Personal Finance
Americans worry changes to retirement system will upend their plans
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Last year, Americans’ confidence that they would have enough money to live comfortably in retirement fell the most since the global financial crisis.
New research shows both workers’ and retirees’ confidence has not recovered. But some signs of optimism have emerged, particularly as wage growth now outpaces inflation growth, according to the Employees Benefit Research Institute and Greenwald Research.
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The more than 2,500 Americans surveyed said certain factors are most likely to throw them off course — for example, an increasing cost of living that will make it harder to save and the U.S. government making significant changes to the retirement system.
The latter worry comes as both retirees and workers expect to rely on three sources of income in their golden years: Social Security, workplace retirement savings plans and personal retirement savings or investments, the research found.
While 88% of workers expect Social Security will be a source of retirement income, almost all of today’s retirees, 91%, say they depend on those benefit checks.
Changes to Social Security benefits may be on the horizon, as the program’s trust funds face depletion dates in the next decade that make benefit cuts of at least 20% inevitable if Congress does not take action. Meanwhile, Medicare’s trust fund that covers Part A hospital insurance is due to run out even sooner.
Other factors, like changes in tax breaks to employment-based retirement savings or individual retirement accounts, could also upend retirement planning if they were put in place, noted Craig Copeland, director of wealth benefits research at EBRI.
“That can really change the dynamics of what would happen in retirement and how people plan for retirement,” Copeland said.
Social Security is always a top issue in polls AARP conducts of its members, Nancy LeaMond, the interest group’s executive vice president and chief advocacy and engagement officer, said during a Wednesday press briefing.
“In light of that, and the importance of Social Security, we are asking every candidate for federal office this cycle what his or her position is on Social Security,” LeaMond said.
New survey results released by the AARP this week paint a less optimistic outlook for Americans ages 50 and up, with 20% indicating they have no retirement savings. Moreover, 61% say they worry they will not have enough money in retirement.
The nonprofit organization, which represents Americans 50 and up, is also pushing for lawmakers’ positions on family caregiving, which tends to contribute to women’s economic insecurity in retirement, LeaMond said.
AARP is also backing other legislative proposals to improve retirement security by providing Americans who do not have access to employer-sponsored retirement plans with retirement savings accounts or automatic IRAs.
While Congress has also taken action to address retirement security through recent legislation, the effects may be limited for people who are close to retirement, Copeland noted. That includes changes that make it possible for savers in their 60s to make additional catch-up contributions and a match for low-income workers.
“There wasn’t a great deal that’s really change the dynamic for people near retirement,” Copeland said.
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Millions of older workers lost their jobs during the Covid-19 recession.
Between March and April 2020, 5.7 million workers ages 55 and up lost their jobs, according to the Economic Policy Institute’s analysis of federal data.
Now, five years since the onset of the pandemic, some older workers may be benefitting from policies that help them extend their careers.
“We’re seeing more and more employers putting in benefits and programs that help retain some of that older workforce,” said Carly Roszkowski, vice president of financial resilience programming at AARP.
These programs include phased retirement plans, part-time schedules and remote or hybrid work options, Roszkowski said.
Money is still the main reason why people want to stay in the workforce longer, particularly as inflation has pushed prices higher, according to Roszkowski. But there are also other motivators, including social connections, a sense of purpose or meaningful work that may help inspire individuals to continue to work.
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Working remotely may help extend careers
One lasting impact of the pandemic — increased flexibility to work remotely — may be helping some older workers delay retirement, according to new research from the Center for Retirement Research at Boston College.
The research finds that an individual who is working remotely is 1.4 percentage points less likely to retire than a worker in an otherwise comparable situation.
Based on those results, that could enable workers to extend their careers by almost a full year.
“If they delay claiming Social Security for that year, or delay digging into their 401(k) for that year, or contribute to their 401(k) for that year, that’s all going to be good for their finances,” said Geoffrey Sanzenbacher, a research fellow at the Center for Retirement Research and professor of the practice of economics at Boston College.
Whether or not individuals can work remotely comes down to employer preference. For example, some companies — JPMorgan, AT&T, Amazon and Dell — have moved to five-day in-office policies. The federal government, which has a workforce that skews older, has also moved to enforce in-person work policies under President Donald Trump.
Research suggests older workers benefit from remote work. In particular, the employment rate of older workers who have a disability increased by 10% following the pandemic, according to the Center for Retirement Research.
To be sure, not all careers may allow for remote work.
What career experts say to do now
Career experts say there are certain ways older workers can help extend the longevity of their working years.
Older workers should focus on upscaling — gaining new skills or boosting their current skill set — to help show off their skills to employers, said Vicki Salemi, career expert at Monster. That may be through a certification, online class or volunteering, she said.
Having a foundational, basic understanding of technology tools used in the workplace is also essential, said Kyle M.K., a talent strategy advisor at Indeed.com.
Older workers may also want to show off their relationship building skills, which can set them apart from younger generations that are more digitally inclined, according to Salemi.
Mentoring, conflict resolution or other interpersonal skills are highly sought after skills that should be highlighted, where possible, M.K. said.
By keeping digital profiles up to date on job search sites, older workers can emphasize their skills and experience, he said.
“Digital presence is sometimes the very first introduction that the employer will have with you,” M.K. said.
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If you’re eager to increase your retirement savings, a lesser-known 401(k) feature could significantly boost your nest egg, financial advisors say.
For 2025, you can defer up to $23,500 into your 401(k), plus an extra $7,500 in “catch-up contributions” if you’re age 50 and older. That catch-up contribution jumps to $11,250 for investors age 60 to 63.
Some plans offer after-tax 401(k) contributions on top of those caps. For 2025, the max 401(k) limit is $70,000, which includes employee deferrals, after-tax contributions, company matches, profit sharing and other deposits.
If you can afford to do this, “it’s an amazing outcome,” said certified financial planner Dan Galli, owner of Daniel J. Galli & Associates in Norwell, Massachusetts.
“Sometimes, people don’t believe it’s real,” he said, because you can automatically contribute and then convert the funds to “turn it into tax-free income.”
However, many plans still don’t offer the feature. In 2023, only 22% of employer plans offered after-tax 401(k) contributions, according to the latest data from Vanguard’s How America Saves report. It’s most common in larger plans.
Even when it’s available, employee participation remains low. Only 9% of investors with access leveraged the feature in 2023, the same Vanguard report found. That’s down slightly from 10% in 2022.
How to start tax-free growth
After-tax and Roth contributions both begin with after-tax 401(k) deposits. But there’s a key difference: The taxes on future growth.
Roth money grows tax-free, which means future withdrawals aren’t subject to taxes. To compare, after-tax deposits grow tax-deferred, meaning your returns incur regular income taxes when withdrawn.
That’s why it’s important to convert after-tax funds to Roth periodically, experts say.
“The longer you leave those after-tax dollars in there, the more tax liability there will be,” Galli said. But the conversion process is “unique to each plan.”
Often, you’ll need to request the transfer, which could be limited to monthly or quarterly transactions, whereas the best plans convert to Roth automatically, he said.
Focus on regular 401(k) deferrals first
Before making after-tax 401(k) contributions, you should focus on maxing out regular pre-tax or Roth 401(k) deferrals to capture your employer match, said CFP Ashton Lawrence at Mariner Wealth Advisors in Greenville, South Carolina.
After that, cash flow permitting, you could “start filling up the after-tax bucket,” depending on your goals, he said. “In my opinion, every dollar needs to find a home.”
In 2023, only 14% of employees maxed out their 401(k) plan, according to the Vanguard report. For plans offering catch-up contributions, only 15% of employees participated.
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