How the SECURE Act Alters Your Retirement Plans

Update from Brian Graff, CEO of the American Retirement Association

Ric Edelman: It's Friday, October 13th. And did you know that the 13th falls on a Friday more often than any other day of the week? 

Coming up on today's show, we have a couple of new laws that have come out of Congress lately on retirement savings. We're going to talk about the SECURE Act and SECURE Act 2.0 with Brian Graff, the CEO of the American Retirement Association. And NFTs, what are NFTs? Stay tuned for that.

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The Ultimate Family Investment

How many families are turning surplus into security

Let me ask you, what are your kids going to do with your money when they inherit it? There's a new study on people who inherited wealth. 88% of them say that they're using the money to support their lifestyle and prepare for their retirement. Sounds pretty reassuring, right? You don't seem to have to worry about your kids squandering their inheritance. 88% of inheritors also said that their inheritance helped them achieve financial security and independence, and 86% said the inheritance gave them a secure, reliable retirement income. And best of all, they want to do the same for their kids. 59% say they want to pass wealth to future generations. 58% want to fund education for children and grandchildren, and 50% want to give money to charity.

But you don't have any money to give to your kids. Maybe you should buy a life insurance policy or tell them to buy one on your life. After all, they're going to be the ones getting the money. The Global Financial Literacy Excellence Center at George Washington University says 25% of non-retired adults have no retirement savings at all. Maybe these folks, if they are concerned about their children and grandchildren, ought to be buying life insurance. And of those who are 60 years old or older who are still working, 13% of them have no retirement savings at all. 

And of those who do have retirement savings, nearly half say they don't have enough. No wonder we're facing a retirement security crisis, which is why it's exciting that if you do have the opportunity to give money to children and grandchildren, they in fact will be grateful and they are highly likely to put that money to good use.

It's important because a third of workers are not saving for retirement on a regular basis. Only 22% who are doing so are confident that they're saving enough. And half of workers say they have never even tried to figure out how much money they're going to need.

This is how you can help your clients. They know they need to save, but they don't know how and they don't know how much to save and they don't know if they're saving enough. You can show them the answers to all of this.

And it's important that you teach your clients about longevity. Only 44% of boomers know about longevity. They don't know how long they're really likely to live. Only 37% of Gen X knows how long they're likely to live, only 32% of Gen Y and only 30% of Gen Z. All of them, for the most part, think they're going to die in their 80s. They don't realize they're going to live into their 90s, hundreds and beyond. And this is why you need to teach them. Of those who have strong longevity, knowledge, 81% of them save for retirement on a regular basis versus just 57% who don't understand longevity.

In other words, when you have strong knowledge about longevity, you're more likely to save for retirement. You're more likely to try to figure out how much you need for retirement. And that is how you can turn people into clients and how you can get clients to increase how much money they're investing. People don't save for the future if they don't think they're going to have one. By helping your clients understand what their future is likely to be like and how long it's likely to last, you'll obtain more clients and clients who invest more money. I'm Ric Edelman. It's the truth about your future.

What are you doing on October 24th? Come for my new webinar. Bonds are back. That's thanks to the highest interest rates in 20 years. But are you helping your clients make the most of today's opportunities from today's bond yields? Join me October 24th. It's a Tuesday, 1 p.m. Eastern for a special webinar that will show you how to capture yields in today's high-rate environment with bond ETFs. I'll be joined by David Brown, the managing director at PIMCO, and we'll tell you the best fixed income opportunities that are available to your clients right now. You'll also get crucial insights into the economic outlook that you can use in your client conversations, and you'll get one CE credit to boot. You can register for the webinar about today's bond yields for free. The webinar is Tuesday, October 24th, 1:00 pm Eastern.

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How the SECURE Act Alters Your Retirement Plan

Exclusive Interview with Brian Graff, CEO of the American Retirement Association

Ric Edelman: Obviously, one of the most important subjects we talk about regarding your future is your future retirement, and we need to talk about it. And that means we need to talk about it with an expert. And so I'm really happy to bring on to the program Brian Graff. He is the CEO of the American Retirement Association. Brian, great to have you with us. 

