With every new administration comes policy shifts that can directly impact retirement savings and financial security for Americans. As we look ahead, several key legislative initiatives and trends could shape the retirement landscape. While some policies offer exciting opportunities, others may introduce new challenges.
Here’s what you need to know—and how to prepare.
The Social Security Fairness Act: Relief or a New Burden?
The Social Security Fairness Act has gained bipartisan support for its goal of eliminating the Windfall Elimination Provision and the Government Pension Offset. These provisions have historically reduced Social Security benefits for public sector workers and others receiving substantial pension payments. If passed, retirees who were previously penalized will see an increase in their Social Security benefits, which many argue is long overdue.
However, this relief comes with a cost. The Congressional Budget Office estimates the Act will add $190 billion in expenses over the next decade. This raises concerns about further straining Social Security’s long-term solvency, particularly as broader tax cuts could necessitate reductions in federal spending. While the Act could bring gains to current retirees, future retirees may face a less reliable safety net if solutions to address Social Security’s funding gaps are not prioritized.
Tackling Zombie 401(k)s: A New Lost & Found
One of the most anticipated developments is the DOL’s lost and found database, designed to help retirees locate abandoned or “zombie” 401(k) accounts. Set to launch later this year, the initiative has potential, but its current limitations are notable. Initially covering only individuals over 65 and relying on voluntary submissions from recordkeepers, the database will leave many younger workers out of reach.
Employers and policymakers must rally behind this initiative to expand its coverage and effectiveness. Legislative support and broader adoption by plan sponsors could transform the database into an indispensable tool for retirement planning. Until then, retirees must proactively track and consolidate accounts to avoid losing hard-earned savings.
Employers as Allies in Retirement Security
Employers have a vital role to play in addressing retirement insecurity, particularly among underserved communities. Studies consistently show that employer-sponsored financial education boosts retirement savings. Employers should go beyond offering programs to ensure their post-employment policies align with workers’ long-term financial well-being.
For instance, many employers transfer small retirement balances to Safe Harbor IRAs to simplify administration. While this practice is common, some Safe Harbor providers impose excessive fees, eroding savings over time. Employers must select reputable providers who safeguard former employees’ accounts. By doing so, they not only enhance trust but also contribute to greater financial equity.
SECURE 3.0: A Glimpse Into the Future
The rumored SECURE 3.0 legislation has the potential to significantly enhance retirement security for millions. Among its proposed measures are simplified rollovers, default investments for IRAs, and expanded coverage for underserved populations. While the timing of SECURE 3.0 remains uncertain post-election, its focus on broadening access and reducing complexity aligns with the pressing need to modernize the retirement system.
Employers and savers alike should stay informed about developments around SECURE 3.0. If enacted, it could pave the way for easier management of retirement funds and increased savings participation across diverse demographics.
The Expiration of the Tax Cuts and Jobs Act
Looking ahead, the expiration of the Tax Cuts and Jobs Act looms large. If extended, retirees could benefit from lower income tax rates, which would enhance disposable income and savings potential. On the other hand, if the TCJA sunsets, taxes on retirement withdrawals from 401(k)s and traditional IRAs could increase, cutting into retirees’ budgets.
Additionally, policies from the previous administration, such as corporate tax cuts, have historically fueled stock market growth. Retirees invested in equities through retirement accounts may see portfolio gains under similar initiatives. However, market volatility and policy uncertainty mean that diversification remains critical.
Actionable Takeaways for Retirees and Employers
While navigating these potential changes may seem daunting, there are steps your clients can take now to safeguard their retirement future:
- Start Saving Early and Often
The sooner clients start saving, the more time their money has to grow through compounding. Even small amounts can make a significant difference over time.
- Maximize Contributions
Take advantage of employer 401(k) matches and tax breaks on IRAs and 401(k)s. These contributions are essentially free money that accelerates your savings.
- Diversify Investments
Avoid over-concentration in one sector or region. Global ETFs, target-date funds and other diversified options can minimize risks while delivering growth.
- Pay Attention to Fees
Hidden fees can erode savings over time. Aim for all-inclusive fees under 1% to keep more money invested and growing.
- Leverage New Tools Like the DOL Database
When the lost and found database becomes available, use it to track down old accounts. Consolidating 401(k)s into one account can simplify management and reduce fees.
While the exact direction of the new administration’s retirement policies is uncertain, we can expect continued conversations around fairness, accessibility and the need to balance government support with individual responsibility. Whether through new initiatives like the Social Security Fairness Act or tools like the DOL’s lost-and-found database, change is inevitable, and adaptation is crucial.
For individuals, the time to prepare for these shifts is now. Whether it’s maximizing contributions, diversifying investments or avoiding excessive fees, small steps today can yield significant security tomorrow. For employers, proactive measures like financial education programs and fair handling of employee accounts can help workers of all ages achieve greater financial independence.
The future of retirement savings isn’t just a political issue—it’s a deeply personal one. The choices we make as voters, employers, and savers will shape the landscape for years to come. By staying informed and acting with intention, we can navigate this period of uncertainty with confidence and ensure a more secure retirement for everyone.
Romi Savova is the founder and CEO of PensionBee
