older man and woman hiking Asecure retirement may currently appear to be a pipe dream to many,but it could become a reality with some legislative assistance,financial guidance and a disciplined savings strategy. (Photo:Shutterstock)

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Most Americans dream of the day they can retire, spending theirnewfound free time sunbathing on a beach in Florida, exploring thehistoric cities of Europe, or making memories with loved ones. Nomatter the dream, there is one item essential to making thesegolden years a reality: a robust retirement savings account.

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Saving for retirement is one of the most significant financialchallenges facing Americans today.  For this reason, U.S.legislators have made it a priority in 2019 to facilitate anduncomplicate the retirement planning process.

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At the end of May, the U.S. House of Representatives passed theSetting Every Community Up for Retirement Enhancement (SECURE) Act.The Senate is currently working on similar legislation and theresult will likely be a compromise of the two proposals.

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As financial advisors, it is our responsibility to help ensurethat our clients start saving early and contribute the maximum,financially feasible amount to their 401(k)'s, IRAs, or brokerageaccounts to build a comfortable nest egg for retirement.

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While the SECURE Act and other legislation are great startingpoints, a successful retirement ultimately comes down to one'ssavings and spending habits. Keep reading to learn more about whichprovisions of the SECURE Act are most likely to impact retirementsavings plans, and how clients can adapt their habits to setthemselves up for a successful retirement.

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The SECURE Act

The SECURE Act aims to help Americans prepare for theirlong-term financial future by making it easier to contribute to401(k) plans and other tax-qualified accounts. The legislationprovides greater flexibility, reduced red tape for the adoption of401(k) safe harbor plans and more employee protection.

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Under automatic-enrollment safe harbor plans, the cap onauto-escalation for an employee's income is now 15%, up from 10%.In addition, the SECURE Act eliminates the 70 ½ age limit forcontributing to an IRA, while increasing the age at which plandistributions become required to 72.

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The proposed legislation also modifies existing annuity rulesregarding lifetime income, offering more portability to ensure thepreservation of lifetime income investments, as well as mandatedannual lifetime income disclosures.

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Additionally, the SECURE Act provides a fiduciary safe harborfor sponsors in the process of selecting a lifetime incomeprovider. Other key provisions of the legislation includepenalty-free withdrawals from a retirement account in the case ofqualified births or adoptions and allowing long-term, part-timeworkers to participate in 401(k) plans.

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Lastly, the SECURE Act makes offering retirement savings optionsmore efficient and affordable for small employers by encouragingmultiple employer plans (MEPs). By allowing two or more employersto join a pooled employer plan (PEP), the legislation could resultin the creation of 600,000-700,000 new retirement plans.

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While this legislation certainly provides benefits, it may notbe enough to make a real difference in helping the 64% of Americanswho don't have their retirement savings on track.

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Spending and savings habits

The SECURE Act alone is not going to make a significant impacton the average American saving for retirement. Building an adequatenest egg often requires a fundamental shift in the way peoplemanage, save and spend their money. This process should begin early— young adults need to start saving right away and increase theircontributions annually as they age.

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There are a few best practices to follow when it comes tocontributing to a 401(k). As a starting point, it's important totake advantage of a company's 401(k) match and contribute at leastup to the maximum to receive the match.

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Younger employees should also consider investing with a higherallocation to equities for maximum growth. Those without access toa 401(k) plan can benefit from contributing to an IRA or Roth IRA.Self-employed individuals can look to tax-advantaged accounts suchas a SEP IRA or SIMPLE IRA.

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In addition to contributing to a savings account, Americans needto adapt their financial habits, aiming to save at least 15% oftheir salary each year. While this may seem daunting, there aresimple budgeting steps to limit expenses.

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For example, an appropriate goal is to spend no more than 50% oftake-home pay on essential expenses such as housing, food,utilities, transportation and any debt payments. It is important toput aside 5% of take-home pay for an emergency savings fund to helpcover three to six months of living expenses. If possible, it isrecommended that clients automate the savings process byestablishing a reoccurring transfer from a checking account to asavings account (If you don't see the money, you won't spend themoney!).

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A secure retirement may currently appear to be a pipe dream tomany, but it could become a reality with some legislativeassistance, financial guidance and a disciplined savingsstrategy.

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It is important to be aware of the legislative advantagesavailable under the SECURE Act; however, a fundamental shift in theway clients spend and save money is likely to offer the biggestlong-term reward.

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We encourage clients to keep their eyes on the horizon: astress-free, happy and healthy life in retirement.

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Brian PirriBrianPirri is a Principal at New England Investment &Retirement Group. Brian helps clients achieve their financial goalsby creating, implementing, and monitoring customized financialplans that address their financial needs. He has over 15 years ofexperience in the financial services industry, and is a CERTIFIEDFINANCIAL PLANNER™ professional.

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Glenn DiBenedettoGlennDiBenedetto CPA is the Director of Tax Planning at NewEngland Investment & Retirement Group, Inc. Glenn has providedextensive M & A, business advisory, tax and auditing servicesto business and individual clients.

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