Brian Graff: Appreciate a Ric really a pleasure to be here as well. 

Ric Edelman: You know, the American Retirement Association is pretty much what I would consider the grand Poohbah of the retirement focus. You know, there are a lot of associations in this space in particular. And the aura, the American Retirement Association is the umbrella group for all of them, the American Society of Pension Professionals and Actuaries, the American Society of Enrolled Actuaries, the National Association of Plan Advisors, the National Tax Deferred Savings Association. The Plan Sponsor Council of America. All told, we're talking what, Brian, 30 to 40,000 retirement plan professionals who are serving employer retirement plans, covering what, tens of millions of US workers?

Brian Graff: That's right. About 95% of all workplace savings programs involve our members. So we're very active in trying to help people save for retirement while they're working, but also to think about what they're going to do when they get closer to retirement age because more Americans are facing that. 

Ric Edelman: Yeah, and that's the whole deal, right? The baby boomers are in or near retirement and we are the biggest population cohort in the country. And so retirement is in vogue. Everybody is looking forward to retirement, some with antipathy because of their lack of preparation, many out of befuddlement not knowing what to do after they retire and everybody wondering, how do I maximize the opportunities and complications of my retirement plan at work? So you're in vogue, Brian. You definitely got center stage. And in the world of retirement, I want us to focus today our conversation on one particular issue, and that's the SECURE Act. We've got two of them now, two laws, the SECURE Act and SECURE Act 2.0. Tell me if I'm wrong, but the SECURE Acts combined represent a pretty big deal in terms of Americans ability and opportunity for saving for retirement. 

Brian Graff: 100% Ric. And in fact, you use the word in vogue. Really the reflection of that is in politics, when more and more people across the country are getting close to retirement, thinking about retirement. In fact, presently 10,000 baby boomers turn 65 every day. That's going to go up to 12,000 in 2024. So you are 100% right. This is an onslaught of people who are reaching what has historically been the normal retirement age of 65. And, of course, Congress pays attention to what people are doing and their feelings and their concerns about many members of Congress. When they go home and they do the town hall meetings, it's the number one issue or top three issue that their constituents are raising concerns about having enough money to retire comfortably. And that's why you saw this sort of flurry of legislation over the last several years in a period of time. Let's not kid ourselves. It's not like Congress is breaking down the doors, passing lots of legislation. In fact, it's arguably some of the most partisan periods in a generation in terms of congressional activity. But they've managed, given the interest in this subject and the concerns that are out there among constituents. This is like one of the few things that they are still trying to attack on a bipartisan basis. And that's why you saw these two significant pieces of legislation. 

Ric Edelman: And so let's talk about them. Tell us what is it that the SECURE Acts together have accomplished? How are they affecting retirement plans and retirement planning? 

Brian Graff: So I think it's twofold. One, let's start with the accumulation phase. This is when people are saving for retirement while they're still working. There are two issues. One, making it easier for people that have access to a plan and two, frankly, trying to drive more businesses to offer some type of savings programs in the workplace because there's still, you know, 40, 45% of full-time workers don't have access to a plan at work. And when they aren't covered, they are 12 to 15 times less likely to save for retirement than when they have a plan that they can contribute to. 

Ric Edelman: I've been saying that as a financial adviser for decades. The retirement plan you have at work is the easiest, best way to save for retirement. And yet when your employer doesn't offer you the opportunity, you're shut out of that. You're not likely to save on your own. 

Brian Graff: That's 100% correct. And a lot of it's the convenience of the payroll deduction. It's the incentive of the match. People don't want to leave that money on the table. And oftentimes, it's just the culture of savings that's fostered in the workplace by your peers talking about saving for retirement. There's HR folks who are helping with that. All that stuff really works. It's actually been an incredible success story, and I think you know this more than most, where they are in place. And the problem is this coverage gap unfortunately is particularly acute among communities of color. There's a significantly higher percentage of black Americans, Hispanic Americans who don't have access to a retirement plan at work. 

