Strange Bedfellows

 It’s been said that politics makes strange bedfellows — but it doesn’t get much stranger than President Trump and Teresa Ghilarducci.

At least temporarily, they appear aligned on one of retirement policy’s most persistent challenges: how to reach workers who don’t have access to a retirement plan at work.

President Trump’s April 30 executive order directs Treasury to develop a federal IRA savings framework aimed at uncovered workers — contract workers, part-timers, the self-employed, and employees of small businesses. And while the proposal is still light on details, it has drawn enthusiastic support from one of the nation’s most consistent critics of the employer-based retirement system: Professor Teresa Ghilarducci.

The Trump initiative — hinted at in the State of the Union address — would synchronize with the expanded Saver’s Match included in the SECURE 2.0 Act of 2022. The Saver’s Match is one of the more consequential — if still underappreciated — changes in that legislation. The Saver’s Match replaces an often-invisible tax credit with something workers can actually see: a direct federal contribution into a retirement account. In practical terms, it turns a tax benefit into something that feels a lot like an employer match — except funded by the federal government and targeted at lower-income workers.[i]

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That said, Ghilarducci’s full-throated support of the proposal doesn’t seem based on the Saver’s Match synchronization, but rather on its outreach to those without access to a retirement plan at work. And while — like the state-run plans for private sector workers — it seems likely to help close that coverage gap — Ghilarducci is quick to acknowledge that it shares some elements of a proposal that she and her latest conservative-leaning “partner,” Kevin Hassett, who these days directs the National Economic Council in the Trump White House have drafted. That proposal, embodied in the Retirement Savings for Americans Act, also seeks to extend coverage, notably for workers who currently lack access to a retirement plan at work.[ii]

Now, lest one be inclined to think that Professor Ghilarducci has reconsidered her long-standing and well-documented cynicism regarding the employer-sponsored system, her recent commentary continues to refer to it as “broken,” “failed,” and a “retirement wealth inequality machine.” While Ghilarducci has occasionally insisted she doesn’t want to “blow up” the 401(k) system, her preference for direct federal involvement over employer sponsorship remains fairly unmistakable.

Ironically, however, the workers most likely to benefit early on may be those who already participate in workplace retirement plans. The infrastructure is already there — payroll deduction, participant communication, automatic savings mechanisms, and recordkeepers eager to facilitate the flow of matching contributions.

Still, since the details of the new Trump proposal, much less its implementation aren’t yet known, it might turn out differently. And — as with many of the provisions in SECURE 2.0 —employers are not required to accept Saver’s Match contributions, though many are expected to, particularly larger programs.

In the end, this may be less an ideological convergence than a practical one. Trump sees an opportunity to expand savings access without creating a new entitlement structure. Ghilarducci sees a step away from reliance on employer-sponsored retirement programs. Both see political and policy value in federal matching dollars tied to individual savings.

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Strange bedfellows, indeed.

• Nevin E. Adams, JD

 

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[i] Eligibility is aimed squarely at lower- and moderate-income workers. To qualify, an individual must be at least 18, cannot be claimed as a dependent, and cannot be a full-time student. The key gating factor, however, is income. The match is available in full for those below certain modified adjusted gross income thresholds — roughly $20,500 for single filers, $30,750 for heads of household, and $41,000 for married couples filing jointly — and then phases out until it disappears entirely at about $35,500, $53,250, and $71,000, respectively.

[ii] However, see The Results Are In! Most Workers Would Be Worse Off Under RSAA.

A Retirement 'Journey'

  Mother’s Day tends to come packaged in the usual ways — cards, flowers, reservations, and a few familiar phrases about gratitude. There’s nothing wrong with any of that. But it also flattens something that, in real life, is anything but simple: the steady, unglamorous work that holds everything together long before anyone thinks to acknowledge it.

A recent driving trip out West brought that into sharper focus for me.

Now, my wife and I had been talking about making this particular trip for years. We had specific things we wanted to see, and a rough idea of their proximity to each other. And, thanks to a speaking engagement, we had a departure date, and a “jumping off” point. 

