Guiding retirement savers in 2023: New opportunities abound from SECURE 2.0

A new report from J.P. Morgan reviews retirement account strategies for 2023, including analysis of the new SECURE 2.0 Act and inflation trends. It is the 11th annual version of the company’s Guide to Retirement, which is designed to help advisors and their clients, along with defined contribution (DC) plan participants, in making informed decisions about investments.

“Retirement investors have experienced unprecedented volatility in the market throughout the last year, and face uncertainty for the year ahead. However, we feel optimistic for the future of retirement security as legislators and policy makers are emphasizing the need for broader access to retirement plans and an increase in savings rates.” said Michael Conrath, Chief Retirement Strategist, J.P. Morgan Asset Management. “Our 2023 Guide to Retirement has been designed to help advisors navigate the evolving economic environment, take advantage of recent legislative changes, and provide long-term investing strategies to drive stronger retirement outcomes for clients.”

There are five key retirement themes featured in the guide: Opportunities presented by SECURE 2.0; the importance of building an emergency reserve; strategic adoption of tax-advantaged accounts; aligning your portfolio with your goals; and taking a long-term view on inflation and the markets.

Important changes with SECURE 2.0

The report sees some opportunities in the new SECURE 2.0 Act, saying it will encourage small businesses to create retirement plans and allow greater savings in retirement plans.

The report noted that while approximately 90% of workers in companies with 500 workers or more had access to retirement benefits in 2022, only 52% of those in companies with fewer than 50 employees had similar access to retirement benefits. The SECURE 2.0 Act increases tax credits for smaller businesses, including a tax credit for small employer contributions up to $1,000 for five years.

Related: What SECURE 2.0 means for employees’ short-term expenses and long-term savings

Other sections of the new legislation promoted use of Roth IRAs; with provisions that permit employer matching contributions and permitting rollovers from 529 plans to Roth IRAs in some circumstances. The increased flexibility with employer matching is thought to be a good way to help encourage lower-income workers to invest, as it gives them some tax advantages.

The report also noted that emergency savings are particularly helpful in uncertain times, and with the volatility of the stock market, ongoing inflation, the possibility of recession, and new cracks appearing in the banking industry, 2023 certainly seems to qualify as a time of uncertainty.

“Life is uncertain—spending shocks and/or job losses can happen at any time,” the report said. “Emergency savings can help pay for these uncertainties and keep retirement savings intact.”

The analysis recommends taking advantage of employer matching funds if they are available, for both DC savings accounts and Health Savings Accounts.

A deeper dive into retirement planning

According to Conrath, the new report digs into the complexities of retirement savings, with an emphasis on regulatory changes and new developments in the area. “This year’s Guide takes a deeper dive into J.P. Morgan Asset Management’s research on spending pre- and post-retirement, and how to approach your retirement planning in light of inflation and volatile markets,” he said. “The Guide is designed to simplify the complex and be accessible – and actionable – for all workers.  We see plan sponsors and advisors alike leveraging the Guide to complement their participant communications and education meetings.”

The SECURE 2.0 Act changes could have a big impact in the retirement savings area, Conrath added, by giving more workers access to retirement plans. “Only half of private industry workers at small companies (with less than 50 workers) offer an employer-sponsored retirement plan, which generally means the other half must figure out how to save on their own,” he said. “Eight out of 10 workers who have access to a workplace plan such as a 401(k) do save for retirement, whereas only four out of 10 workers who are not offered a retirement plan actually save. Put simply, access equals savings.”

Conrath added that the tax credits under the new legislation also will help bolster start-up costs and employer contribution, promoting savings opportunities for more workers. “Furthermore, the Roth IRA is also taking on a greater level of importance in employer-sponsored plans, with employer matching contribution now being permitted on a Roth basis,” he said. “Bottom line is that there are more opportunities to plan and save.”