Ric Edelman: And the reason is what?

Brian Graff: Lot of them tend to work at smaller businesses and smaller businesses tend to be those employers that are less likely to offer a plan. So what Congress has done in these pieces of legislation is a bunch of stuff to facilitate smaller plans as a new kind of startup plan called the Starter K, that's a really simple and low cost to administer for the employer. No employer contributions required. There's actually a tax credit to cover any administrative costs up to $5,000 a year for the first three years of the plan, 100% tax credit. And then there's an additional $500. We're just going to give you $500 for putting a plan in. So Congress is throwing some money at employers and making it easier from an administrative standpoint to try to get that coverage gap addressed. And you're going to see advisory firms, broker dealers, the industry focused on this opportunity because now they can go to these employers and say, hey, it's essentially free. Why aren't you doing this? 

Ric Edelman: And I think this is worth highlighting. We know there's a wealth gap between the races that whites are more likely to be wealthy than minorities. I want to just highlight what you just said. The fact that if you are black or Hispanic and you work for a large company that has a 401(k), you're equally likely to join the plan as white workers are. So it's not that blacks at big companies aren't participating if a black isn't in a plan. It's because their employer doesn't offer the plan. It has nothing to do with race. It has everything to do with availability and access. And that's what the SECURE Act does. It allows small employers to be more likely to offer a plan, and since their workers tend to be more likely minorities, this is giving the minorities the opportunity for saving for retirement, just as whites do. 

Brian Graff: And you couldn't be more right. It's really fantastic to see the data on this because when you have, you know, take a large employer with a regular cross section of employees based on racial characteristics, there is no disparity in savings among the races. When there's coverage in place. There is disparity based on income levels, which is, you know, regardless of race is the same thing. But we see no disparity between savings rates and participation based on race when everyone is covered. So the key to getting at this problem is without question, everyone agrees to this is the coverage gap. Now, there are arguments about how to do it. Some states are stepping in by requiring employers above a certain size to have a plan. About a dozen states have actually enacted legislation to do that. And they're in various steps of implementing those provisions at the federal government level. Requiring employers to do something is not really something that can be done on a bipartisan basis right now. But instead, they're throwing lots of carrots at this. 

Ric Edelman: Now, here's the problem, Brian. With all legislation, if you're not engaged in the regulatory, legislative, political process, no matter how good the law is, the odds are pretty high you're not going to be familiar with it. If you're a small business owner, you're busy running your business. You're not paying a whole lot of attention to what Washington is doing today. So the key to me, it would seem, is to get the word out, to let small business owners know that the rules have now changed. There are now all of these opportunities and benefits, free money, as you've described. So that's really a big point. So if you're a listener to this, if you're a viewer of this and you work for a small employer, you need to let your boss know about the SECURE Act. And if you work for a large company, but you have family members who work for a small employer, we just need to all start talking about this to make us all realize, Wow, anybody anywhere, regardless of employment size, now has a pretty good opportunity for creating a retirement plan in the workplace. 

Brian Graff: That's right. And this is a great opportunity, because as you were saying, essentially, it's a free plan. And we like to say retirement plans are sold or not bought. It's not like a small business owner sitting around. You know, they're busy running their business. They're not thinking about these kinds of things often until their employees start asking for it. To your point, we're also working closely with the National Black Chamber, the National Hispanic Chamber, to try to work with them to get the word out to their members about these opportunities, because really, you know, if it's free and it doesn't, you know, it's not costing you any additional compensation. There are no employer contributions required. Why aren't you doing it? That's really the question.  

Ric Edelman: And I think that's a really good question to ask. So that's lesson number one for today, is you need to talk to everybody you know who works with or operates a small business to let them know the availability never been easier or cheaper to create a retirement plan for yourself as an owner of the business and for everybody who works for you in the business. That's lesson number one. Beyond that, the SECURE Act does something that I think is really, really important for people to understand. They have changed in this law; the RMD rules, the required minimum distribution rules. These rules are complicated. They vex retirees. They're incredibly important. And I'll just summarize what the rule was. And Brian, I'll let you tell us how it's all now, new and different when we put money into a retirement plan. The good news is the money grows for decades while you're saving for retirement. But once you are in retirement, you have to start making withdrawals. And the IRS tells you how much money you must withdraw each year based on the value of the account and your age. These are the RMD - required minimum distributions. The SECURE Acts have changed these rules, haven't they? 