Now, on paper, a road trip sounds straightforward enough — pack the car, set the route, go.

In practice — and especially when you’re traveling with two dogs who are very much part of the family structure (and not very accustomed to travelling), it becomes something closer to project management. Timing, supplies, stops, accommodations, contingencies. It’s not complicated in any single step, but it is relentless in its accumulation.

And almost none of it is visible in the moment you actually leave the driveway. But heaven help you if you haven’t given it (all) consideration before you do.

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As it turned out, what struck me most on that road trip wasn’t the driving itself, or even the destination(s) — though there was plenty to consider on both fronts. Rather, it was everything that had to happen beforehand for the trip to feel effortless once it began. The coordination around our four-legged “children” — what they would need, where they would be allowed (national parks, btw, have gotten very particular about such things), how much of their special diets would need to be accommodated, how the days would (have to) be structured around them — wasn’t an “add-on” to the trip. It was the trip. It just wasn’t the part anyone sees. 

Well, except for my wife — and the pups — whose experience would have been significantly less enjoyable had it all been left to me.[i] And that’s the part that sticks with me. Every successful trip has someone accounting for the details no one else wants to think about. 

Retirement has been described by some as a journey — one that requires thoughtful preparation ahead of time — one that needs to consider contingencies, and one that sometimes takes longer than contemplated in those preparations. 

And yet, when it comes to retirement, a surprising number of people still pull out of the driveway without much more than a vague destination and a hopeful estimate of how far a tank will take them. Surveys consistently show that “retirement needs” are often little more than guesses — revised up or down depending on what the market did last quarter.

So, yes — at a high level my wife and I planned the trip together — we plotted our route, booked hotels, and packed our respective suitcases. But the details of the trip itself —  snacks for the car, medications that we’d perhaps need, coffee, and the various accouterments that our pups required — well, those details, and they were absolutely essential to a successful trip — fell to my better half. 

Now my wife has been doing these mental travel preparations for decades. So much so in fact that I have largely taken them for granted. But this was a longer trip than our usual undertakings — which complicated both the type and volume of packings. And while some of it surely is just “routine” at this point, the longer the trip went on, the more amazed I was at the preparations — and contingencies — she had already considered.

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Retirement planning isn’t just about having a destination — it’s about making sure someone is responsible for thinking about things that can go wrong along the way.

So, as you think about your retirement road trip — perhaps focused on the finances, market volatility and the like — who’s taking into account all those inevitable bumps in the road, the potential road closures, the unplanned interruptions that impact your anticipated arrival times?

And if the answer is “no one,” I’d suggest you rectify that before you get on the road. Because, much like the work, we tend to notice only once a year on Mother’s Day, the things that make the journey work are usually the things no one thinks to celebrate — until they’re missing.

• Nevin E. Adams, JD

 

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[i] Trust me, I thought travelling with three kids was…challenging.

Retirement Realities Better Than Pre-Retirement Perspectives

 If you read only the headlines from the latest Employee Benefit Research Institute Retirement Confidence Survey, the takeaway feels familiar: confidence is slipping, worries are rising, and concern about retirement readiness is once again in focus.

Seriously?

Look, once you move past the year-over-year decline[i] and look at the levels themselves, the picture changes shape. Yes, confidence is down from recent highs. But retirees, in particular, remain broadly confident in their ability to live comfortably in retirement despite all the “noise” about inflation, Social Security, and volatile markets. Roughly three-quarters still say they feel secure about their financial footing in retirement. That is not a fragile number. It is a resilient one.

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What stands out even more is how consistently the survey shows a gap between expectations and actual experience. Workers — still on the near side of retirement — are meaningfully less confident than those already in it. That pattern shows up again in the latest Retirement Confidence Survey, and it is one of the most important, if underappreciated, dynamics in the data. And why not? The drumbeat of bad economic news, unrealistic financial expectations, dramatically inflated lump-sum healthcare costs, and yes — lack of confidence — are incessant, even in this “longest-running survey of its kind.”

Considering the headline prisms journalists — and industry surveyors — routinely put in front of people, what else could you expect?

