With Social Security in Jeopardy, State-Funded IRAs Could Supplement Retirement Savings
Written by
Yaël Bizouati-Kennedy
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Americans have been facing multiple financial challenges, including inflation, soaring rates and the resumption of student loans. In turn, it’s leaving little for retirement savings.
And now, a Pew study finds that Americans’ insufficient retirement savings will “significantly affect every state and the federal government over the next 20 years, resulting in increased public assistance costs, reduced tax revenue, decreased household spending and standards of living, and lower employment.”
The study found that as many as 56 million private sector workers lack access to a retirement savings plan through their jobs — and that such limited savings could lead to a cumulative additional cost to the federal government of $964 billion between 2021 and 2040.
“And social spending does not replace the entirety of the gap, requiring many households to reduce their standard of living in retirement,” the study added.
Yet, the study added that even small savings over a worker’s career could help offset the effects of this shortfall.
For instance, saving an additional $1,685 a year, or $140 a month, over a 30-year period, could help alleviate the retirement savings gap and help people maintain their lifestyles in retirement.
One way to do this is via automated savings programs designed to help workers save for retirement, which are also known as auto-IRAs, work and save, and secure choice, according to Pew.
These programs also allow small businesses to recruit and retain workers by offering a no-cost retirement benefit, Pew added.
There are already 11 states with such programs, including California, Colorado, Connecticut, Delaware, Illinois, Maryland, Maine, New York, New Jersey, Oregon and Virginia, and workers at companies without employer-based benefits are enrolled automatically but can opt out, Pew noted.
Some states which don’t have such programs are introducing legislation. For instance, in Pennsylvania, legislators introduced the Keystone Saves Program Act.
As many as 2 million private sector workers lack access to a workplace retirement plan in the state, according to the coalition’s website. In addition, it noted that helping more residents would also reduce the burden on taxpayers.
“Workers’ inability to save will leave many households at risk of having insufficient savings in retirement and is now projected to cost the commonwealth $17.8 billion in additional fiscal costs through 2035,” according to the coalition.
“Having access to a retirement plan at work is critical for building financial security later in life. And we know people are much more likely to save for retirement if they can do so automatically through their paycheck,” Bill Johnston-Walsh, State Director, AARP Pennsylvania, said in a press release. “The 41% of workers in Pennsylvania that do not have access to a plan come from all walks of life and work in a range of occupations. We must make it easier for all workers to save for retirement so they can take control of their futures.”
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