Writing an article about the various changes the SECURE 2.0 Act has made or will be making to retirement savings was on my to-do list for months. I purposely waited to allow time for guidance and commentary to be issued.

Versions of the legislation sat in both houses of Congress for many months until being wrapped into the omnibus spending bill passed in late 2022. The U.S. House of Representatives’ and the U.S. Senate’s versions had bipartisan support. While the SECURE 2.0 Act will benefit many people, our legislators once again missed the opportunity to shore up Social Security.

The Old-Age and Survivors Insurance (OASI) Trust Fund—the part of Social Security that pays the benefits to retired workers and their families—is currently projected to deplete its reserves by 2034. If nothing is done, retirement benefits will be reduced. This reduction could occur just as my wife and I get close to claiming benefits (presuming we’ll be able to delay until full retirement age or later).

Many Americans do and will rely on Social Security benefits to help fund living expenses in retirement. The Federal Reserve says the average retirement savings balance for households with income ranking in the 50th to 89th percentiles was $170,600 in 2019. A 4% withdrawal from this balance is approximately $6,800 per year—not very much.

Just as is the case with a retirement savings shortfall, fixing Social Security is cheaper and less painful the sooner action is taken. The solutions include increasing the amount of wages subject to the Federal Insurance Contributions Act (FICA) tax, raising the age for claiming full benefits, adjusting benefits based on some wealth/income measure and increasing the amount of younger workers paying into Social Security (e.g., more immigration). Depending on your political leanings, one or more of these is objectionable. Compromise by legislators on both sides of the aisle will be needed.

Going back to the SECURE 2.0 Act, the new law contains changes that could potentially help a broad range of people.

Americans with lower incomes will be helped by the new Saver’s Credit. Employer-sponsored emergency savings accounts are potentially a good idea—especially if employees are automatically enrolled in them.

Workers with student loans will be able to have those debt payments count toward qualifying for matching contributions to their employer-sponsored retirement plans. Given the high cost of college, this could help many accumulate retirement savings while paying down their loans. (It’s up to each employer to provide this benefit.)

Indexing catch-up contributions on traditional individual retirement accounts (IRAs) and Roth IRAs to inflation will help those who are eligible to contribute to such accounts and have the financial means to max out their contributions. High-income earners in their early 60s will be able to set aside even more for retirement under the new $10,000 cap.

Finally, the new required beginning date (RBD) of age 73 for required minimum distributions (RMDs) provides more time for those in their 60s and early 70s to make strategic tax moves. (The RBD will be raised to age 75 after 2032, once Congress fixes an error in the law.) See more in the article in this issue.

Speaking of tax strategies, retirement expert Wade Pfau provides a case study of managing taxes in retirement in this issue. Pfau uses a recently retired affluent couple to show how four different strategies would impact their income and legacy wealth.

The most tax-efficient strategy delayed claiming of Social Security benefits, made use of Roth IRA conversions and put spending from the Roth IRA last in line. I encourage those of you interested in retirement tax strategies to read the article to understand why this is the case.

This issue isn’t just about tax planning. Matt Markowski revisits AAII’s three CAN SLIM stock screens as a tribute to William O’Neil. O’Neil died in late May at the age of 90. Besides inventing the CAN SLIM methodology, starting Investor’s Business Daily (IBD) and writing several books, he also wrote for the AAII Journal. O’Neil’s first article appeared in the April 1999 AAII Journal (“Growth Stock Selection: Covering All the Analysis Bases”). He went on to write five more. 

In addition, we discuss the latest change to the Model Shadow Stock Portfolio, examine auto and truck stocks and discuss regional and country-specific funds.

Wishing you prosperity and good health,