SECURE 2.0: Americans' retirement perceptions at the cusp of change

Retirement is a complex topic, with many Americans concerned about how they will be able to fund their later years. Compared to other developed countries, retirement plan coverage in the US has often been behind the curve, with a reliance on the voluntary offering of retirement plans. Ask people what they think about retirement and their responses will reflect their circumstances.

In late 2022, Smart surveyed over 8,000 savers across the US, UK, Australia, and South Africa about their understanding and concerns around retirement. Taking those collective responses, Smart created the Future of Global Retirement report, which identifies common trends, as well as areas where the retirement landscape differs vastly.

The Future of Global Retirement report shows that cost of living is a big concern for Americans looking ahead to their retirement years. 57% expressed concerns about making ends meet – an increase of 16% year-over-year. Furthermore, 58% of respondents specifically cite affordability of medical bills as their top concern. In general, concerns over adequate income in retirement increase as savers get closer to retirement.  In particular, the increase in inflation from the prior report seemed to weigh heavy with respect to affordability, especially in the face of any potential recession.

Whether it’s because of a short-term rise in cost of living, or longer-term changes in working patterns, Americans increasingly view retirement as a gradual process rather than a one-off event, with 35% planning to keep working through retirement to fund their later years. In this regard, the US is starting to follow other countries: in Australia, the UK, and South Africa, around half of savers believe they will have to continue working during retirement. Therefore, it is increasingly important for Americans to have retirement plans that are flexible enough to accommodate different working arrangements and income sources.

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We also found that savers want more control over their money, and feel they need more support. Crucially, fewer than a quarter of US respondents wish to manage their finances completely by themselves. Over half prefer a blended approach, where they manage their own money, but can also rely on support to help make the right decisions. In fact, 60% of Americans expect to get advice from a financial adviser and 51% from a retirement plan provider. By contrast, British savers feel less confident in their knowledge of their retirement options, but are also less inclined to seek advice for managing their savings.

There is a clear demand for plan providers to offer assistance that savers can trust and depend on for their retirement years. But much like respondents from around the world, American savers feel like they aren’t getting what they want from their retirement plans. In fact, even though over half of respondents say that they expect to get advice from their plan provider, just 17% say that they receive their most useful advice from them.

Our survey provides a snapshot of people’s perceptions here and now. The SECURE 2.0 Act, however, stands to change these over time. Signed into law in December, this significant piece of legislation aims to expand retirement plan coverage at the federal level. Among the 92 provisions, the Act mandates automatic enrollment of employees in new 401(k) or 403(b) plans with a contribution rate of at least 3%, increasing by 1% per year until it reaches 10%. This change, effective in 2025, will be obligatory for new plans started by an employer with over 10 employees whose business is at least three years old.

In addition, SECURE 2.0 offers multiple provisions and features aimed at small businesses, including expanded tax credits for starting new plans and a new tax credit for providing an employer match, making plans potentially cost-free for the first few years for small businesses. The Act also includes a new plan design for the smallest employers called the Starter 401(k), with employees automatically enrolled at a contribution rate of 3%. With streamlined features and potentially lower costs than traditional 401(k) plans, the Starter 401(k) is designed to provide an enhanced solution when compared to state legislated automatic IRA plans. SECURE 2.0 provides features for participants as well, with the saver’s match, a tax credit paid into the accounts of savers with low incomes.

This legislation can be compared to the launch of automatic enrollment in the UK a decade ago. In the UK, most employers are obligated to set up a retirement plan, called a “pension scheme” and pay contributions into it. As a result, millions of people saved for retirement through their workplace plan for the first time. The SECURE 2.0 Act is therefore a significant step toward making retirement plans more accessible for the 57 million Americans who do not have access or do not presently participate. It will also, no doubt, have an impact on how they perceive their retirement.

As more and more employees are contributing to a retirement plan for the first time thanks to this legislation, we may see fewer Americans feeling concerned about cost of living in their later years. We may also see fewer workers reluctantly thinking they have to continue working during retirement. A growth in workplace retirement plans also means more people seeking financial advice about their savings, and possibly a change in expectations around what their retirement plan providers have to offer.

We should expect some changes in how Americans view retirement. This year’s Future of Global Retirement report may have painted something of a mixed picture, with some cause for concern in regards to people managing their cost of living. However, with more people set to save more money via workplace retirement plans as a result of sweeping legislative changes, we are looking forward to seeing how these views evolve over the coming years.

Jodan Ledford serves as the CEO of Smart in the US. Smart is a global savings and investments technology provider. Its mission is to transform retirement, savings, and financial well-being, across all generations, around the world.