But — and as a current retiree — let me just affirm what the RCS is (still) telling us: retirement looks more uncertain when you are looking at it than when you are living it.

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That asymmetry is not surprising, but it is revealing. Before retirement, the risks are abstract and cumulative — markets, inflation, healthcare costs, longevity. They tend to stack in the imagination. After retirement, those same risks become real, but also more bounded. Income sources are visible. Tradeoffs are immediate. Decisions replace speculation.

The result is often not a dramatic sense of abundance, but something more important: manageability.

That does not mean retirees are carefree, or that pressures like inflation are irrelevant. The modest decline in confidence this year almost certainly reflects real household strain — and what I (still) consider to be a valid concern that lawmakers will fumble the Social Security (and Medicare) foundation. But it is still a decline within a relatively high band —movement from strong confidence to slightly less strong confidence, not from confidence to doubt. A slight dip, not a crash.

Let’s face it — the most overlooked (and certainly unreported) signal in the data: those actually in retirement are still, by and large, saying it works.

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Not perfectly. Not uniformly. But sufficiently — and more consistently than the pre-retiree mindset — or the headlines that fuel it — would suggest.

That gap between perception and experience is not closing. If anything, it remains one of the most durable features of retirement confidence research. And it carries an important implication: the further people are from retirement, the more uncertain it tends to feel. The closer they get — or the more they experience it — the more workable it often becomes.

Unfortunately, that is not a headline story — and it’s never going to get “clicks.” But it may be the real one worth paying attention to. 

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And maybe, just maybe, it’s one YOU should share.

• Nevin E. Adams, JD

 

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[i] Typical headlines included Retirement Confidence Among Workers, Retirees Slips to Lowest Point in Nearly a Decade, Retirement Confidence Falls as Social Security Concerns Mount, Workers' Retirement Confidence Hits 9-Year Low: EBRI, Americans Are Losing Confidence in Having Enough for Retirement, Survey Says - WSJ, Workers’ and retirees’ confidence for a comfortable retirement continues to decline amid fears of changing government programs - Pensions & Investments,

The ‘New’ 401(k) Retirement Savings ‘Problem’

 For years, the retirement industry has been obsessed with one key problem: people aren’t saving enough. Now, “suddenly,” we have another.

Retirees aren’t spending “enough.”

There’s a certain irony in that. After decades of urging discipline, restraint, and delayed gratification, we’re now concerned that retirees are too disciplined — that they’re depriving themselves of the very retirement they spent a lifetime preparing for.

Some of that is clearly a byproduct of the defined contribution system itself. We’ve spent years focusing workers on how much they can accumulate, not how much they can spend. Defined benefit plans answered a very different question: What will I get? Defined contribution plans leave retirees staring at a balance and wondering how long it will last. 

And once the paycheck stops, that question gets very real, very fast.

Because while you can model returns, you can’t model life. Inflation, healthcare costs, longevity—those aren’t just variables, they’re uncertainties. So yes, retirees tend to be cautious. Frankly, it would be surprising if they weren’t.

That hasn’t quieted a growing chorus worrying that retirees are being too cautious— “hoarding” assets out of fear they’ll run out of money before they run out of…life.

Distribution Defaults

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There’s some data behind that concern. The Employee Benefit Research Institute has long documented the extent to which retirees rely on required minimum distributions (RMDs). They don’t withdraw until they have to, and when they do, they tend to take …about what’s required. The RMD doesn’t just trigger withdrawals—it effectively defines them. Like it or not, the IRS life expectancy tables have become the default decumulation strategy.

And then there’s the work of David Blanchett and Michael Finke, which suggests retirees are far more comfortable spending income than they are dipping into savings. Frame it as income, and people spend it. Frame it as an asset, and they preserve it. Hence, the now-popular notion of a “license to spend.”

Now, I get it. As someone now in retirement (though not yet subject to RMDs), I’ve done the math. The 4% rule, the RMD tables, the various projections—all of them, in one way or another, are trying to answer the same question: how do I make this last? And how do I do that not just for me, but for my wife — who, actuarially speaking, is likely to outlive me?

