America Has a Retirement Crisis. We Need to Make It Easier to Save

Today, nearly 51% of Americans worry that they’ll run out of money when they’re no longer earning a paycheck—and 70% of retirees wish they had started saving earlier.

Why? Because many Americans don’t have the opportunity to save for retirement. The vast majority of retirement savings come through a plan provided by an employer—typically a 401(k)—but an estimated 56 million private sector workers don’t have a plan at work. And employees who lack access to a plan save less—which, in turn, reduces their retirement income.

A recent study by The Pew Charitable Trusts found that households with incomes above the official poverty line but less than $75,000, whom Pew deems economically vulnerable, will fall short of their target retirement income by an estimated $7,050 a year—using the common metric that retired households need 75% of their pre-retirement income.

And insufficient retirement savings hurt not only workers; taxpayers also pay a price. The Pew study found that inadequate retirement savings will significantly affect every state and the federal government over the next 20 years, resulting in a combined $1.3 trillion increase in public assistance costs.

Fortunately, an effective solution to help close the gap between what workers are able to save and what they need for retirement has emerged in the spread of automated savings programs. These programs automatically enroll employees without a workplace retirement plan into an individual retirement account (IRA), into which a portion of their wages are invested every pay period. Fifteen states have already passed laws establishing these savings program, variously known as “auto-IRA,” “work and save,” and “secure choice”: California, Colorado, Connecticut, Delaware, Hawaii, Illinois, Maine, Maryland, Minnesota, Nevada, New Jersey, New York, Oregon, Vermont, and Virginia.

These state programs work: Over 800,000 savers in the seven states with active programs have amassed more than $1 billion in assets since 2017. And they’ve been well received: In Illinois, for example, a majority (62%) of the participating and largely low-wage workers surveyed expressed satisfaction with their state’s auto-IRA program, and 4 in 10 said it improved their financial security. Meanwhile, small-business owners—many of whom want to provide retirement benefits but cannot because of high administrative costs—also express support for the programs, which allow them to offer a retirement savings plan to their employees.

What’s more, these programs are breaking down barriers and opening access to savings for people of color, women, and others who often earn low and unstable incomes working for retail, service sector, and other small-business employers. Each worker’s funds are set aside in portable, privately maintained IRA accounts; the funds are not tied to a single employer, and the employee can stop participating at any time, which roughly a third do. These workers can and do make informed decisions based on what is best for them.

Some critics are concerned about the economic impact of auto-IRAs on lower-income Americans. It’s true that access to retirement savings should not disqualify anyone from needed public benefits, such as Medicaid, or reduce their current standard of living. But the data shows that this concern is misplaced. When given a chance, most Americans will save money through their workplace even if they don’t earn a lot. The state automated savings programs are seeing roughly 70% of eligible workers participating, and in the private sector, Vanguard data shows that 60% of workers making between $15,000 and $30,000 participate in an employer retirement plan if one is available to them.

And lower-income Americans need to save: Recent research shows that Americans at all income levels will fall short of what they need for retirement even when Social Security is included in their retirement income.

These state-facilitated savings programs, combined with Social Security, put lower-income Americans in a better position to afford retirement. Indeed, research has shown that automated retirement savings programs can help employees delay when they claim Social Security, thereby boosting their monthly and annual Social Security payment amounts for life.

Insufficient retirement savings affects all of us. And we need to make it easier, not harder, for everyone to have the opportunity to save for retirement.

This op-ed was first published in The Hill on January 18, 2024.

John Scott directs The Pew Charitable Trusts’ retirement savings project.