Bob’s Journal for 12/19

The Setting Every Community Up for Retirement Enhancement (SECURE) Act is almost certain to become a law by the end of this week.

The SECURE Act rolled through the House of Representatives in May by a vote of 417-3. However, a few senators stalled the bill in the Senate, mostly because they objected that some items weren’t included in the bill.

But in its usual end-of-session practice, Congress is transforming a bunch of unrelated bills into spending laws that must be enacted to avoid a shutdown of the federal government. The SECURE Act is one of those bills and it was part of the package that passed the House late on Tuesday.

The likelihood is that the Senate will pass the bill on Thursday and that President Trump will sign it on Friday. The law must be signed by President Trump by the end of Dec. 20 to avoid a government shutdown.

There are a lot of provisions in the SECURE Act. These are the key ones.

Employer retirement plans, such as 401(k)s, will include annuity options. That is, the law requires all 401(k) plans to include a lifetime guaranteed annuity as an option. The annuities must be portable, meaning that the employee can take the annuity with him or her when leaving the employer or employer plan. Also, there can’t be surrender changes when the employee leaves the plan.

In addition, the bill reduces an employer’s burden of assessing an insurer’s ability to make future payments. Many employers said they didn’t include annuities in 401(k) options because they were concerned about lawsuits over their choice of annuity or insurer.

Small businesses will be more likely to offer 401(k) plans, because the SECURE Act provides those that are initiating new plans a tax credit up to $5,000 to offset the cost of setting up a plan. Small business plans also can add an automatic enrollment feature, which is eligible for another $500 credit.

It is also likely to be less expensive to offer an attractive plan, because under the SECURE Act, it is easier for two or more unrelated employers to join onto the offer of a multiple employer plan.

Longtime part-time employees must be allowed to participate in plans. This will make retirement plans available to more workers.

Another provision allows more people to contribute to traditional IRAs. The current rule is that contributions to traditional IRAs can’t be made after age 70½. The SECURE Act repeals the age limit. You’ll be able to make contributions to a traditional IRA at any age, which has been the rule for Roth IRAs.

Also, the age at which required minimum distributions (RMDs) must begin is increased. Instead of beginning RMDs at 70½, RMDs don’t have to begin until age 72. But this rule won’t take effect right away. If you’re 70½, you still must take RMDs this year and next.

As I’ve mentioned before, a major provision of the SECURE Act ends the Stretch IRA. People who inherit IRAs will no longer be able to extend distributions over their life expectancies. Instead, the entire IRA must be distributed within 10 years in most cases. This rule applies to both traditional IRAs and Roth IRAs as well as 401(k)s.

There are exceptions. The anti-Stretch IRA rule doesn’t apply when the IRA is inherited by a surviving spouse, a disabled person, a chronically ill person, a minor child or someone fewer than 10 years younger than the original IRA owner.

The anti-Stretch IRA provision applies to anyone who inherits a retirement account after 2019.

I’ll have more details about the SECURE Act and how to respond to it in the February issue of Retirement Watch.

The Data

Retail sales for November increased only 0.2%, but October’s sales were revised higher to 0.4%. Without factoring in autos and gas, retail sales were unchanged in November.

Even so, of the 13 sales categories in the report, only five reported lower sales for the month. The major increases were in vehicles, gas and non-store retailers (online sales).

Remember that retail sales are volatile from month to month. The three-month and six-month averages of retail sales growth are positive. Because sales lagged early in 2019, retail sales are lower than they were 12 months ago. A major exception is non-store retail sales. They are 11.5% higher than 12 months ago.

Manufacturing might be stabilizing.

The Empire State Manufacturing Survey increased to 3.5 in December from 2.9 in November. Most parts of the survey were changed little from November. But the six-month outlook improved, as did plans for capital spending.