As we approached retirement, we focused on two things: what we were spending (admittedly, figuring out retirement expenses is easier the closer you are to retirement), and what income we could count on. Social Security for both of us (for the moment, anyway), plus a couple of modest partial pensions, gave us something important—not just income, but reliable income. Enough to cover the basics of our chosen lifestyle. And yes, we spend that money just like we spent our pre-retirement paychecks.

What we didn’t do was annuitize the rest of our savings.

Puzzle Pieces

And that’s where some of this current messaging starts to feel …binary. Maybe that’s not the intent, but it’s often how it comes across: if income is good, more must be better—and converting a big chunk (or all) of your savings into an annuity is the logical next step.

And yet, even when the option is available, most still …don’t.

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This is what the academics label the annuity “puzzle” – the continued reluctance of American workers to embrace annuities as a distribution option for their retirement savings. It’s an academic headscratcher because they tend to assume workers are “rational” when it comes to complex financial decisions, specifically because “rational choice theory” suggests that at the onset of retirement, individuals will be drawn to annuities because they provide a steady stream of income and address the risk of outliving their income.

Human beings are, in fact, mostly rational (academics not always so much) – and, despite record annuity sales (outside of retirement plans) most human beings (still) can’t quite get their arms around the notion of handing the biggest sum of money they’ve ever seen over to an insurance company …which will then “dribble” it back to them in considerably smaller sums each month, albeit for the rest of their lives. 

The industry’s current “solution”? If they won’t buy it on their own – and if plan fiduciaries are (still) hesitant to put it on the menu – well, let’s default them into it - by embedding it in a target-date fund or managed account. Now, honestly, if a target-date fund is a “blunt” asset allocation instrument, how is defaulting participants with a myriad of personal financial and physical circumstances, retirement needs, and health concerns any less so?

Look, reliable lifetime income is valuable. In many cases, invaluable. It is the baseline for a successful retirement financial plan. But so is flexibility. So is liquidity. So is the ability to respond to whatever retirement actually throws your way. Things that the limits of “regular” lifetime income won’t address.

So, maybe don’t assume that the only way to give retirees a “license to spend” is to ask them to hand over the keys to the entire portfolio – certainly via a default mechanism they likely never really understood or appreciated.

And if that’s not what’s being suggested—if the intent is really about partial solutions, flexibility, and choice—then perhaps the messaging could use a little more clarity.

Because if I’m hearing it the other way, I’m probably not the only one.

— Nevin E. Adams, JD

Things I Wish I’d Known (and Done) Before I Retired

  

It’s hard to believe that I’ve now been “retired” for three years. That said, there are some things that, in hindsight, I wish I had known and/or acted on sooner. And a couple that I actually did - but might easily have overlooked. 

Here they are:

Do More Roth — Sooner

I’ve long been a huge fan of Roth. It’s not hard to look at the federal government’s finances, the current tax brackets, and figure out that the rates aren’t likely to get any lower in the future.

And yes, for the last decade or so of work, I went all Roth, including catch-ups. In fairness, Roth wasn’t an option for most of my retirement savings career. Even so, in those first years, recordkeepers weren’t really ready — and I, like most of my generation, had by then been so thoroughly coached on the advantages of pre-tax accumulations — well, it was easy to shrug off Roth as one of those things of which only the wealthy could afford to benefit.

But — and particularly as I got closer to retirement — the question has always been, where will your income in retirement line up with those brackets? That said, the closer I got to retirement, the easier it was to make that determination — and even more fully appreciate the benefits of tax diversification, particularly as I look ahead to the implications of required minimum distributions (RMD), when taxes on all those previous years of pre-tax savings come due — with a vengeance.

So, if you haven’t been thinking about Roth — and those new catch-up contribution limits are a good opportunity — do so.

Set Up the Roth IRA Before the Rollover

This one still makes me shake my head.

A few months after retirement, I rolled those balances into an IRA: one for a Roth, another for the pre-tax accounts.

