While many of the retirement provisions within the SECURE 2.0 Act may be useful for any investing American, women in particular may reap the most benefit from the law’s changes, according to financial advisors.
That’s because new options in the act are meant to address the overall challenges women face going into retirement. For one thing, they live longer than males. And they go into retirement with fewer assets overall because of long-term pay disparity and because they have likely taken breaks in employment for childcare and eldercare.
Jennifer Huisking, vice president of Goldman Sachs Personal Financial Management in Westport, Conn., says the legislation should be “wonderfully refreshing” for women clients and their advisors. “Women aren’t intending to sideline their careers and future security. But they often find that’s what happens,” she says.
As more women become primary advisory clients, rather than just the spouses of clients, they view their finances through a slightly different prism than male investors and often don’t have their needs addressed.
“We need to meet women where they are and value those decisions, but also show them the impact of that, without judgment, so they can go forward with confidence and a sense of control,” Huisking says.
According to a Goldman Sachs report in December, 50% of women respondents said their retirement saving is behind schedule, while only 35% of men said so. Women can see their retirement savings fall behind by as much as 35% after two four-year periods out of the workforce—one for childcare, one for eldercare.
The study also found that women were having difficulty generating income in retirement, and specifically have trouble making 70% of their pre-retirement income level, the target that advisors want to see.
In the survey, 80% of retired women respondents said they are under that target, whereas 70% of men were. Fifty-eight percent of women respondents said they had come up with less than 50% of their pre-retirement income in retirement, while only 44% of men said the same. Only 20% of women and 30% of men said they generated more than 70%.
“Though women juggle the same types of financial responsibilities as men, more women report that these factors impact their ability to save for retirement,” the report concluded.
A similar report by Cambridge Investment Research, a Fairfield, Iowa-based financial services consultant affiliated with the RIA of the same name, says that women have a different approach to investing. The report says advisors who don’t meet women’s needs risk losing out on part of the $30 trillion in wealth transfers expected in the United States by 2030.
“Many women clients have different values, goals, approaches and communication styles,” the firm acknowledged in its report last year. “Financial professionals who fail to make the necessary adjustments may struggle to build strong relationships with women investors.”
Leslie Geller, senior vice president and wealth strategist at Los Angeles-headquartered Capital Group, says women and their advisors should welcome the SECURE 2.0 Act.
“SECURE 2.0, far more than the original SECURE, presents more options and opportunities for different people to save for retirement differently. And I think it’s especially impactful for women because saving for retirement is far less of a one-size-fits-all approach for women and finances,” she says.
Areas of SECURE 2.0 could play into a woman’s investment style, Huisking and Geller say, and financial advisors should use these opportunities as a reason to sit down with their female clients and advance a conversation.
They say the following provisions of the SECURE Act should be of particular interest to women:
• An age increase for required minimum distributions. Of all the changes, this one has gotten the most press, Geller says. In 2023, the age that triggers the dreaded RMD rises to 73, and it goes up to 75 in 2033. That’s only a minor increase for today’s 72-year-old. But for women who are 62 this year or younger, it’s a much more significant bump.
• Catch-up contributions for 401(k) and 403(b) plans, governmental plans and traditional IRAs. Catch-up contributions are especially helpful for women who took time out of their careers for child-rearing, Huisking says. While clients can’t make up for the lost time value of money, the next best thing is that they’re able to salt away more assets starting now to grow through their retirement. All forms of catch-up can be used to cover career interruptions and anticipate a woman’s longevity.
The adjustments to catch-up contribution will take two forms. One is a typical increase in the extra plan contributions workers can make to an employer plan. In 2023, employees 50 years old and up can make a catch-up contribution of $7,500 on top of the $22,500 maximum regular contribution.
The second adjustment is a brand-new initiative for employees 60 to 63. Beginning in 2025, they will be able to contribute 150% times the typical catch-up or $10,000, whichever is greater.
• A new provision allowing 529 plan funds to be rolled over to a Roth. The SECURE 2.0 Act now says that if a child has not tapped the funds in their 529 college savings plans, their parents can roll up to $35,000 into a Roth IRA, free of taxes and penalties.
• New benefits for part-time employees. According to statistics from the U.S. Department of Labor, 64% of part-time workers are women. Beginning in 2025, employers will have to make their 401(k) plans available to long-term part-time workers, and that will be a boon for women who are working part-time to care for young children. In the long term, part-time workers will be defined as those working at least 500 hours a year for at least two consecutive years.
• Automatic enrollment in retirement plans. Beginning in 2025, employees will no longer have to actively opt in to new employer 401(k) or 403(b) plans. This is an excellent provision for women that allows them to take advantage of the time value of money. The deferral amount will start at 3% in 2025 and increase 1% a year to 10% unless the employee opts out.
• A new provision that allows people to save for retirement while paying off student loans. If an employee is still paying off a student loan, she can now get an employer matching contribution on her repayments to a retirement plan such as a 401(k), 403(b) or 457(b), even if she’s not contributing to one. These contributions, beginning in 2024, could mean she’d be able to pay off student loans and start saving for retirement at the same time.
Huisking and Geller note that the legislation contains numerous new provisions that allow account holders to access account assets for emergencies. For instance, the law now waives penalties for account holders making early withdrawals when they are facing a terminal illness. There are also waivers for domestic violence victims and penalty-free emergency withdrawals of up to $1,000 per year.
“This access to savings for hardship, for illness, domestic abuse or disaster gives clients peace of mind that they can prioritize savings knowing it’s not inaccessible if something comes up,” Huisking says. “The concept of securing our retirement is about having more security, more flexibility, more control over the future. SECURE 2.0 gives us that control knowing that getting to retirement is not set out in clear stages for women.”