Retirement: What the new Congress has in store

A new Congress is in session, and a big question is this: Exactly what do they have in store for older Americans and retirees?

Are changes to Social Security and Medicare on the table, as some activists wonder? And, are changes in store for the tax advantages of our retirement savings accounts, like IRAs and 401(k)s?

There are a wide range of opinions on whether there would be changes — even slight — to Social Security and Medicare. There is more of a consensus that some tax breaks on retirement accounts, mainly affecting higher-income Americans, may be susceptible to cuts.

"I don't think it's a concern for current retirees — those in pre-retirement or already collecting," says author, CPA and retirement expert Ed Slott, who hosts Ed Slott's Retirement Roadmap on PBS. "Those people vote. Those entities will not be touched. They will talk about it. They will just trim around the edges. It's like a third rail — nobody wants to touch that.

"The Millennials, people in their 30s and 40s, they may see something scaled back," he says. "Social Security was never meant as the sole source of retirement income. You will have to rely on your own savings and your own retirement account. It was always meant as a supplement."

"For younger people, I would plan on saving without it," he says. "Benefits are going to have to be curtailed, but not for many years."

Rich Fiesta, executive director of The Alliance for Retired Americans, a Washington, D.C.-based advocacy group, says he is very concerned about Social Security.

"We're very concerned on Social Security after the action the House took on the first day," says Fiesta. "They are arbitrarily changing the rules that handcuffs Social Security in terms of the ability to move funds between the retirement trust fund and the disability trust fund, which has been done 11 times in the history of the program. This last-minute rule change puts the Social Security system as a whole in jeopardy and could subject it to potential benefit cuts over the next two years."

Kristine Aretha, consultant with M&O Marketing in Southfield, Mich., says she expects Congress to target retirement accounts and life insurance to some degree.

"Congress passed a $1.1 trillion budget," she says. "We have $18 trillion in debt. We have approximately $18.2 trillion sitting in retirement accounts. When we start connecting the dots, those vehicles are low-hanging fruit — easy for them to come after."

"They will do slow increments on those kinds of things and slowly peck away," she says. "In one form or another, since 2013, they've tried to attack these vehicles knowing the amount of money sitting there. The saddest part is that the retirement account and insurance are what protect mainstream America — their constituents. It's the one way they can build and transfer wealth. So, I hate to see Congress take it away."

And like Slott, she says she thinks Social Security is safe. "They may tweak it a bit, but I don't think they will take it away," Aretha says.

Sen. Susan Collins, R-Maine, the new chairwoman of the Senate Special Committee on Aging, says she has three primary goals for this term: retirement security, increasing research for diseases such as Alzheimer's and diabetes and protecting seniors against fraud and scams.

She says she is worried about the solvency of Social Security in the long term, but the disability fund in the short term has a "terrible prognosis. I don't pretend to have an answer.

"I would like to see, in an ideal world, an increase in minimum benefits so that if you work your entire life, you don't retire in poverty. We also need to take a look at the number of people taking early retirement. That's expensive for the system, but it also makes people less secure in their older years because the benefit is much lower if you take early retirement."

What financial planners and advocates believe may be on the agenda for Congress:

• Stretch IRAs. A stretch IRA is not a type of Individual Retirement Account, but rather it is a feature used in estate planning. In effect, a parent dies and leaves his or her IRA to a child or grandchild; they would inherit many of the tax features. In other words, they can keep the money in the account and not pay taxes until it is withdrawn.

"The beneficiary can take it and stretch the distributions over his or her lifetime. Congress was never thrilled with that. It was meant for your own retirement, not to benefit your children or grandchildren. I think that will be on the chopping block."

Anthony LoCascio, financial planner with LoCascio Consulting in Clinton, N.J., agrees the stretch IRA will be a target. He believes Congress will force beneficiaries of inherited IRAs to take distributions — and more importantly pay the taxes — either immediately or within five years.

• Retirement benefits. "With the number of Baby Boomers — there are 10,000 to 15,000 turning 65 every day for the next 15 years — we will have a strain on Social Security retirement benefits," says LoCascio. "You will have to do something to adjust for the onslaught of recipients. By 2020 or 2025 there will be more people retired than working. You only have so much money. They will have to make adjustments. And one way would be by increasing the retirement age."

Collins says Social Security is a key part of income for many retirees. "Nationally, one in four retired Americans has no source of income beyond Social Security," she says. "In Maine, the number is one in three. While Social Security provides an important safety net, with an average benefit of just $16,000 a year, it is hardly enough to finance a comfortable retirement."

• Capping retirement accounts. A General Accounting Office report released last year estimated that 9,000 people had IRA balances of $5 million or more, resulting in talk in Congress to limit the amount you can save in a retirement account.

When the report was released last year, Sen. Ron Wyden, D-Ore., then-chairman of the Senate Finance Committee, said the savings incentives in the tax code were not reaching the people who needed them the most. "You want people to be successful, but the IRA was intended for the typical person," he said at the time. "The typical person is light years away from saving that amount."

"It (capping retirement accounts) comes up every year, but it is not popular," says Slott. "Most people don't have $4 million in their IRA."

• Programs that target older Americans. "We're worried about funding for programs that seniors use a lot," says Fiesta. "America's getting older. The population is aging. There are a number of programs under the Older Americans Act, like Meals on Wheels, that we already think lack adequate funding."

"I think Congress will have a long road," says LoCascio. "These things are on the table. What they will do about it, I don't know."

"We are on guard and watching this Congress," says Fiesta.