Brian Graff: That's right Ric. So basically, we've got kind of a simple rule of thumb with respect to these changes. And as you pointed out, really it's a reflection of the fact that life expectancy has improved in this country since the original rule was put into effect decades ago. And people are living longer. So why are we forcing people to take money out at the same age when people are over periods of time have been improving their life expectancy. So the changes to the rules are intended to reflect life expectancy. And to summarize, it's going to be age 73 if you were born between 1950 and 59 and then age 75, if born in 1960 or later. 

Ric Edelman: Basically, you’re saying the younger you are, the longer you're going to live. And so the longer we'll delay. You're having to withdraw money from the account. The longer you delay, the more the money will grow because it's growing on a tax deferred basis. 

Brian Graff: That's right. And I think everyone obviously, who works closely with Ric Edelman and his firm should know that the longer you can keep the money in retirement, keeping it tax deferred, the better off you are and the more money you are going to have at the end. 

Ric Edelman: Now as profound as the SECURE Acts have been, SECURE Act and SECURE Act 2.0, I have to assume that in any massive piece of transformational legislation, there's got to be some downsides. Are there any to these laws that we need to be aware of? 

Brian Graff: The thing about retirement legislation is we have this dream of simplification. But the reality is every time Congress touches anything, things do tend to be a little bit more complex, and it really is just the way Congress is. Washington, D.C. doesn't know “Simple”. So an example of something that's a little bit more complicated, particularly for employers. I actually think from a policy standpoint, it's a good thing. There are a lot of people who work part-time on a regular basis. And they've been doing it for years, probably because they've got family responsibilities. They can't work full-time. Historically, the law has said if you don't work 1,000 hours a year, you're not going to be eligible to participate in the retirement plan. So Congress has changed that threshold to 500 hours. And I got to tell you, the rule they put in place is incredibly, ridiculously complicated. So the good news is that I think this is going to open access for those employees regardless of how many hours they work, whether you're part-time or full-time. 

Ric Edelman: So is there going to be a SECURE Act 3.0? 

Brian Graff: It was one thing. When you talk to people on the Hill, I think they're done with this name. They're going to probably come up with something different. I would say it's going to be a bit of a break, mostly because, as I said before there isn't a lot of legislation happening. We've definitely gotten our fair share over the last several years. And frankly, the industry really needs and participants, savers need some time to digest this. I mean, they've already changed the RMD rules twice. They've added a new matching contribution program to recognize student loan payments, which we're excited about. There are a bunch of compliance rules around part-time workers that I talked about that people are going to have to implement. And so I think everyone wants to sort of digest this and see how it works. Get the word out about these new incentives for those employers without a plan and hopefully we'll make some progress in terms of the coverage gap before they have to reconsider what incentives are out there and revisit the subject in Washington. 

Ric Edelman: So is it fair to assume that as a consumer, as an investor, that my financial advisor is well-versed in the SECURE Act and SECURE Act 2.0 that they'll be giving me advice based on these new legislative changes? 

Brian Graff: Yeah, I think that's the first place to go to is your financial advisor as you're thinking about how this impacts you, your situation, your personal family situation, your financial situation, I always say go first and talk to your personal advisor. They're the right person to help you figure out how this impacts you and how you can take advantage of it and avoid whatever pitfalls might exist. 

Ric Edelman: And if you're an employer of a small business and you're now recognizing for the first time, gee, maybe I ought to take a look at the opportunity to create a retirement account on behalf of my workers. Where would you recommend that that employer turn? 

