Last week, President Donald Trump made a move to address what many are calling a looming retirement crisis that could cripple the country as more Baby Boomers age.
In an executive order issued Friday, Trump asked the Department of Labor to consider issuing new guidance that would enable small businesses to join together to offer their workers retirement plans.
He also requested that the Treasury Department review its calculations that determine how much an individual must withdrawal from a retirement account.
While Trump's promise made in a White House statement about the order to “take care of our people, to rebuild our nation, and to fight for our great American workers” sounds great, some retirement experts question whether it really amounts to much.
“Generally, these executive orders are more symbolic than meaningful,” said Jamie Hopkins, director of the New York Life Center for Retirement Income at the American College of Financial Services.
Hopkins said the proposed changes to required minimum distributions, or RMDs, on 401(k) and IRA plans mostly benefit the wealthy who want their money to grow for a longer period of time.
“Most people rely on Social Security and need to withdrawal more than their RMD each year for income,” Hopkins said. “As such, allowing them to spread out their RMDs does not help the vast majority of retirees. It would also cause a fair amount of reworking products, strategies and rules to essentially just create additional tax benefits for the top 10% or so of Americans.”
Alicia Munnell, director of the Center for Retirement Research at Boston College, agreed that the RMD aspect of the order carried little weight.
But Munnell called the second aspect of the order, which supports making it easier for small businesses to offer retirement plans, a “small step in the right direction.”
Munnell said that 50% of American retirees are at risk of not being able to maintain their standard of living in retirement, according to the center’s National Retirement Risk Index.
She called the problem is threefold: Social Security is going to provide less than it used to; defined-contribution plans offer less savings and less protection; and there is a major coverage gap among American workers.
“Half the population at any given time is not covered by a retirement plan at work, and so that means that they end up with much less than they would have. And if they don’t pick up some coverage along the way, they are totally dependent on Social Security,” she said. “Yes, we have a retirement crisis.”
Hopkins said the RESA bill before Congress right now might advance some of what Trump’s order decreed, and that he thought it had a decent chance of passing this year.
“However, these changes, while beneficial, do not go anywhere near addressing any of the major issues around retirement planning today,” he said.
Hopkins said small employers already have access to cheap benefit plans for their employees, but many don’t take advantage of it.
“Small business owners are focused on their business and growing it, not on future benefits for retirement,” he said. “State run IRA and open source retirement savings opportunities are likely a better solution here if the goal is to get more small business employees saving for retirement.”
To truly tackle the retirement problem, Hopkins said the underfunding of Medicare and Medicaid needs to be addressed because long-term care is a budding issue.
Munnell said she would like to see Congress improve 401(k) plans to include automatic enrollment and state-supported IRAs to bridge the coverage gap.
Both stressed the need for Social Security reform.
“Social Security is not going to provide as much relative to pre-retirement income as it has in the past, because the full retirement age has gone up,” Munnell said. “I would like to see Congress fix Social Security.”