Photo: StephenFinn/Shutterstock

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In what has been called the most comprehensive retirementsecurity legislation in a decade, a spending bill that includes theSetting Every Community Up for Retirement Enhancement (Secure") Actwas signed in late December. This means changes to retirement plansgoing forward. Further, the American Council of Life Insurersestimated that the Secure Act will result in 700,000 more Americanworkers saving for retirement.

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When asked his thoughts on the changes, Ted Benna, a formerbenefits consultant — often called the "Father of 401(k)s" —provided BenefitsPRO's sister publication Investment Advisor thesecomments:

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• "Hopefully the operating efficiencies a multipleemployer plan can provide will result in reduced fees rather thanincreasing service provider profits.

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• MEPs should help increase coverage among smalleremployers.

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• MEPs don't impact the two major compliance issuesthat make 401(k)s undesirable for many small employers — top heavyand the non-discrimination testing.

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• A 401(k) isn't the best option for many smallemployers that don't have retirement plans. As a result, many smallemployers are likely to be pushed into 401(k)s via MEPs instead ofone of the better alternatives.

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• There has been a lot of negative reaction toeliminating the stretch IRA. I am in agreement with this changebecause the reason employees are given tax breaks is to help themaccumulate what they need for retirement rather than to pass moneyto their heirs." (See more below)

What to Watch For

Taking a broader look at retirement trends in 2020, we askedexperts on what to expect, even beyond the Secure Act.

What if the Market Drops?

Benna, 77, believes that another market crash, such as whathappened in 2000 or 2008, will have a major impact on two groups:retirees or those close to retirement who "are anticipating headingoff into the sunset and their plans get disrupted when [there's amarket break]; and the younger generation. [A market break] will bethe first experience of that type for them, and [it will be]unsettling."

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Also, the "persistent low interest rate environment is impactinghow people saving for and living in retirement are planning toensure their retirement needs are met," according to Dylan Huang,senior vice president and head of retail annuities at New YorkLife. "Most people have under-saved for retirement, which meansthat the need to stay in the market is critical."

Social Security

This topic sows worry among most experts. "What's happening isbenefits are being paid out with taxes coming in or from thephantom trust fund," Benna says. He warns that a recession willaffect Social Security because "it will accelerate retirements."That is, older people may lose their jobs and opt to take SocialSecurity. "That ratchets up the benefits being paid out, and [atthe same time with a recession] there is a drop off in taxes."

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Steve Vernon, author and research scholar at the Stanford Centeron Longevity, believes that because "Social Security is thefoundation of most people's retirement," politicians have to makeit sustainable, but "they aren't doing their duty, and it's notgoing to happen."

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He does add that people should delay claiming Social Securitybenefits, using other savings as a bridge.

Annuities

Benna isn't "a big fan" of variable annuities but believes fixedincome annuities work because "you get a guaranteed lifetimeincome." However, he says any annuities must come from "strongcompanies like New York Life" (and others) that know themarket.

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Huang believes indexed annuities or variable annuities with aguaranteed minimum accumulation benefit rider that can providemarket upside and downside protection "will continue to gainpopularity in the New Year."

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Christine Benz, Morningstar's director of personal finance,agrees, but adds [with indexed annuities] "you also surrender asignificant part of your upside in that typically you only earn thecapital appreciation component of the equity market's returns. Youdon't earn your dividends or interest."

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She notes that another product that will grow in importance asthe population ages are hybrid long-term care products, adding that"it's typically a life insurance policy with a long-term carerider. The idea is it gives the buyer some optionality. One of theimpediments to people purchasing pure long-term care insurance issome people feel reticent to pay into a policy for many yearsknowing they may not need it. A hybrid product gives you someflexibility. If you end up not needing long-term care, then itdefaults to a death benefit that is there for your heirs."

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Vernon has "mixed feelings about annuities. They have theirplace, but they're oversold. To me it makes no sense from afinancial perspective to start Social Security early and buy anannuity. Any money you use to buy an annuity should be used to fundyour own Social Security bridge loan payment because the increasein your SS benefit [if you wait] far exceeds the amount you couldhave bought with the same amount of money. It's almost financialmalpractice for an advisor to sell somebody an annuity andencourage them to start Social Security early."

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Ginger Szala is executive managing editor ofInvestment Advisor. She can be reached at [email protected].

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Ginger Szala

Ginger Szala is executive managing editor of Investment Advisor magazine. She covered the financial business and alternatives industry for 30 years while editor of Futures Magazine Group. MSJ Northwestern, BA University of Wisconsin-Madison. She is based in Chicago. Go Blackhawks!