Brian Graff: Well, you know, the opportunities for employers are probably bigger than they've ever been before. There are a lot of institutions that are now involved with offering retirement plans. Both online firms that do it now as well as your local financial advisor, should also be able to help you implement a plan. It really depends on how much help you think you need. A lot of employers, frankly, need the assistance of walking them through what the process is, even though some of these plans are indeed significantly simpler, like the Starter K, than have ever existed before. But that's also not maybe it's not so much the administration, but it might be just talking to employees, having someone to come in, talk to employees about the benefits of saving for retirement. And one thing I do want to highlight for all these plans going forward, they're going to be doing something called auto enrollment, which means we're going to presume that employees are going to participate. We're going to deduct at least 3% of their pay, not every paycheck, but spread out over the year into the plan. That might be something that you want someone to help as you're discussing this with employees to explain to them what's going on. 

Ric Edelman: So there you have it, whether you are a small business operator or working for one or know somebody who is, have them talk with their financial advisor, you do the same. And if you'd like to learn more about the work and services that the American Retirement Association is doing, Brian would love it if you'd visit their website. USA Retirement. Org. Brian Graff, the CEO of the American Retirement Association. Thanks so much for being with us on the show today. 

Brian Graff: Thanks, Ric. Really appreciate the opportunity. 

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Crypto Explainer: NFTs

Ric Edelman: You know, I often like to share with you education and understanding about crypto. It's the fastest growing new asset class and a lot of confusion about it. One of the words you may have been coming across are NFTs. Oh, okay. That's not a word. That's an acronym. What are NFTs? Non-fungible tokens. Okay, great. But what on earth is that? Well, to understand what a non-fungible token is, first we got to understand what a fungible token is. Well, before we can do that, we have to understand token itself. Yeah, we got three parts to this non fungible and token. Let's break it down really simply for you. A token is simply a representation of something. You know, a rose is a token of my love. You get on the subway by handing them a token, right?

Well, not anymore. It's all digital. But it used to be subway tokens would get you on to the subway. That's all a token is. It's a representation of something in the world of crypto. A digital token represents a physical asset. For example, your driver's license gives you permission to drive. Well, if you were to take a photograph of that driver's license, that now becomes a digital representation of your license, That's a token. I hope that makes sense.

Well, what about fungible tokens? What are those? Well, a fungible token simply means that when you have a variety of tokens, they're all the same. They're fungible. Best way to examine it is... Oh, say dollars. If I lend you a dollar, I want you to repay me. And when you do, you don't have to give me back the same dollar I gave you. All dollars are fungible. They're all the same.

But that's not true for cars. If I lend you my car, I want you to give me back my car. My car is non fungible. It's unique. A Picasso is non fungible. Each painting that Picasso drew is unique. So that's what a non-fungible token is. It is a unique digital representation of something else.

Now, in the beginning, these NFTs were all about artwork. People were creating digital forms of art and selling them, and each one of them was unique. You may have heard of the Bored Ape Yacht Club or CryptoKitties. There's a whole bunch of these out there. Prices went crazy over the past ten years, but that fad seems to have largely dissipated kind of the way of Beanie Babies. 

But that doesn't mean that NFTs themselves aren't important. Think again back to that driver's license. Why do you have a piece of plastic in your pocket or purse? Why not just have your driver's license as an NFT residing safely and securely on your smartphone so you can easily access it. You can share it with anybody who needs to see it, like the cop who just pulled you over or the TSA agent when you're trying to go through an airport. We can create NFTs of anything. Your passport, your education record, your employment record, your medical records, the deed to your house. All of these can be converted into NFTs.

There are companies already doing this in a big way with titles to cars. The state of West Virginia is leading the way there, and many other states are quickly following suit. So NFTs are going to be a very big part of your future and they're all going to be brought about by the world of crypto. Now you know what an NFT is, and you also know today in particular, to stay away from black cats, ladders and broken mirrors. Happy Friday the 13th. 

Thanks for joining us today. You know, we've got a new episode of the podcast every weekday. So if you miss one or if you're looking for info on a specific topic, you can find all our past shows at TheTruthAYF.com.

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