A record number of Americans are reaching retirement age this year, marking the start of an unprecedented surge in Americans turning 65 that will last through roughly 2027, and bringing issues related to life after work to the forefront for individuals and policymakers. Financial security is of particular concern. Although the retirement savings gap—the difference between what workers have set aside for retirement and what they will need—has improved in recent years, studies have consistently found that most Baby Boomers haven’t saved enough and will probably have to rely primarily on Social Security and Medicare as they age.
The wave of people leaving the workforce also affects the public sector, with the associated fiscal and policy strains increasingly viewed as a present-day crisis. The Pew Charitable Trusts estimates that by the end of 2040, insufficient retirement savings will have cost states and the federal government a combined $1.3 trillion since 2021 in increased public assistance spending, administrative costs, and reduced tax revenue. Meanwhile, the working-age population, which provides most of the tax revenue needed to pay for such costs, is unlikely to keep pace with the workforce losses, growing only modestly over time.
In response, state-run automated savings programs for private sector workers—also known as auto-IRA or work-and-save programs—have gained traction nationwide as an effective solution. In 2023 alone, three states—Minnesota, Nevada, and Vermont—passed legislation authorizing auto-IRA programs. They were followed by Rhode Island and Washington in 2024, bringing the total number of states with such legislation to 17. These initiatives allow employers that didn’t previously offer retirement savings plans to provide low-to-no-cost benefits for their workers. As their name implies, auto-IRA systems automatically enroll employees into individual retirement accounts (IRAs), and, once enrolled, workers can choose to make regular contributions through payroll deductions.
Employees are able to opt out of auto-IRAs at any time, but the participation rate has been encouraging. Oregon Saves, the country’s first program, launched in 2017, and since then, approximately 75% of employees who were enrolled have elected to stay—with at least 152,000 workers setting aside about $312 million to date. Nationwide, seven auto-IRA programs are now operating and reporting data, and across those, at least 915,000 enrollees have socked away $1.7 billion in retirement assets.
The benefits of auto-IRA programs extend beyond personal savings. For instance, Washington State Treasurer Mike Pellicciotti has highlighted that his state’s program not only is “a cornerstone for wealth building and the long-term financial health for generations of Washingtonians” but also is vital for the state’s fiscal well-being, helping to lessen the burden of a projected $3.9 billion increase in spending on services for aging residents through 2040 that is tied to insufficient retirement savings.
Nationally, the strains on state budgets associated with the retirement surge are particularly evident in rising health care costs. Medical expenses for Americans over 65 are almost four times those for 20- and 30-year-olds. Further, older Americans are more likely than working-age individuals to live in low-income households and to rely on Medicaid for their health care. For these reasons, an aging population creates twin pressures on Medicaid—and state budgets—through higher enrollment and higher costs per enrollee.
And the fiscal hazards of an aging populace are not confined to Medicaid—or even to spending. One study from Colorado noted that “a growing and aging population impacts every department in the state, from Human Services to Natural Resources” through shifting and increasing demands for services. Moreover, an older population also weakens tax revenue growth. Two-thirds of states’ total tax collections come from personal income and general sales taxes. As Americans retire, their incomes tend to fall, especially if they have insufficient savings, meaning they pay less in personal income taxes, and older people tend to spend less—and so contribute less in sales taxes—than their younger counterparts.
Auto-IRA programs can help offset these challenges for individuals and governments. By increasing retirement readiness, these programs can help reduce expenditure growth in Medicaid and other service programs. At the same time, retirees with higher post-retirement income, thanks to greater savings, are likely to pay more in income and sales taxes than their peers with less savings, buoying revenue collections. By bolstering personal savings, auto-IRA programs help enhance Americans’ financial security and reduce the strain on state budgets, paving the way for a more sustainable future.
Auto-IRAs are a valuable tool in addressing retirement challenges, but they are not a complete solution. Comprehensive planning and policymaking will be critical in enabling states to handle the coming surge.
For example, the dramatic growth in retirement has been particularly top-of-mind for policymakers in Vermont, the nation’s second-oldest state, where just over one-fifth of residents are 65 or older. By 2040, 41% of its households will be headed by someone age 65 or over. Vermont also has the dubious distinction of having the lowest fertility rate in the nation, and researchers project that the state’s population will start to shrink over that same span.
To help residents and leaders better understand how demographic shifts would affect the state’s fiscal future, Vermont conducted an analysis in 2019 on population change and revenue. The study found that “a decrease in taxable income and a shift in consumer spending” driven by a wave of retirements will put pressure on the budget.
But budget challenges are just some of the many implications of an aging population. So in 2023, the Vermont Legislature approved a holistic, multisector strategy to make the state more “age friendly,” which includes policies for health care, infrastructure, social connectivity, and financial security. The plan identifies “affordable aging” as a core objective and incorporates the new Vermont Saves auto-IRA program—which lawmakers passed unanimously earlier that year—into its broader efforts to promote the health and well-being of its residents.
Vermont has also taken steps to address the state’s shrinking working-age population. In 2018, the state created a Worker Relocation Incentive Program to attract younger adults to fill the economic void left by retiring workers and expand the tax base.
Most Americans believe that the country is not adequately prepared to care for its aging population, and many are concerned about the solvency of federal and state programs intended to serve older residents. But auto-IRAs, especially when part of a comprehensive strategy, can help meaningfully address such challenges. These practical, long-term-focused programs already are helping millions of Americans build retirement readiness and strengthening governments’ fiscal resilience.
Auto-IRA programs are a relatively new approach for states, but they are expanding quickly. The amount saved in auto-IRA accounts has more than doubled every two years. And because most retirement savings account growth is exponential, those strong gains can be expected to continue. A little saved every day goes a long way.
No single program can solve all the challenges associated with the retirement surge. But auto-IRAs provide a framework for addressing the aging population, illustrating how focused solutions can help make significant fiscal risks more manageable for states. They also highlight the importance of planning and forward-looking policies and may offer a helpful model for other emerging issues that states face, such as climate-related risks and technological advancements. By anticipating future needs and taking proactive steps, states can create strategies to help them navigate a rapidly shifting landscape.
Alexandre Fall works on The Pew Charitable Trusts’ Fiscal 50 project.