The 2016 Retirement Landscape: 5 Predictions

“It’s tough to make predictions, especially about the future,” said Yogi Berra, the late baseball great.* But let’s give it a try: Here’s my forecast of the five most important stories that will unfold on the retirement beat in 2016.

No market predictions here: In my view, the smart retirement investor owns a well-balanced portfolio of low-cost index or exchange-traded funds, contributing in rising and falling markets. Instead, let’s crystal ball pending changes in the rules of the road for retirement advice, interest rates, inflation, Social Security, and Roth IRA conversions.

Feel free to hold me to these predictions at the end of 2016–but keep in mind that “the future ain’t what it used to be.” Yogi also said that.

An End to Biased Advice

The U.S. Department of Labor’s (DOL) long-running effort to create rules requiring all investment advisors to put the best interest of clients first will be completed this year. Republicans in Congress failed to kill the so-called “fiduciary rule” for retirement-account advice by attaching a rider to the big tax-and-spending bill passed in December that would have prevented or delayed the DOL’s final rule proposal.

The DOL is on track to release a final rule this year, and to implement it over the following two years. That will make 2016 a landmark year in retirement investing–assuming no further legislative roadblocks are thrown in the way. “Best interest” will replace the current vague requirement that an investment only need be “suitable” for a client.

The idea is to close loopholes that govern retirement-investing advice from banks, brokers, mutual fund companies, and insurance agents. In many cases, they currently can bill themselves as advisors when they simply are selling whatever products are in their own best interest–products with higher fees and risk and lower returns. The new DOL rule will mean investors won’t have to figure this out on their own–anyone advising you will be required to keep your interests at heart by keeping costs low and protecting your savings from excessive risk.

The huge IRA rollover market, in particular, will see significant change in a fiduciary world. The new rules will govern any recommendation to roll money out of a qualified plan rather than leaving funds in plan as well as the investment advice provided once a rollover is completed. Concerns have been raised about the impartiality of rollover advice by the U.S. Government Accountability Office, the Financial Industry Regulatory Authority, and others.

Inflation Makes a Comeback

Will inflation pick up enough to get seniors a raise in Social Security benefits for 2017? This year, the Social Security cost-of-living adjustment (COLA) remained flat due to unusually low energy prices, which have kept overall inflation rates down. The Social Security COLA is determined by a formula that ties it to the Consumer Price Index for Urban Wage Earners and Clerical Workers (CPI-W), which doesn’t reflect the higher inflation facing seniors due to healthcare costs.

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