The Philadelphia Fed Business Outlook Survey was not as positive. It tumbled to 0.3 in December from 10.4 in November. This survey was an outlier in November, coming in more positive than others. Many components of the survey were positive, however, and respondents were optimistic about the next six months.

Industrial Production increased 1.1% in November, compared to a 0.9% decline in October. The important manufacturing component increased 1.1%. Also, the capacity utilization rate, which is usually steady, increased to 77.3% from 76.6%.

Vehicle production accounted for a major portion of the increase. Excluding motor vehicles, overall production increased 0.5% and manufacturing climbed 0.3%. The Industrial Production Index is 0.8% lower than it was 12 months ago.

The PMI Composite Flash Mid-Month Index for December found that the manufacturing sector increased to 52.5 from 52.2. The services sector jumped to 52.2 from 51.6. The composite rose to 52.2 from 51.9.

Home builder confidence rose sharply. The Housing Market Index from the National Association of Home Builders (NAHB) soared to 76 in December from 71 in November. This is the highest level in 20 years. The index was 56 just 12 months ago. Builders have reported that demand is strong but there’s a lack of labor and land to meet demand.

Housing starts and permits for November were also much higher than expected. Builder permits had their fifth consecutive month of better-than-expected results. Starts were only 10,000 below the cycle high that was reached in August 2019. Permits reached a new cycle high and the highest level since May 2007.

Single-family home starts increased 2.4% for the month and 16.7% over 12 months.

Housing starts and permits are still well below historic levels. In fact, these high levels since the financial crisis are right around typical recession levels for periods before 2008.

Existing home sales didn’t fare as well. They declined 1.7% in November and are up only 2.7% over 12 months, according to the National Association of Realtors (NAR). The decline wasn’t a lack of interest from buyers, according to the NAR. Buyers were stymied by rising prices, inadequate inventory for sale and tight mortgage lending standards.

The Leading Economic Indicators Index from the Conference Board was unchanged, which is an improvement from last month’s 0.2% decline.

The JOLTS (Job Openings and Labor Turnover Survey) showed that the labor market changed little in October. The report found there wasn’t much of a monthly change in job openings and hirings. The rate of workers leaving jobs was unchanged, as was the rate of layoffs and discharges.

New unemployment claims declined 18,000 to 234,000, reversing part of last week’s 49,000 increase. Most economists expected more of a decline. As I said last week, the weekly claims tend to be volatile during holiday periods.

The Markets

The S&P 500 rose 1.64% for the week ended with Wednesday’s close. The Dow Jones Industrial Average gained 1.25%. The Russell 2000 increased 1.88%. The All-Country World Index, excluding U.S. stocks, added 0.76%. Emerging market equities popped 4.04%.

Long-term treasuries fell 2.35% for the week. Investment-grade bonds declined 0.19%. Treasury Inflation-Protected Securities (TIPS) lost 0.29%. High-yield bonds gained 1.02%.

On the currency front, the U.S. dollar increased 0.34%.

Energy-based commodities increased 3.06%. Broader-based commodities rose 2.59% but gold declined 0.07%.

Bob’s News & Updates

Join Me for the Orlando MoneyShow, February 6-8, 2020, at the Omni Orlando Resort at ChampionsGate. I will be speaking Thursday, Feb. 6, 11:30 a.m. about Important Changes in IRAs and Other Retirement Planning Strategies You Must Know. On Feb. 7, I will talk at 11:30 a.m. about 10 Questions You Must Answer Before and During Retirement. Other investment experts who will be speaking include Hilary Kramer, Bryan Perry and Mark Skousen. Register by clicking here or call 1-800-970-4355 and mention my priority code of 049320.

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I’m a senior contributor to the Forbes.com blog. You can view my contributor page here.

Do your heirs know how to handle an inherited IRA? If not, they’ll join the long list of heirs who made simple mistakes that triggered additional taxes and penalties. To avoid this result, be sure your heirs have a copy of Bob Carlson’s Guide to Inheriting IRAs.