Regardless of who wins November’s presidential election and what the composition of the new Congress looks like, he believes that another round of tax reform is coming. Some of it will raise additional taxes to help cover rising deficits; other parts will extend several of the stimulus provisions in the Tax Cuts and Jobs Act of 2017.
The Oncoming Retirement Wave
Based on what he saw from the global financial crisis of 2008-09, Hopkins expects a wave of early retirements due to job losses during the pandemic and corresponding recession.
“The expectation at this point is that a lot of people will not go back into the workforce,” he says.
Early retirement means that more people will have to claim Social Security sooner than they initially planned, and that more will have to find gap health insurance to cover them until they reach 65, the Medicare eligibility age.
For that reason, early retirement has a 30-year impact on a person’s life, at minimum, Hopkins says. While advisors are accustomed to crafting 30-year plans, most people think in terms of days, weeks and months.
A sudden decline in the workforce and payroll tax receipts also directly imperils programs like Social Security and Medicare, perhaps radically changing the retirement income equation for millions of Americans, according to Hopkins.
“We’ll likely see the Social Security Trust Fund deplete a year or two faster than it would have otherwise,” he says. “I would expect by the time we see next year’s report, instead of being depleted in 2033 or 2034, it will have moved up to 2032 or 2033.”
A Less SECURE Retirement
He speaks favorably of another recent reform to Americans’ retirement accounts, the SECURE Act, which passed in late 2019. That law struck down the “stretch IRA” strategy allowing beneficiaries of inherited traditional IRAs to stretch required distributions across their life spans. Under the new rules, inherited IRAs of any kind must be spent down within 10 years.
“To me, that’s the correct public policy move, because when people inherit those they’re not retirement accounts anymore,” he says, adding that the 10-year rule is “generous” to IRA beneficiaries. He argues that Congress could have made the spend-down period much shorter and could have included additional changes—such as required minimum distributions for Roth IRAs—to erode retirement tax shelters.
One concern, however, is that in a period of fast-moving news and changes, advisors aren’t focusing as much as they probably should on the SECURE Act, says Hopkins. “It’s Covid, CARES Act, short-term planning and getting the clients’ businesses through the next week right now. A lot of stuff on the estate planning side is getting lost this year.
“The SECURE Act was a huge change, and it’s not top of mind anymore—it feels like it was a decade ago now.”
Hopkins spoke less favorably about rules clearing the way for annuities in workplace retirement plans.