. “Here at the TCRS, we are very enthusiastic about the implications of the legislation. It’s going to meaningfully move the needle for retirement readiness in the years ahead.”

Echoing the sentiments of other retirement planning experts such as Jamie Hopkins and Jeff Levine, Collinson calls the Secure 2.0 act an example of legislation “wherein the sum is greater than the whole of its parts.”

“I was so happy to see this legislation passed at the end of 2022, because it addresses just about all of the strategies we have been speaking about over the years to improve workplace retirement plan coverage and operations,” Collinson says. “It’s hard to pick one feature that I could call my favorite.”

Later RMDs Can Help Address Sequence Risk

In the workplace context, Collinson says, two critical provisions in the Secure 2.0 framework are the creation of a simplified Starter 401(k) plan for small businesses and the expansion of coverage for long-term part-time workers. She is also excited to see what kind of in-plan retirement income innovation could happen in the years ahead.

When it comes to the most immediately impactful provisions for wealth management professionals, Collinson says there is a clear winner: the increase in the RMD age. As she notes, the Secure Act of 2019 first increased the RMD age to 72 from 70 1/2, and Section 107 of the Secure 2.0 follow-up legislation further increased the RMD age to 73 starting on Jan. 1, 2023. It also increases the RMD age to 75 starting on Jan. 1, 2033.

According to Collinson, this increase in the RMD age from 70 to 73 (and then eventually 75) will deliver a significant amount of added flexibility when it comes to income planning for older Americans.

“This flexibility is especially important in a moment like the one we are in now. Many older people may have experienced significant investment losses in their retirement portfolios, and they are reconsidering whether this is the right time to retire,” Collinson suggests.

Of course, not everyone who is still working in their early 70s has complete control over the decision of when to retire, Collinson says. Some find themselves essentially forced into retirement, either due to personal factors or to a layoff. Still, many people do enjoy the luxury of choice.

“If you are healthy and still working at 70, you now have a much longer window to allow your nest egg to recover before you have to start drawing down your tax-advantaged retirement assets,” Collinson says. “This is one of the benefits of the Secure 2.0 legislation that advisors should be emphasizing with their older clients.”

The extended RMD age is complemented by Sections 108 and 109 of Secure 2.0, which index the individual retirement account catch-up contribution limit to inflation and set a significantly higher 401(k) plan catch-up limit that applies between ages 60 and 63, respectively.

“Over the past few decades, retirement investors have seen some extreme bouts of market volatility, including the Great Recession, the COVID-19 crash and now the current bear market,” Collinson says. “These provisions in Secure 2.0, thankfully, offer a chance for people to respond to the serious challenge of sequence risk.”

Other Retirement Trends to Track

Taking a step back from the Secure 2.0 Act, Collinson says she is spending a lot of time these days thinking about the broader challenges that come with growing longevity. For example, she fears that too many people are either completely ignoring the planning implications of longer lifespans, or they are only focused on the positive aspects of living longer.

“It’s important to focus on the positive things and to have a positive vision of life in retirement, but one real fear I have is that people underestimate just how shockingly expensive late-in-life long-term care services can be,” Collinson warns. “I also am constantly coming across people who have misconceptions about what Medicare will cover and how much they may need to spend out of pocket on health care during retirement.”

As Collinson emphasizes, the caregiving challenge is something that affects entire families and  can damage retirement security for people across generations. In other words, “it’s not just something that older people have to worry about.”

“It’s an intergenerational challenge, because so often this care is not given professionally, but rather by younger family and friends,” Collinson says. “In a recent survey, we asked workers about their caregiving experiences, and so many have been in this position of having to make financial sacrifices in order to provide care.”

Transamerica’s data suggests more than four in 10 workers are either currently caring for or have previously cared for an ailing older relative, and many say they have had to cut back on working hours or forgo a promotion in order to fulfill their caregiving obligations.

“This is something advisors should be paying attention to, because it is impacting the retirement readiness of workers of all ages,” Collinson warns. “It’s a big misconception that this is only harming older workers. Our research shows the highest rate of caregiving, and of negative financial consequences, is found among millennials.”

Pictured: Catherine Collinson

John Manganaro

NOT FOR REPRINT

© 2024 ALM Global, LLC, All Rights Reserved. Request academic re-use from www.copyright.com. All other uses, submit a request to [email protected]. For more information visit Asset & Logo Licensing.