Only to “discover” that the five-year clock on the withdrawal of Roth account earnings without penalty starts with the date of the IRA account opening, NOT the date from my 401(k). This turns out not to be a hidden secret — but I never picked up on it.

Now, as it turns out, I won’t need to pull that money out before the five-year clock resets with the rollover Roth IRA. But I could have spared myself a bit of worry if I had opened that Roth IRA earlier — and THEN rolled over to that account after retirement.

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Lesson learned: Open the account early — even if you don’t think you’ll use it right away.

Future You will thank you.

Know That 1099 Income Is … Messy (and It All Counts)

I assumed income in retirement would be simpler (there’s surely less of it) than working-life income.

That assumption did not survive contact with my new status as a 1099 worker. The good news is that, post-retirement, I’ve had several amazing opportunities not only to continue contributing my writing and expertise, but also get paid for it.

The bad news is, I wasn’t really prepared for the financial challenges of estimated tax payments, and, more critically, the financial toll of self-employment tax, wherein I am — even as a Social Security recipient — expected to pay both the employer and employee portions of FICA withholding. From a practical standpoint, that means that that “extra” income — well, less of it goes into my pocket than one might think.

Without withholding, income timing becomes trickier. Estimated tax payments become real (and, oh so large). Cash flow planning requires more attention. And there’s a persistent, low-grade constant uncertainty about whether I’m underpaying, overpaying, or just guessing until April rolls around. Oh, and the IRS has some pretty specific rules around how much estimated tax is due — and when.

And yes, there are financial penalties for guessing “wrong”.

The More You “Make,” the More They’ll “Take”…in Unexpected Ways

I have previously written about the biggest surprise of my retirement[i] — and I continue to struggle with it.

Like most people (I assume), I never gave much thought to post-retirement healthcare insurance. Oh, I’m aware of the funding issues (it’s actually in a more financially precarious position than Social Security), but as post-retirement healthcare has pretty much evaporated in the private sector, I figured we’d deal with it …when we had to.

Turns out, Medicare health insurance premiums are based on income. And if you’ve filed jointly, BOTH of your premiums are based on your adjusted gross income (AGI). Which means that 1099 income counts, and most particularly those withdrawals of pre-tax savings count. Big time.

Together, they can quietly push you into higher income-related premium tiers for Medicare — increasing Part B and Part D premiums in ways that feel disconnected from the original retirement planning conversation …but absolutely aren’t. That’s where those Roth decisions can really pay off.

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The interaction is subtle, but the dollars aren’t.

File for Medicare Before You Need It

Once you start receiving Social Security benefits, you are automatically enrolled in Medicare Part A. But even if you work past age 65 (as I did) and don’t start taking Social Security (like me), you still have to sign up for Medicare — even if you’re still working, have insurance, and don’t plan to use Medicare (this will, of course, confuse your current health care providers, at least momentarily. Everyone assumes when you turn 65, you’re on Medicare). 

There’s a seven-month initial enrollment period that begins three months before the month you turn 65 and ends three months after your birthday month. Now, there are some exceptions to that timing, but — the bottom line is, you’ll likely find it to be less complicated to sign up around your 65th birthday, and then you don’t have to worry that you’ll run afoul of deadlines that can cost you a lot later on.

The bottom line here is that your post-retirement spending plans need to include something for health insurance (more precisely, your Social Security benefit will be reduced by that amount). You can find out more at: https://www.medicare.gov/basics/costs/medicare-costs

The Sixth “Lesson”

Let’s face it, even those of us who have spent our lives thinking about retirement don’t get everything right when it comes to our own.

The irony is that I spent years telling others to plan — and I did - at least sporadically. Ultimately, I focused more on the accumulation side of the retirement equation and less on the spending side.  The good news is, even with the “surprises” noted above, the accumulations appear to have provided a pretty good buffer.   

Retirement is good. Really good, in fact. But it’s even better when you make the easy moves before they become harder ones. If you’re still working and thinking, “I’ll handle that later,” take it from someone three years in:

“Later” comes faster than you think.

-          Nevin E. Adams, JD

[i] See The Biggest Surprise About (My) Retirement