The turning point: 7 ways 2022 changed retirement forever

December 16, 2022 6:24 PM

Over the course of 2022, Congress passed or updated several pieces of legislation affecting retirement.

For retirement in the United States, 2022 was a year of change. New laws and updates to old ones rewrote the rules for how Americans save. Government agencies raised limits for 401(k) contributions and lowered Medicare premiums. And through it all, the age at which Americans retire and the tools they use to do it shifted in unexpected ways.

As a new year approaches, here's a look at the changes that were set into motion in 2022 and will reverberate through 2023 and beyond.

The Inflation Reduction Act tackles healthcare costs

Of all the legislation passed in 2022, none was more impactful for retirees than the Inflation Reduction Act. Signed by President Biden in August, the new law — a hodgepodge that also includes climate change measures — transformed the way Medicare works. For the first time, it allows the program to negotiate drug prices, sets a cap on out-of-pocket drug costs, makes insulin cheaper and vaccines free. For Medicare's 59 million beneficiaries, it's nothing short of a revolution.

"To make it so that they don't face potentially catastrophic amounts of money coming out of a very limited budget — that's going to be world-changing for them," said Matthew Rutledge, a research fellow at the Center for Retirement Research at Boston College.

Read more here:

5 ways the Inflation Reduction Act could change life for retirees

The American Rescue Plan bails out union pensions

Former Vice President Joe Biden, 2020 Democratic presidential candidate, speaks during a news conference in Wilmington, Delaware, U.S., on Thursday, March 12, 2020. Biden sought to deliver an antidote to President Donald Trump's response to the coronavirus outbreak on Thursday, unveiling a new plan that shows how he would fight the spread of the virus and urging the administration to use it. Photographer: Ryan Collerd/Bloomberg

Ryan Collerd/Bloomberg

In July, the Biden administration made a minor regulatory tweak with enormous consequences. By adjusting a rule governing funds from the American Rescue Plan, the government unleashed more than $90 billion to shore up union pensions that had been heading toward insolvency.

"With today's actions, millions of workers will have the dignified retirement they earned and they deserve," President Biden said on July 6.

The funds Biden was trumpeting had already been authorized more than a year earlier. But as many unions pointed out, an interim regulation had an inherent contradiction: It required that plans show a certain rate of return, but also demanded that they only use low-return assets, like bonds. The result was that many plans would still go insolvent in a few years. An updated regulation called the "Final Rule" solved that problem, prompting both praise from unions and condemnation from conservative critics.

Read more here:

Biden's pension 'bailout': What it does and doesn't do

SECURE 2.0 promises a new deal for retirees

Bloomberg News

In the very last days of 2022, Congress finally passed the retirement legislation known as SECURE 2.0.

A follow-up to the Secure Act of 2019, the package is full of popular reforms, supported by the industry and backed by a rare bipartisan consensus. Among other measures, it raises limits on catch-up contributions to 401(k)s, creates emergency saving accounts for workers, raises the age for required minimum distributions and includes a mechanism to help pay off student loans.

In spite of its popularity, the legislation almost didn't make it to President Biden's desk. But on December 23, as part of its $1.7 trillion spending bill, Congress finally passed it — sending an early Christmas present to the many retirees and advisors who stand to benefit.

Read more here:

Secure 2.0 heads to Biden. Here's what it means for retirees

IRS raises contribution caps for 401(k)s

Another major change came not from Congress, but from the Internal Revenue Service. In 2023, Americans will be able to put much more money into their retirement accounts, thanks to new rules set by the tax agency.

In October, the IRS announced that the contribution limits for 401(k)s and other plans will be significantly higher next year. For 401(k), 403(b) and most 457 plans, the one-year maximum will be raised from $20,500 to $22,500 — a nearly 10% increase. The same will be true for the Thrift Savings Plan that's used by federal employees.

"We've never seen this big an increase," said Steve Azoury, a retirement advisor and owner of the Michigan-based firm Azoury Financial.

Read more here:

Can retirement savers afford to save more under the new 401(k) caps?

Medicare premiums get a rare reduction

Pexels/Derek French

In September, the Biden administration announced some surprising news: For the first time in over ten years, Medicare would become cheaper for millions of retirees.

In many ways, the announcement about one of America's largest social safety programs was remarkable. The monthly premium for Medicare Part B, which covers doctor visits and other outpatient care, will decrease by about 3% in 2023. That's the first time the premium has gone down since 2012, and only the third time since Medicare's inception in 1965 — a fact that President Biden was quick to celebrate.

"For years, that fee has gone up," Biden said in announcing the change. "Now, for the first time in more than a decade, it's going to go down. And millions of seniors and people with disabilities on Medicare, that means more money in their pockets while still getting the care they need."

Read more here:

Battle of Part B: The long, messy history behind Medicare's lower premiums

Americans are retiring later and later

Pexels/Monica Silvestre

Meanwhile, broader trends continued to change when and how people retire. Americans are now leaving the workforce three or four years later in life than they did three decades ago, puzzling researchers and reversing a trend that had lasted more than a century.

Several recent studies have confirmed this shift. Gallup found that from 1991 to 2022, the average U.S. retirement age rose from 57 to 61. The American Enterprise Institute said that from 1990 to 2019, the age rose from 62.6 to 65.6. And the Center for Retirement Research, a non-profit research group at Boston College, focused solely on male workers but reached largely the same conclusion: From 1991 to 2021, their average retirement age climbed from 61.9 to 64.7.

What makes this so startling is that for about 100 years, history had been moving in the opposite direction. Starting in the 1880s, American men began retiring younger, possibly thanks to generous pensions awarded to Civil War veterans. In the 20th Century, as the social safety net expanded — first with Social Security in 1935, then with Medicare in 1965 — workers continued to end their careers earlier in life. The average retirement age kept lowering until the 1980s, when it slowed to a halt. Then, in the 1990s, it suddenly started climbing back up.

Read more here:

5 reasons Americans are retiring later in life

Annuities are more popular than ever

Ken Mellott - stock.adobe.com

Here's a shift that no one saw coming in 2022: While nearly every other part of the economy struggled, annuities boomed.

In the summer of 2022, annuities — insurance products that provide a pension-like income in retirement — continued a historic winning streak. The products enjoyed their second straight quarter of record-breaking sales, reaching a total of $80.7 billion — 29% more than the same quarter last year. According to LIMRA, an industry-funded firm that's been tracking the products since the 1980s, that's the highest quarterly sales total ever.

"I still believe this is just getting started," said David Lau, the founder of DPL Financial Partners, which consults financial advisors about fee-only insurance products. "I think this is just up and to the right as far as the eye can see."

Read more:

What's fueling the Great Annuity Boom?