The Good, the Bad, and the Ugly of the SECURE Act

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The average 65-year-old is going to outlive their savings by almost a decade, according to the World Economic Forum. The new SECURE Act that took effect Jan. 1 is supposed to strengthen Americans’ retirement security, but it contains some downsides people should know about, says financial security expert Pamela Yellen, a two-time New York Times best-selling author.

“The SECURE legislation — which stands for “Setting Every Community Up for Retirement Enhancement” — put into place several provisions supposedly intended to strengthen retirement security,” Pamela says. “Not surprisingly, the financial services industry spent many millions of dollars lobbying Congress to ensure passage. So is the new legislation in your best interests? Is it really likely to increase your retirement security?” She can detail the changes including:

The Good: The act removed regulatory barriers that prevented companies from offering lifetime-income options in their employees’ retirement plans. These lifetime-income options come in the form of annuities, which provide a guaranteed income over the course of your retirement — no matter how long you live. And there’s a problem:

Even though it’s a big step in the right direction to encourage retirement plans to offer lifetime income options, the fact remains that the amount of money people have been able to save in their 401(k)s and IRAs doesn’t even come close to being able to provide a comfortable retirement lifestyle.”

The Bad: The SECURE Act makes it easier for small businesses to set up automatic enrollment in retirement plans for their workers and to band together with other companies. Why is this bad?

“I can assure you that Wall Street is whooping for joy over this. After all, what’s not to like about the prospect of having more of your dollars automatically going into these plans where they can charge you confiscatory fees and offer no guarantees (other than the guarantee that they’ll get paid whether you make money or lose your shirt in the next market crash)? Fees can easily consume one-third to one-half of your account value, as I prove in Chapter 7 of my new book, ‘Rescue Your Retirement:  Five Wealth-Killing Traps of 401(k)s, IRAs and Roth Plans — and How to Avoid Them.’”

The Ugly: The passage of the SECURE Act makes it obvious how little control you have over the money in your government-sponsored 401(k), IRA, or similar plan. Once you put money into these plans, they control it. They can — and do — change the rules any time they want, and they don’t need your permission to do it.

“Decades of careful tax planning by families were thrown out the window when Congress drastically and immediately changed the laws for inherited or so-called ‘stretch’ IRAs, as part of the SECURE Act.”

About the Author: Pamela Yellen is founder of Bank On Yourself, a financial investigator and the author of two New York Times best-selling books. Readers can get a free copy of her latest book, “Rescue Your Retirement: Five Wealth-Killing Traps of 401(k)s, IRAs and Roth Plans — and How to Avoid Them,” here for a limited time.