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Obsidian Planning

Obsidian Market Update 06/17/2023

Economic Update

The Secure Act 2.0

Top Takeaways for Young and Lower-Income Workers

Part 1 of 3

At the end of 2022, President Biden signed the SECURE 2.0 Act (Setting Every Community Up for Retirement Enhancement). In the Act are dozens of rule changes related to retirement savings. We summarized a few of them in one of our January newsletters.

In this and the next two newsletters, we’ll take a deeper dive into changes that affect:

  • Younger and lower-wage workers.
  • Workers who are building retirement savings or already dipping into them.
  • Employers.

The purpose of the Secure 2.0 Act

With bipartisan support, this Act was intended to decrease the number of Americans who reach retirement age with little or no savings. According to the Act, this shortfall is due to 1) too few workers being offered the opportunity to participate in employer-sponsored retirement plans and 2) low rates of participation.

Increasing Participation of Lower-Wage Workers

In 1998, when the Treasury Department defined and approved the automatic enrollment of eligible employees in 401(k) plans, participation rates dramatically increased, especially among minorities and lower-wage workers.

Automatic enrollment expanded

The Secure 2.0 Act is an attempt to increase participation rates further by 1) expanding automatic enrollment of eligible employees (for plans years beginning December 31, 2024) to include 403(b) plans, and 2) setting the enrollment percentage at a minimum of 3% to a maximum of 10%. The percentage increases by 1% per year (not to exceed 15%). All 401(k) and 403(b) plans are grandfathered in, and new businesses (in existence less than three years), businesses with fewer than 10 employees, church plans and governmental plans are excepted.

Lower Eligibility Requirements for Part-Time Workers

The Act also lowers the number of hours required for part-time workers to participate in employer-sponsored retirement plans. Beginning in 2025, employers must include dual-eligibility. They must allow part-time workers with at least 500 hours of service per year to participate after two consecutive years of service (instead of three), and part-time workers with at least 1,000 hours to participate after one year of service.

Tax-Free Emergency Withdrawals

A survey conducted in 2022 by the Consumer Financial Protection Bureau found that 37% of households could not cover their expenses for longer than one month (from all sources) if they lost their main source of income. It’s not surprising then that lower-income earners are hesitant to defer earnings to retirement plans. The Act permits one distribution per year of up to $1000—tax-free—if used for “emergency expenses, which are unforeseeable or immediate financial needs relating to personal or family emergency expenses.” (Section 115)

Increasing Participation of Younger Workers

A person who saves $100 per month beginning at age 25 will have twice as much at age 65 as the person who begins saving at age 35. That’s the power of time.

Nevertheless, younger workers report that repaying student debt prevents them from saving for retirement. By failing to participate in employer-sponsored retirement plans, these workers miss out on their employers’ matching contributions. Under the SECURE Act, employees who are repaying qualified student loans (the employee’s indebtedness incurred exclusively to pay qualified higher education expenses) become eligible to receive matching contributions for plan years beginning after December 31, 2023. Governmental employers may also match contributions. We’ll talk more about benefits to employers in Part 3 of this series, but we note here that both private and governmental employers may test employees who receive matching contributions on student loan repayments for nondiscrimination separately from other employees.

If your children or grandchildren are working part time, repaying student loans, or not maximizing employer plan matches, we hope you’ll share this article. We often meet with families to discuss the most effective ways to save for retirement. If a meeting would be worthwhile for your family, please give us a call.

In our next issue, we’ll look at the cohort of workers who are either 1) currently saving via retirement plans or 2) planning a strategy to withdraw (or already withdrawing) from their retirement plan savings.


Please, Take Care of Yourself!

According to the Centers for Disease Control and Prevention, 40.9% of 4,975 respondents (in June 2020) reported having delayed or avoided any medical care, including urgent or emergency care (12.0%) and routine care (31.5%), because of concerns about COVID-19. Researchers have found that for individuals with underlying, preventable, and treatable medical conditions, delaying medical care may increase the risk of morbidity and mortality.

If you have postponed any checkups, we urge you catch up on your routine care. If they aren’t already taking appropriate measures to protect you from exposure to the coronavirus while visiting their facilities, most (if not all) healthcare providers are happy to do whatever it takes to make you comfortable. All you need to do is ask!

How We Help

Managing Your Cash Flow

In the prior issue of this newsletter, we reminded the great savers among you to get out there and live! That advice is a whole lot easier to act on when you have a complete, current, and accurate picture of your income and your expenses, which is why we include a cash flow analysis in every financial plan.

Cash flow is never static, especially given the current rate of inflation. That’s why we review income and expenses on a regular basis for all our clients, not just for those on fixed incomes.

We are happy to sit down with you to review and update your cash flow assessment. Again, all you need to do is ask!

Advisory Services offered through Obsidian Personal Planning Solutions, LLC. Securities are offered through Triad Advisors, member ​FINRA/SIPC.​ Obsidian Personal Planning Solutions, LLC, and Obsidian Personal Planning Solutions, Inc, are not affiliated with Triad Advisors.

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