The federal government has taken a significant step toward recognizing the critical role life insurance ownership plays in the financial security of all Americans. At a time when Americans are enjoying record employment yet alarmingly low savings, it could not be more important.
This year, thousands of people who work to help Americans plan for their financial future with life insurance products were incentivized by the news that they would qualify for the 20 percent small business rate under the new tax law. The inclusion of life insurance and annuity business income as part of the 199A tax deduction in the Tax Cuts and Jobs Act is nothing short of a formal recognition that this country needs to prioritize this critical profession and its mission to ensure Americans are financially secure.
The reality is that the economy is strong, but too many Americans are still not saving enough. Despite low unemployment and sustained economic growth, scores of American families have not fully and effectively planned for their futures.
Even though unemployment is at a historic low of 3.7 percent, the lowest jobless rate since 1969, millions of Americans don’t have the basic pillars of a solid financial plan. One critical piece of that is life insurance, which protects against the loss of income for a family in the case of an unexpected death, creates a source of savings, and can provide for vital needs such as long-term care. With this new recognition in law, the professionals who help guide Americans in their understanding of their financial needs can now have more resources to do this noble work.
This is more important today than ever before. In the past few decades, there has been a shift in the way Americans plan and save for retirement. Pensions, or defined benefit plans, were the norm for the majority of workers. But the evolution from defined benefit plans to individual and employer-sponsored retirement savings plans such as 401(k)’s and similar plans have altered the landscape. More Americans need access to these important retirement savings plans.
Around 20% of Americans have nothing saved for retirement at all, with 33% having less than $5,000. A National Institute on Retirement Security found that the median retirement account balance for working-age households is $3,000 — for households near retirement, the median account balance is $12,000.
Additionally, the nature of the U.S. workforce is changing dramatically. There are more people working independently as freelancers, or independent contractors, than ever before. Also known as a the “gig economy,” independent work is not just rising, it is predicted to grow even more. These 57 million workers — 36 percent of the U.S workforce — are without access to employer-sponsored retirement savings plans or employer-sponsored life and disability insurance plans. These Americans and millions of others need our help — now.
The lack of access to retirement savings vehicles for millions of Americans is an ever-growing challenge. Luckily, Congress is making an important step with the SECURE Act and RESA, poised to pass in the very near future and give Americans more tools for saving. Achieving financial security must be approached with a long-term, multi-pronged plan, and life insurance and financial security professionals recognize that. What’s needed to continue to reach even more Americans who don’t have enough (or any) life insurance or retirement savings is the ability for these professionals to continue doing their jobs and hiring more into their field.
Now that the federal government has recognized the critical role of financial security advisors, it will be helpful in growing the profession, which in turn, will enable people to get the advice and products they so desperately need.
AALU is now advocating in Washington to make the 199A deduction permanent, as it is scheduled to expire after 2025.
Every American needs access to retirement savings plans, life insurance for risk protection, and annuities that provide guaranteed lifetime income during both pre- and post-retirement. AALU, GAMA, and the 8,500 financial security professionals who comprise our membership, intend to remain vigilant about protecting and advancing financial security for every American family nationwide.
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